buy pharmaceuticals online

Community photography

Finance Friday: Small Investors

Scotland said no to independence yesterday, but in the run up to the vote many investors were selling on the London Stock Market. This was an opportunity to buy, if you were brave enough. Now the panic is over, those shares are going up.

Banks were the worst affected , but they started to recover yesterday and so far today RBS (Royal Bank of Scotland) is up 3.33%. Small investors can make money when the market begins to panic and there is often panic. This year, it was down because of the troubles in Ukraine and then in the Middle East. Then just as it starts to recover, the Scottish vote causes more panic. It’s a good idea to be politically aware if you’re small investor.

The other thing that affects share prices is a good RNS. An RNS comes from the Regulatory News Service and it can be good news or it can be bad news. Yesterday, there was an RNS from Solo Oil and it was good news about drilling for oil and gas at Horse Hill. That had investors buying and the buying is continuing today and sending the price up. Solo Oil is up 7.49% this morning and more than 76m shares have been bought against 63m sold.

There a can be some confusion about how the market works. If more shares are bought than sold the price goes up; that’s supply and demand. However one day the price soared and people were selling. Why?

You have to put yourself in the shoes of the market makers sometimes. I’ll use an analogy to explain, simply. Imagine you are running a shop buying shares for 10 pence and selling them for 11p. Then good news means your shop is packed with people all wanting to buy and your stock is low. You could put the price you’re selling at up to 12p to curb demand a little. You need to buy in shares and increase you stock though and so you increase the price you buy at to 11p. If the shop is still packed with buyers and your stock is running out; you might drastically increase the prices. The prices go up, even though you’re buying lots, not to sell, but to stock up.

There are two factors to consider here, besides supply and demand. How many shares you have in stock and how many people are in your shop. Sudden demand for shares or lots of people suddenly selling affects your stock. In these days of computers, prices are automatically changed and can soar as computers keep increasing the price to cope with demand. Prices can also plummet when investors panic. Trade plans also mean computers are programmed to sell to prevent losses or to lock in gains. When a share price drops , it can trigger thousands of stop loss trade plans to kick in and they all sell; causing the price to plummet even more.

If you understand these factors, you can benefit from them. This is what the day traders do on the stock exchange. Small private investors find it harder to do that because of crippling dealing fees.  To get good service investors often have to pay 12.50 a trade and stamp duty on top. Some cheaper dealing services can be very unreliable. The rich traders with frequent dealing get better dealing fees.

You can still learn about trading shares, but it is a little like swimming in shark infested waters! My portfolio is about 2% up today, which compared to a deposit account at the bank paying 1.5% per year, is quite good. My portfolio wasn’t going so well earlier in the year, returns dropped below 10%, but the return is well over 20% now. I see it as a learning experience and I still have a lot to learn. My investment screen is all blue this morning, so I’m making progress!

What do you think? Are you investing for the future? Do you have the nerve for the stock market? Please share your thoughts in the comments box. You can also follow me on Twitter.

One Response

  1. Pingback: The Review: Tipton Canal & Community Festival | Mike10613's Blog

Leave a Reply

Your email address will not be published. Required fields are marked *

CommentLuv badge

This site uses Akismet to reduce spam. Learn how your comment data is processed.

%d bloggers like this: