Introduction: Stock trading guide for beginners
Investing is a way to use some money that you have kept aside and let it run in the market to reap additional profits. Investing gives way to secure and happy days of the future to a lot of investors and people. The core aim of investing is to put the money in one more type of investment instrument with a hope of increasing the value of money over time.
However, investing also accounts for several losses and risks. It is, therefore, crucial to take every step with utter caution and knowledge of the market. Stock trading is one of the most customary ways when it comes to freshers and beginners in the world of trading. Stock trading gives traders the best nuances and experience of the market and trading world on the whole.
What is stock trading?
Stock trading involves selling and buying of stocks on a daily basis to make the most of everyday price movement and fluctuations. Stock trading involves short-term investors and traders who tend to make profits in the next few minutes, hours, days or months, and do not buy a stock of a company to hold it for eternity and wait for it to maximise the profits.
The two distinct types of stock trading are day trading and active trading.
Day Trading: It entails buying and selling of stocks in one trading day by a trader. Day trading ignores the underlying businesses of companies and their internal workings; it focuses on closing positions each day. The primary purpose of a day trader is to earn profits in a time band of a few minutes, hours, or days.
Active Trading: It involves placing more than ten trades a month and an effort to take advantage of short-term changes and fluctuations that take place in the market. Active trading mostly relies on the timing of the market, and profits turn up in some weeks or months.
Steps on how to start stock trading
Deciding how you want to trade and invest
There are various ways in which a trader may approach stock trading. It mainly depends on how one wants to pick out different stocks in the market. One can go with online brokers or Robo advisors.
Online Brokers: Online brokers can be further classified as full-service and discount brokers.
The full-service brokers give a full bridge of conventional brokerage services like health care, money related advice, and more. They mostly work with traders and investors who have a lofty net-worth and charge a reasonable fee for their services.
Discount brokers, on the opposite, help you with tools to place trades, and some of them even provide educational materials. They mostly have a minimum deposit policy associated with them, which makes their services cheaper as compared to full-service brokers.
Robo-advisors: This technology aims at lowering the costs of transactions, and make financial advice more accessible and organised. Robo-advisors can make a lot of decisions pertaining to investments, that include rebalancing, tax-loss harvesting. A Robo advisor is more suited for people who are looking for long-term investments.
Opening an account for investing
To investment stocks, one must have an investment account. Most of the time, it calls for a brokerage account. Opening a brokerage account is the fastest and easiest way to start investing in stocks, mutual funds, or other instruments.
One can also opt for a Robo-advisor account. These accounts pardon you from the extra work of picking investments manually. You are asked about your financial goals and help you build a portfolio depending on that. A Robo-advisor tends to offer full-fledged financial management.
Understand the distinction between ETFs and stocks
In stock trading, you get to make a choice between ETFs or mutual funds and stocks. Mutual funds or ETFs allow for the purchase of different stocks in a transaction. When you invest in ETFs or mutual funds, you own a part of the particular company you invested in.
On the other hand, when you invest in individual stocks, you buy shares of a particular company and diversify your portfolio like that. But this practice requires a fair amount of investment and time.
An advantage of investing through mutual funds is that they are naturally diversified. Whereas, individual stocks, if you pick them intelligently, can give you higher profits.
Setting a budget for stock trading.
A beginner must introspect and ask two critical questions; first, how much money do I need for starting stock trading? And how much money should I invest in stocks?
The money you need to start stock trading entails the cost of shares of particular companies that you want to invest in.
We advise you to invest a major chunk in mutual funds if you want to stick in the game as a long-term player. It is essential to set a structure and budget for how you will invest in the stock trading market.
Focusing on the long-term path
There are various rules and strategies associated with stock trading, but the most successful investors have moved beyond those strategies and regulations. When you invest in stocks of a particular company, it is vital to analyse how the company functions, and it will perform in future. The best thing after you invest in stocks is to forget about it. It sounds challenging, but patience is the only way to reap the highest of profits. But if you are a day trader and are looking to catch up on all profits in the short-term, you might function otherwise. But it is good to not compulsively check on your stock now and then, and let them breathe.
Managing your portfolio
It is not healthy to rigorously keep checking on your stocks and investments, but there are times when you need to keep a tab on your investments to see how things are going. It would be good if you made regular visits to your portfolio in a fiscal year to assure that it matches with your goals of investment.
Tips for surviving the stock trading market
Invest with a gradual approach
If you have just begun stock trading, do not dig deep into the market at one go. Take your time to understand different stocks and build your positions at a slower pace. This will help you escape the uninvited risks that may clamp on if you start trading aggressively in the market without thinking twice.
Choose your broker in a sensible manner.
It is very crucial to make a knowledgeable and intelligent decision while choosing a broker. The choice of broker determines how your investments and portfolio will pan out. Always choose brokers which are regulated and are registered under trustworthy and ethical organisations and bodies.
If you have freshly entered the world of stock trading, we would advise you to go with PrimeFin and HFTrading. Both these brokers are regulated and registered with authentic organisations and offer trading in a wide variety of instruments including stocks, mutual funds, ETFs, and much more. They also provide a large platform to learn with different tools and educational material.
Understand your risks and their impacts.
Always keep a tab on risks that come with different trades and how much of it are you ready to take. Never jump into investments hoping that they will only lead to high profits. The market is highly volatile and can turn against you at any moment. So it always advisable to prepare yourself for the risks that might befall you.
Do not get enraptured with your emotions.
Whenever you are in the market, your emotions need to take a backseat. Think logically and rationally while making trading and investing decisions. You might find yourself emotionally drawn to particular brands and companies, but investing in them just because you like their products or their services is just raw stupidity.
You must analyse the companies on the basis of their performance and how they are actually doing in the market.
Thorough research is advisable before you jump directly into the trade with a company.
Try to keep away from leverage.
As a new player in stock trading, you should refrain from the tempting idea of leverage. Speculation on borrowed money has become very prevalent as many brokers have started giving straightforward ways for leverage.
One must always remember that leverages are very treacherous in nature. You can always lose money in trading, and losing money that isn’t even yours invites more troubles.
Stock trading entails a lot of factors other than just picking out and choosing an investment. A beginner must understand the restrictions and implications that come with stocks and ETFs.
Stock trading can be seen as one of the smooth ways of building profits, but one must be well-researched before taking any important steps in the Stock Trading Market.
A well-organised homework about minimum deposits, different brokers and commissions associated with them and the risks involved will do no harm. In the fullness of time, a trader must find ways to make her or his trade more cost-effective.