A Beginner’s Guide to Investing in the Stock Market

Before you open up an account with a brokerage firm and jump into trading, you should educate yourself about the different ways that you can invest your money so that you know what you are getting yourself into.

Options – An options trader speculates that a certain stock will trade higher or lower than a determined price within a specific time frame. The options contract is an agreement between two people to buy or sell at the predetermined price in the future. The reason it is called an option is because the buyer does not have to go through with the purchase. He can choose not to execute the option. Option trading is not for those new to trading. It can be very risky, but a trader can also accumulate large gains in a short period of time.

Futures – Futures trading is a type of trade where the investor speculates whether the price of a commodity will rise or fall. It is frequently referred to as commodities trading. It is an easy to understand type of trading and there are only about forty types of commodities in which you can invest. There is an enormous opportunity for huge gains in a short period of time. Of course, the potential for big profits exists because there is a risk for enormous losses as well.

Stocks – If you purchase shares of stock then you own a part of a company. If that company turns a profit, then you will see a gain in your investment. If the company loses money, then you too will lose a portion of your investment. As a stockholder in a company you will receive quarterly and annual reports on the company’s financial strength. Shareholders elect the people who serve on the board of directors, so even if you own just one share, you still get one vote.

Forex – Forex is a foreign exchange market. Foreign currencies are bought and sold. The investor is speculating as to whether the currency of a particular country will go up or go down. Forex is one of the largest markets in the world with over two trillion dollars in trades done on an annual basis. The advantage of trading on Forex is that the market is open 24 hours a day. There is no bell to wait for in order to begin trading.

Currency trading – Currency trading occurs in a market where the currencies are traded against one another. All trades are done in pairs. The investor speculates that one currency will go higher than the other currency and then wait for the profit. Trades are carried out through a network of banks and online brokerage houses. It is a very liquid market.

Day trading – Day traders buy and sell stocks within a very short period of time, usually within the same day, but the trade can also be done within a day or two. The idea is to turn a quick profit and move on to finding other hot stocks.

Swing trading – Swing trading is similar to day trading, but the trades occur over a longer period of time, which can be a few days to a few weeks.

Penny Stock Trading can be the most lucrative form of making money in stocks. What other vehicle can make 500%+ in less than one month?
Learn to trade the correctly and you can make a fortune.

Guide to Analysing the Value of a Company Via Their Financial Statements

There are many ways to analyse the value of a company, but the most effective is to look at the company’s financial statements. A company releases its financial statements as part of its half-year and full year reports required by ASIC.

There are three main financial statements; Statement of Financial Position, Statement of Financial Performance and Statement of Cash Flows.

We give a brief outline of each of these below.

Statement of Financial Position

This is more commonly referred to as a Balance Sheet, and details the company’s assets (what it owns), liabilities (what it owes) and shareholder’s equity.

The Statement of Financial Position is a snapshot, and reflects the company’s assets and liabilities at a specific date – usually at the end of, or half way through, a financial year.

This statement provides a range of information such as how much cash the company has in the bank, how much stock it has on hand, how much money the company is owed by customers, how much the company owes its suppliers, and of course how much it owes the bank.

The final figure at the bottom of the statement represents the net value of the company, once all assets are sold and liabilities paid off.

Statement of Financial Performance

This is more commonly referred to as a Profit & Loss Statement, or Income Statement, and details how much money the company made or lost during the year.

The Statement of Financial Performance reflects how much money the company has made or lost over a period of time, usually 6 or 12 months.

The statement is broken up into two parts; Income (sales and other revenue) and Expenses (costs).

This statement provides a range of information such as the value of sales during the period, other income such as bank interest, staff costs, marketing costs, research costs, and interest paid to the bank.

The final figure at the bottom of the statement represents the company’s profit or loss for the year (or period).

Statement of Cash Flows

This is more commonly referred to as a Cash Flow Statement, and details cash flowing in and out of the company.

The Statement of Cash Flows reflects where the company is generating or leaking cash over a period of time, usually 6 or 12 months.

The statement breaks cash flows into three parts; Operations (normal business activities), Investing (buying and selling of assets) and Financing (mostly loans and interest).

Many beginners confuse this statement with the Statement of Financial Performance, but they are quite different.

A clear is example is when a company buys a new piece of machinery. The company has not made or lost any money, but the transaction meant cash changed hands.

This statement provides a range of information such as money received from customers, money paid to suppliers, money paid to buy equipment, money received from selling assets, and money received or repaid to the bank.

The final figure at the bottom of the statement represents the company’s bank balance at the end of the year (or period), and how much it changed over the period.

Learn how to pick the best companies to invest in at a Stock Market Workshop and get trading tips from Stan with a Free Report Trial.

Stan attained his Bachelor of Commerce at Rhodes University and then completed his Master of Commerce in Finance & Financial Planning at Deakin University.

Stan is also a qualified Mining Investment Analyst and has extensive knowledge of resources. Stan has been with the Australian Stock Report since 2005. He employs his exceptional analytical and communication skills as a Research Analyst. Drawing on both his academics and previous roles, Stan conducts extensive research on Australian stocks and is involved in investments and fundamental analysis.