Double your Money in the Stock Market
March 21, 2009 by Samantha Asher
Filed under Stock Market
There are two main ways to make money in the stock market. The first is through dividends paid to shareholder. When a company has high income, they might decide to give some to the shareholders. As an example, if a company decides to pay 25 cents for each share each quarter and you had 100 shares, you’d get $25 a quarter or $100 a year.
If you don’t make money through dividends, you can still make money through capital gains. When you buy 100 shares of a stock for $400, or $4 a share, and the price goes up to $5 a share and you sell it for $500, you have made a capital gain of $500 minus $400 which is equal to a $100 capital gain.
The price change is a matter of supply and demand. If a corporation is selling stock for $5 per share with 100,000 shares available and all 100,000 shares are bought, no more no less, the price will stay the same because there is the exact amount of demand at a $5 cost. If there is enough demand for 200,000 shares and only 100,000 are available, the price will need to go up to accommodate the increase in demand.
In this case, more people are looking to purchase the stock than there is stock actually available. They need to increase the price of the stock in order to make less people willing to buy. The same goes if there was a smaller demand, they would have to lower the price.
Here is a real world example. Think of a department store selling jeans. They have 30 pairs of jeans in stock selling for $50 each. If after a couple of weeks, they have only sold 10 pairs, they will lower the price in order to sell off the rest. When people see that they are cheaper, they are more likely to buy.
If they actually only put out 15 of the 30 pairs and they all sold within a few dollars, in order to not run out, they could increase the price so that demand goes down. More importantly, they will be making more money. The same is with stocks, as demand goes up so does price and you will make more money.
