If you are one of those wanting to invest in stocks online, the first thing you need to know is that you have many alternatives when it comes to profiting from the price fluctuations of equities. Many consider that buying actual stocks for the volatile period that we live in is quite inappropriate. This why people are trying to diversify by using other investment vehicles.
Top stock-based instruments
The financial industry had, over the years, developed new financial instruments. These are known as derivatives, which are basically tracking the performance of an underlying instrument. You can find derivatives for currencies, commodities, indices, etc. But since the topic of our article is how to invest in stocks online, we will stick to this subject.
Some of the top financial instruments based on stocks are Contracts for Difference (CFDs). Others include options based on stocks, and futures contracts. There is one downside of choosing to invest in one of the above-mentioned categories. And that is – that you don’t own the actual underlying asset and you won’t be able to receive dividends.
When it comes to stock investing, your trading strategy should be more complex. Especially when compared to a strategy for trading currencies. Stocks are not solely influenced by the economic indicators released by central governments (GDP growth or contraction, inflation, unemployment, etc.), but also by the financial indicators released by any public-traded company.
European, as well as public companies from the US, release this type of financial information on a quarterly basis. This means you will need to learn some accounting and then review the information. The perfect time for it is when a company releases a statement and you’ve bought their stock.
Although their financial information will include a lot of indicators, some of the most important you need to consider are EPS (earnings per share), net revenue, R&D (research and development), net margin, and buyback operations.
There is another important aspect to be fully aware of. And that is, that the market generally prices is certain expectations for the numbers which are waiting for their release. Which means that only deviations from the forecasts will have a meaningful impact on the stock price.
Lastly, companies also release financial guidance for the following quarters. Therefore, any changes to the prior numbers will also impact the underlying stock. The complexity of stock trading analysis is higher, but there is an upside. Namely, if you are willing to dedicate your time to learn and apply a methodology, you’ll see that stock trading is manageable.