It’s quite a foreign concept to some, but share trading is a really good way of building wealth. Of course, it does require some time and effort to make the right moves, but the payout can be an exponential increase of your starting investment.

It all depends on which shares you choose to buy, when you buy them, and when you end up selling them. Nailing those three elements can make you the big bucks.

The ins and outs of share trading

Trading shares means buying and selling small portions of a company with other investors on an exchange.

A share’s value relies on the performance of that company at any given moment. If it’s doing well, the company is worth more, so each portion of the company is worth more. And vice versa.

The most common way to make profit from shares is to sell them when they’re worth more than you paid for. They call this capital growth.

You can also make money from dividends, where companies decide to pay profits to their shareholders as thanks. The amount you get depends on how many shares you own.

Another upside to shares is the tax benefits. Fully franked shares can reduce the tax you pay on other incomes. Win-win.

But where it gets tricky is that future performance can also impact share price. That’s why timing of buying and selling is paramount.

The risks of share trading

Usually — and unfortunately — the more potential gain a share presents, the bigger the risk in the investment.

Share prices can fall just as fast as they climb. And it’s not just company performance that causes this…it could also be company announcements or the current market conditions.

Or an annoying law can be introduced that impacts your current investment strategy. This is particularly frustrating.

Ultimately, profit is never a guarantee. So any investment in shares is an inherently risky investment.

However, if you’re smart about it, there are ways you can minimise this potential risk.

Stay well-informed

Trading shares on the stock market is no mean feat. If share trading is something you’d like to get better at, it doesn’t hurt to learn from those in the know. And here at Money Morning, we’re very much in the know.

Stock traders who’ve made a fortune, lost it all, and made it back again can help you avoid the common pitfalls of trading the share market.

They provide guidance and insight on how to make money from trading, and outline the best method to keep growing your wealth.

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