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How To Learn Stocks :
2 Ways to Make Money from IPOs

All about stocks: How to Invest in Stocks

IPOs or initial public offerings mark the transition of a company from a privately owned firm to a public held firm. Every incorporated business issues stock, although initially, to a few stockholders. In order for a company to raise capital without incurring debt, one way is to sell stock to the public.

2 Ways to Make Money from IPOs

First, is to get in early and buy stocks, hope for a quick big increase in value, and then sell for a quick profit.

The other is to watch and wait. See if a stock is fairly priced. If it’s reasonable, grab the stock.

1. Shorting Stocks

  • Selling short is an advanced technique. Short sellers look for the best stock to sell. Short sellers sell stock they don’t actually own with a belief the value will come tumbling down in the near future.

  • When the price drops, they can buy the stock at the lower price, pocket the profit and return the shares to the owners.

  • Short selling is risky though. If the prices jump instead of drop, you will lose money. There is no way to easily speculate if a stock will fall. So the potential for loss is greater than the potential for profit.

    • 2. Margin Trading

  • Margin accounts can allow you to borrow money to buy stock. Margin trading uses borrowed money to increase how much stock you can buy. This money can be supplied by a broker.

  • If you were to buy a stock worth $1,000 without the use of margin trading, you would have to dish out the $1,000 dollars. But if you margin trade, your broker can lend you half of the amount or $500 and you only need to shoulder the other $500.

  • If the stock gets you $10 per stock, profit will be based on the number of stocks you bought with $1,000. Then you can pay the broker back. If you did not margin trade, your profit would only have been for the number of stocks you could have initially afforded for $500.

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