1. Buy Low, Sell High
The traditional way to invest in the stock market is to buy stocks at low prices and sell them when the prices are high. You may buy stocks in well-established companies with a track record of growth and hold onto them for a long time before selling. You may buy stocks at a low price and hold them for a few weeks, days or hours before selling them at a higher price for a profit, a practice known as day trading. You can use IPO, or Initial Public Offering, stocks as a way to earn a quick profit through rising stock values. Buying stocks at a low price and selling them at a higher price is the safest way to invest in the stock market, because you usually have a limited loss.
2. Sell High, Buy Low
You can invest in the stock market by selling stocks at a higher price and buying them back at a lower price in the future, known as selling short. For example, say you sell 100 shares of XYZ for $10 per share, or $1,000. At the end of 30 days, you buy 100 shares of XYZ for $9.50 per share, which nets you $50 before trading fees. You make a profit when the stock falls in price. You must sell short on an up-tick, where the most recent purchase price paid was higher than the previous purchase, or on a zero-tick, where the price of the stock remains the same as the previous purchase. A down-tick occurs when the stock price is dropping. Selling high and buying low is riskier than buying low and selling high, because your potential to lose more money is higher. If you buy stock at $5 per share and the stock drops to zero, you lose $5 per share. If you sell stock at $5 per share and buy it at $15, you lose $10 per share. You protect yourself by creating a "stop order," so your stock sells automatically when the price reaches a certain number. For example, you sell stock at $5 per share, but place a stop order on the stock to sell automatically if the price hits $5.50 per share.
3. Invest in Mutual Funds
Mutual funds are one of the safest ways to invest in the stock market. When you invest in a mutual fund, you combine your funds with the money provided by a group of investors to purchase stocks and bonds from a group of companies. By spreading the money around to different companies, your risk of losing everything is less than putting all of your money on one company. You need to hire an investment manager to oversee the investments of the mutual fund. Mutual funds typically use the buy low and sell high, long-term focus investment strategies.
4. Get Into Spiders
You can purchase stock based on the total value of the companies of the S&P 500, referred to as "spiders," SPDR or the Standard & Poor's Depositary Receipts. The price of the stock is 1/10 the value of the S&P index. You simply watch the total number of the S&P index to see if your stock is going higher or lower. Purchase spiders on the American Stock Exchange under the symbol SPY.
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