Building long-term wealth is the goal of almost everyone, especially those people who still have to support their families and other major responsibilities. Trading stocks is one of the most effective ways to achieve this goal with traders’ ability to seek a 10% return each month. Whether you want to actively trade stocks or just want to invest for the long term, you need to have an idea of what to expect and the tools you might need. For beginners, starting out is the hardest part, so here are some basics you’ll need to know about stock trading and how to start it.
What Does It Mean to Trade Stocks?
Stock trading is the process of buying and selling shares in a company. Owning the stock means you own part of that company. A stock trader is someone who trades equity securities and it could be a stockbroker, arbitrageur, agent, hedger, or speculator. Traders can be trading on behalf of a company or people trading for themselves. The primary goal of trading is to profit off a company’s short-term gains from stock price fluctuations. Their role in the market provides liquidity that helps both investors and other traders. The more there is liquidity, the easier it is to buy and sell stocks.
What is the Difference Between Trading Stocks and Funds?
Even though stocks make up the bulk of most portfolios with long-term goals, they’re not the only option out there, you can also get the same outcomes through equity mutual funds. These funds allow you to purchase small pieces of several different stocks in a single transaction. ETFs, (exchange-traded funds) are a kind of mutual fund that follows an index. Fund investment means you own a piece of each company. Meanwhile, in individual stocks, you can buy a single or several shares for a company.
How to Start Trading?
- Determine an Approach
There are several ways to invest in the stock market and you need to first determine which approach you’ll follow to make an efficient plan. If you have enough time and interest to thoroughly research stocks, you are eligible to trade individual stocks. If mathematical calculations and quarterly reports don’t appeal to you, consider another approach like investing in index funds. Investing in index funds has lower costs and usually match the long-term performance of their underlying indexes. Another approach that is widely popular is Robo Advisors; a brokerage that selects your investments depending on your investing goals and optimizes your tax efficiency automatically.
- Set a Budget
For starters, you should not be investing money in trading stocks that you might need in the next few years, which is a concept known as asset allocation. It takes into account several factors including age, because the older you are, the less it’s advised to allocate your savings in stock trading. The amount of money you set should also depend on how expensive the shares are in the case of choosing to buy individual stocks. If you have a small budget an ETF would be your best choice.
- Open an Investment Account
Now that you have a preferred approach and a set budget, the next step is to have a way to actually buy stocks. To start trading stocks, you’ll need to open a specific type of account known as a brokerage account. It’s usually an accessible service in several banks and doesn’t take much time or hassle to complete. However, you should determine the type of brokerage account you need. If you’re just starting out, it’s wiser to go for a standard brokerage account or an individual retirement account (IRA). These accounts both allow buying stocks, funds, and ETFs so it all depends on your investing goals and how easily you want access to your money. Remember to compare costs and features while opening an account since some can offer access to helpful tools and research while others allow you to trade on foreign stock exchanges.
- Start Researching Stocks
When it comes to trading stocks, knowledge is your greatest weapon to suffer fewer losses. Having sufficient knowledge about trading stocks is the reason why trading gurus at https://www.trusted-broker-reviews.com/learn-trading/ recommend that you do your fair share of research on what trading stocks means and the different terms and concepts involved in it. Once you’re armed with knowledge, research is still needed to pick stocks to trade. It’s wiser to start by looking at the analysis of a company (earnings reports, financial filings, and SEC reports).
- Find a Trading Broker or Platform
To facilitate the process between market participants to sell and buy stocks, a trader would need to have a broker or another trading platform. If you choose a broker, make sure they have low fees and take a low commission rate, are honest, and reliable with little system outages. Timing is critical in trading stocks so your broker needs to be time-conscious; able to quickly place, adjust, and cancel orders. They should also be able to follow your instructions with no intervention or adjustment from their end.
Trading Vs Investing
While similar in their core concept, trading and investing are very different methods of trying to profit in financial markets. The main difference is that traders take advantage of both rising and falling markets while investors seek larger returns over an extended period through buying and holding. Traders take smaller and more frequent profits by constantly entering and exiting positions throughout a short period of time. At the same time, investing falls into the umbrella term of trading and is considered a kind of trading along with day trading and swing trading.
Now you know all the basics of the stock market and how to start to dip your toes in it to feel it out and see if it’s right for you. It’s essential that you learn the basic metrics and concepts for evaluating stocks. Since this is a big step to take, remember to take your sweet time learning all about the market’s ins and outs as well as the terms and commonly used lingo. Make sure you try to avoid high-volatility stocks until you get the hang of it all as well as penny stocks.