There are lots of people that seem to make a lot of money of the stock exchange and it can be really tempting to think that you can do the same thing. However, it is important to understand how it all works before you have a go yourself.
About Investments and Risk
Stocks are a type of investment and investments work very differently to savings. With savings you will get your money back plus some interest on it. With investments, you may not get you r money back and you may not get any interest. This is because you are using the money to buy something. This item can change in value, both increasing or decreasing and therefore if you sell it, you could end up getting back less money than you started with.
It is usually expected that when you take out an investment you will hold it for a long time, perhaps over ten years. This will give it a better chance of increasing in value and allow for any small fluctuations in the market which happen all of the time and can have a big effect on an investments value in the short term.
Of course, there will always still be a risk, even if you keep money in an investment for a long time. The company could go bankrupt or they could become very unprofitable over a long term. Therefore it is wise to only ever invest money that you can afford to lose.
When you buy stocks you buy a share of a company. Shareholders can have some say in the way the company is run, but this will only usually apply to shareholders that hold a significant percentage of the shares. If the company does well, the share price will tend to rise and if it does not do well it will tend to fall. This is because people will be concerned if the company is not doing well that the share prices will fall, so they will sell their shares, which will cause the prices to fall and other people will sell too, before prices drop too low. If they think the company is doing well, they will buy shares, the price will go up and people will see the price rising and think that it is a good time to buy as it seems the company will be doing well in the future.
Making Money from Stocks
In order to make money from stocks you will need to buy them when they are cheap and sell them when they are expensive. This means that the difference between the price when you bought and sold is large and therefore you will make more money. It is not easy to predict what will happen with the stock market and whether you are likely to make money from certain stocks and so although you can research, ask for financial advice and use fund managers, it can all still be quite a gamble. It is wise to take a calculated risk though, by doing as much research beforehand as you can.