Financial investing for dummies: The crash course

Financial investing for dummies: The crash course

You have probably heard about investing and making money in different financial markets. Well, it is true that you can trade your money for assets, and later gain from them.

There are several financial markets where millions of investors around the world exchange money and assets to grow their wealth. These markets include foreign exchange (Forex), stock, bond, commodity, and cryptocurrency markets. Different markets include different types of assets that are bought and sold at either centralized or decentralized exchanges as well as over-the-counter.

In fact, nobody is born with a knowledge of trading, even the richest traders stood in the exact spot where you are now, and only with proper guidance and practice, they were able to make their way to the top and build their wealth.

“You don't need to be a rocket scientist. Investing is not a game where the guy with the 160 IQ beats the guy with 130 IQ.” - Warren Buffet

We have prepared this comprehensive guide to help lead you in your first steps into trading, to discuss what investing is all about, why you need it, and what you need to know before you start this exciting journey. 


What is Investing?

Investing is allocating money for the exchange of an asset that can increase in value over time, and so generate profit. Basically, investing is where you transfer a highly liquid asset (cash) into a less liquid asset (stocks, bonds, commodities), then wait for that asset to appreciate in value.

When you invest in a less liquid asset, you do so hoping that the value of that asset will increase in the future, so that when you convert the asset back, you will have more cash than what you had previously. 

The obvious reason for this kind of transaction is to utilize the money you have now to make more money in the future. Let’s say you have $1,000 in your saving account that you can use for trading, but instead of keeping it in cash, you prefer to buy a commodity such as crude oil.

We know that oil prices always change due to political and environmental events. So let’s say that after 2 months the oil production in the world drops, and the oil price increases by 10%. Now your investment has increased by 10% in value.

Consider the 10% increase in terms of the cash amount of $1,000 that you invested, (1000 x 10%) = $100, which means that your initial investment of $1,000 is now worth $1,100. So if you decide to sell off your crude oil investment you will be receiving $1,100.

On the other hand, if the oil price did not change as you estimated, and oil prices dropped worldwide, then you are losing money because your investment will have a lower value.

Therefore, investment is always associated with risk and reward, there are no guarantees that your investment will be fruitful, and you always need to account for the fact that you might lose money. That is why investors only use money that they do not need for their livelihood, or that they won't need in the near future.

Financial securities are also associated with speculation. This is something that shapes the risk-reward ratio of any investment. 

Speculation refers to the act of conducting a financial transaction that will have greater risk as it is subject to changing sentiments brought about by certain events or corporate news. When a lot of people speak about an asset it receives a wider magnitude of attention, and its value starts to fluctuate.

Where to Invest?


There are different types of assets that can be used for your investment. Each type is traded in a different financial market. There are millions of investors who exchange money and assets in every financial market on a daily basis.

Basically, wherever you want to invest, you will need an intermediary or an agent to help you access the financial market. Additionally, the agent will process any legal or official papers required, so that you do not need to do any extra paperwork.

There are a variety of investment firms, banks, funds, and so on, where you can invest your money. Previously, an investor had to physically go to the financial institution to conduct the investment transaction, buy stock, or trade any other security.

However, now almost everything can be done online, and you can use your computer or even your smartphone to choose where to invest your money, choose the broker you need, and keep track of your investments.

You can choose the type of investment that works best for you, depending on your expectations and what you are looking for. There are several choices when it comes to where you can invest your money, each has its risks and rewards, and you need to carefully choose from the following markets.

  • Stock market
  • Bond market
  • Commodity market
  • Cryptocurrency market
  • Foreign exchange market

Stock market

Corporations around the world may release their shares publicly, where investors can buy and sell the company stock. When you invest in the stock of a company, it means that you own a share in the company, and thus become a shareholder.

Companies' stock prices fluctuate, and investors make money from these price changes over time. When an investor estimates that the stock price of a specific company will increase in the future, they purchase shares of that company, and when the stock price increases, they can sell the stock and gain the price difference as a net profit.

There are several determinants for the stock price of a company. Firstly, a company decides its initial stock price when it is traded for the first time. Then, when the stock price becomes public, it moves up and down according to supply and demand.

When the stock is highly demanded and many investors buy shares, the stock price increases. Oppositely, when there are many investors selling shares of the company, and there is more supply than demand, the stock price is more likely to drop.

Most investors gain from buying a stock and holding it for a long period of time, a few months, or even years. When the stock price increases significantly, they gain hugely, which is one way of gaining in stock investing.

Another way to gain from investing in stock is by receiving dividends. Some companies pay dividends to their shareholders, which are distributions of the company’s equity, that are paid quarterly.

The dividend value changes from one company to another based on its yearly dividend yield, which is a percentage of the stock price. The yearly dividend yield usually ranges between 1%-5%, which is paid in 4 quarters during the year.

When an investor owns more than one share in several companies, they can make some income from receiving these dividends. Note that not all companies pay dividends on their shares, therefore, it is better to look this up beforehand.

Bond market

A bond is a kind of security offered by a company or a government in exchange for money. An entity may issue bonds to accumulate cash flow to fund a new project, purchase new equipment, or just grow its business.

Bonds have a maturity date, interest rate, and face value. When an investor buys a bond, they pay the bond price and receive interest from the bond issuer during the bond's lifetime. Finally, on the maturity date, the bond returns to the issuer, and the investor receives the full face value.

There might be some similarities between stocks and bonds in the fact that you own an asset provided by a company, but bonds do not mean that you own any share in the company. Additionally, they are a relatively safe investment when compared with stocks.

Prices of bonds also fluctuate according to the demand and supply in the market. However, not all bonds are traded in the open market like stocks.

Commodity market

Investors make money from buying commodities. These are products that we use in daily life and include things like oil, gas, coffee beans, wheat, and corn. Additionally, precious metals and other natural resources can also be traded.

Gas and oil are the most traded commodities because they receive a bigger interest globally. The prices of these commodities fluctuate based on global events and news that lead to changes in their demand and supply.

For example, the price of natural gas between 2021 and 2022 increased by around 50%, and if you had purchased $1,000 worth of natural gas back in 2021 and sold it again in 2022, then you would have gained $500 of profit in just one year by investing in the right commodity.

Cryptocurrency market

Cryptocurrencies have been booming over the last couple of years. In 2017, cryptos started growing dramatically in value, starting with Bitcoin, the world soon saw thousands of other emerging digital coins appear and many of them made their investors rich in just a short period of time. 

A cryptocurrency is a virtually stored, used, and transferred means of payment that is decentralized. The use of cryptocurrencies boomed due to the fast payment options that it offers, without being controlled by any central banks or governments.

There are thousands of cryptocurrencies out there, the most dominant of which is called Bitcoin. Each currency is priced differently, with prices fluctuating according to how many people buy and sell these different tokens.

The cryptocurrency market is highly volatile, some coins can have price fluctuations of 5% or more in a single day, which is considered extremely high when compared to other securities that you can invest in.

Bitcoin is the fastest-growing cryptocurrency. It grew around 300% between 2020 and 2021, and even more than 3,500% in the last 5 years. Thus, if you invested in Bitcoin back in 2017 when its price was $1,150 per coin, you could sell it in 2022 for around $40,000 per coin.

Foreign exchange market

The Forex (Foreign Exchange) market includes currencies from all around the world that are bought and sold in exchange for other currencies. Simply put, when you exchange US dollars for Euro, this transaction is part of the Forex market.

There are trillions of similar transactions done every day, which is an important factor in changing the exchange rates, and the value of currencies. When there is a huge tendency towards buying Euros, for example, the price of 1 Euro tends to rise against most other currencies.

Investors buy currencies for the purpose of security from inflation and currency devaluation. 5 years ago currencies did not hold the same value as today, prices are increasing over time and money is losing its purchasing power.

Economies with weaker currencies are riskier to invest in than top currencies like the USD, EUR, GBP, JPY, or CHF. Weak economies are exposed to fluctuations that can lead to major currency devaluation, and changing economic indicators such as inflation, consumer price index, etc., can have a massive impact on the value of those currencies.

Therefore, an investor in Mexico for example invests in EUR by exchanging their Mexican pesos for Euros to secure themselves from a possible negative turn in the national economy of their own country.

This way, given the fact USD/MXN grew 20% between 2020 and 2021, investors in Mexico would have protected themselves from the currency devaluation, and within one year, their money would have been worth 20% more.

How to get started


To start investing you need to find an agent or a broker that enables you to buy and sell different securities. There is a huge selection of online brokers out there, but that does not mean that you can just pick up and choose any of them. 

Some brokers abuse this huge influx of investors by practicing illicit schemes, trying to defraud people out of their hard-earned cash. For this reason, you first need to find a broker that is regulated. Brokers who hold one or more licenses from reliable authorities such as the FCA, CySEC, FSCA, or ASID can be deemed trustworthy.

Therefore, you need to check the broker’s business license name and number, and location and read some reviews about the services they offer in order to not fall victim to illegal activities. 

Lastly, you need to check what type of investments the broker offers. Lately, there is a tendency for brokers to offer CFDs, (contracts for differences), which is basically trading on speculations and has nothing to do with investing.

Most investment funds and mutual fund brokers offer financial instruments where you purchase financial securities, unlike CFD trading brokers, so make sure you know the difference. 

After finding a well-regulated investment broker, check their services and the markets they offer. Knowing the differences between the markets and their financial instruments is always a good idea. Check which asset is more appealing to you, and what kind of investment portfolio would work best for you.

Other things you need to know about your investment broker include the minimum deposit amount, processing fees, as well as payment and withdrawal methods to know how you are going to realize your money.

Investing Strategies

Professional investors will often develop their own investing strategy and style, however, the vast majority of them started out by implementing fundamental investing strategies that have been tried and tested.

  • Passive/active investing
  • Growth investing
  • Value investing
  • Income investing
  • Contrarian investing

These investing styles differ based on a person’s expectations, strategy, and market conditions.

“Don’t worry about what the markets are going to do, worry about what you are going to do in response to the markets”. - Michael Carr

Passive/active investing

Passive investing entails buying a security and holding it for a longer period of time, which could be 3 years or more. An investor can buy stocks, bonds, commodities, or cryptos and hold them for a long period of time, ignoring the small price changes that happen, and focusing on the bigger picture.

It is called passive because the investor is not interacting frequently with the market, they rather buy and hold for a short-term like 1-2 years, or a long-term like 3 years or more.

On the other hand, active investing requires the frequent buying and selling of securities to cope with price changes. Active investing can be used with highly volatile financial instruments, when the prices change so fast, they might spark up suddenly and then drop within a few days.

Both investment strategies require a thorough understanding of different markets and assets. You do not want to invest in a stagnating stock or a depreciating currency.

Growth investing

This strategy is based on the investor’s expectations. After investors build their investment portfolio and set the amount they want to grow their investment by, they start allocating their money to invest.

This strategy requires the investor to have good analytical skills. In order to achieve the target growth, an investor may choose to invest in more than one asset - this can help diversify the risks.

Value investing

This strategy takes into account the economy of the traded asset and finds the right time to invest. Some securities such as stocks are known to have economic cycles, where the prices move up and down in a specific pattern.

These price-change patterns can be used by investors, and when the product of a financial asset is near its lower price in the pattern, it makes a great investment opportunity. This strategy requires advanced market analysis skills by the investor to be able to correctly identify the financial asset’s cycle and have confidence that the price will rise.

When an investor buys any financial security when its price falls, they rely on the fact that the market will correct itself, and the price will increase again. Later, after the price grows enough, an investor may sell the security before the cycle continues and the price declines again.

Income investing

Some investors buy securities and assets to create an income stream. It can be a primary or secondary income, in both ways the investor strives to secure a steady monthly income from their investments.

Such income can be secured either by receiving dividends from stocks or receiving interest rates (coupon payments) from bonds.

Some corporations pay dividends to their shareholders quarterly, which are cash distributions from the company’s equity. Companies pay dividends according to the yearly dividend yield, which is paid per share. So, if a company pays dividends, the more shares you own, the higher the payments you receive.

Another way to have this steady stream of income is through bonds. When corporations or governments issue bonds, they sell them at a discounted price from the face value. Investors can acquire the bond according to its discounted price, then receive coupon payments quarterly as long as the bond is valid.

Contrarian investing

A contrarian investing strategy takes into consideration every other economic factor that affects the asset price. The financial well-being of the country can affect the value of some assets like currencies, corporate stocks, and government bonds.

Therefore, investors focus on economic events around the world and invest when the price drops after a certain event. This is a long-term strategy because when an event happens, it is more likely for the economy to require an extended period of time to recover.

For example, the inflation rate in Japan affects the value of the Japanese yen against other currencies. If the inflation rate increases, the pair USD/JPY price will increase, and instead of 115 JPY, it might become 120 JPY.

Using the contrarian strategy, a Japanese investor can spot the increasing inflation rates in the Japanese economy and exchange as much yen as possible for USD, then after some time has passed they can exchange back their USD for JPY and make a profit.

Important Investing Terminologies


When you invest through a broker’s website, you might encounter some investing lingo that you need to know, as overlooking those can cause major errors in your trades. Most brokers simplify these terms for beginners, however, to become a skilled investor, you need to spend a little time and learn these investing terms properly.


Yield means the amount of money an investor earns from a particular asset, and it is expressed in percentage terms. It is similar to an interest rate the investor receives after purchasing a financial asset.

It is used in the bond and stock markets. In the stock market, it is associated with the dividends that are paid after buying shares. Yield in dividends refers to the percentage of the stock price the investor receives annually or quarterly.

In bonds, yield refers to the earnings an investor receives from buying a bond. Investors who buy bonds receive interest from the bond issuer, and the income generated from this investment is called bond yield.


An annuity is a type of investment where you pay now for an annuity contract to receive a steady stream of income in the future. An investor purchases an annuity by either paying the full amount for it, or through installments paid to an insurance company, and the insurance company invests the money put in by the investor.

The insurance company invests the annuity to grow the money, and pays the investor in the form of retirement income, for a specific period of time. The annuity contract determines the number of money distributions that will be paid out in the future when the distribution will start, and for how long it is going to last. 

Return on investment (ROI)

The return on investment is exactly what the name implies - it is the amount of money gained against the amount invested in a specific financial instrument. The return on investment, or ROI, is expressed as a percentage of the money invested.

ROI is one way for investors to assess the profitability of their investment. It helps them to make decisions about their investment portfolio. Businesses also use ROI to measure the profits against the costs of a specific investment, as companies try to maximize the returns on their investments.


Dividends are distributions of money made by the company issuing the stock to the shareholders. Companies pay dividends as a royalty or gratitude for their investors, which is determined by the company through the yearly yield percentage.

Dividends are distributed quarterly, and the amount is paid per share, which means that if you hold 10 stocks, you will receive more compared to holding 5 stocks. However, not every firm pays dividends, so it is always better to check beforehand. 

Mutual funds

A mutual fund is a pool of money funded by investors and led by fund managers who invest the fund on their behalf, in order to grow it. A mutual fund is an agreement between money owners and account managers, where every investor contributes a specific amount of money, and profits are allocated based on the percentage of their contributions.

The account manager also invests their own capital, which ensures the investors that there will be no conflict of interest. The mutual agreement determines the type of investment the manager will make, and investors agree not to intervene in how the money is being invested.

Reasons to Invest

It is universally agreed that investments can help people to make money and that those investments yield different returns to the investors. Some investments aim for short-term gains, while others intend to generate steady incomes for a specified period of time. Whatever the case may be, there are some common reasons why investing makes sense.

“The biggest risk is not taking a risk. In a world that’s changing really quickly, the only strategy that is guaranteed to fail is not taking risks.” – Mark Zuckerberg

Beating inflation

Inflation is always growing at a positive rate, which means that prices are ever increasing compared to the value of money you hold. Some countries experience a high inflation rate of +10% where the money is losing value at a much faster rate than in other countries.

Hence, investing can help you overcome the inflation effect on your money where you can grow your money, and save for your future.

Let's look at an example, if you had $1 million in 2010, you could buy a penthouse and live pretty comfortably for a few years without generating any other income. However, in 2022 you would need to generate another source of income because you are more likely to spend the whole $1 million on the same penthouse and have nothing left.

Grow your money

It is obvious that people invest their money to receive additional profits and have a better income, giving them more financial security. Despite the risks that come with investing, some financial instruments can grow your capital by 40% within a month.

Investors grow their money to better handle their living expenses, such as mortgage payments, saving for retirement, or buying a new car. It is always good to have more money in your account, which you can spend or reinvest in different financial markets.

Fear of missing out

Some people invest their money just because they are scared of missing out. After reading some trending news articles where everyone is investing and making money, they simply jump on the bandwagon in order not to feel left behind.

This is called the fear of missing out, and it may lead to investors making emotional decisions rather than logical decisions. 

One example is the Gamestop stock short, where an influx of investors went to buy shares in GME, causing the stock price to sharply increase over a very short period of time. The more trending the news became, the more investors rushed in due to the fear of missing out on the opportunity to grow their capital quickly.

What Did We Learn from Financial Investing for Dummies?

  • Investment means buying a financial asset that you expect will grow in value and can later be exchanged back for a profit
  • There are different financial markets that offer plenty of assets that can be bought and sold. That helps investors grow their money
  • Investing requires a broker that provides you with a platform where you can access different markets and invest in any financial security
  • Different investing styles work on different investments. You may focus on long-term investment in stocks while investing in bonds can generate a steady stream of income
  • Investors trade their money in order to grow their capital against the inflation rates, improve their profitability, or not feel left behind from the opportunity to make money

FAQs on the crash course on financial investing for dummies

What type of investment is best for beginners?

Mutual funds and bonds are usually good investments for beginners as they do not include high volatility. Additionally, state bonds are highly secured from any default, because they are issued by governments, adding yet another level of security to your investment.

Can you learn to invest by yourself?

Yes, but we highly recommend that you first build up a good grasp of investment fundamentals before trying it out yourself. You can always expect to lose money in the early stages of your investment career, but the more you invest, the more you learn. It usually takes between 6 months and a year to start excelling at investing and joining the ranks of professional investors.

How do beginners buy stocks?

You need to find a reliable and licensed broker, register an account, and get direct access to the stock exchange market. Then you can find the stocks that work best for you, then start buying and selling according to your preferences.

Is crypto investing profitable?

Recently, investing in cryptocurrencies became trendy. Some cryptos yield a huge return on investment with a few of them returning over 40% in less than one month, which makes it quite a successful investment type. However, they are also very volatile, and you can expect your money to fluctuate by 5% around the market price on a daily basis.