How to Profit from Stocks

There are three main ways to make money from stocks.

Rising stock prices

The first way is through increases in stock prices. If you buy a stock and its price rises, you can sell it for a profit.

For example, if you buy one Amazon share when the stock is trading at $2,000 and it rises to $2,200, you can sell it for a $200 profit.

This is called generating a capital gain.

Dividends

The second way you can make money from stocks is through dividends.

Dividends are cash payments that some companies pay to their investors out of their profits. Not all companies pay dividends but many well-established companies do.

One example of a dividend-paying company is McDonalds. In 2019, it paid its investors a total of $4.73 per share in dividends.

Falling stock prices

Finally, traders can also profit from falling stock prices. This involves using Contracts For Difference (CFDs) to open ‘short’ positions and bet against stock prices rising.

CFDs are financial instruments that enable traders and investors to profit from a security’s price movements (in both directions) without actually owning the underlying security.

If you open a short CFD position on a stock and its share price falls, you can close the trade for a profit.