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Mar 20

Finance 101: Stock Trading for Beginners

Reading Time: 3 mins

You don’t need an extensive background in finance or tons of money in order to start trading stocks. Even the most qualified stockbrokers had to start somewhere. There are copious amounts of resources online that can help you get to grips with the basics. All you need in order to succeed is patience, determination, and a willingness to learn (and, of course, an appetite for risk – you can lose everything you put in.)

 

Where to begin?

Investing in stocks is a great way to try and make a few extra bucks on the side. If you invest wisely, you have the opportunity to make money, save money, and re-invest that initial capital gain. If you have a bit of cash sitting on the side, it makes sense to put this to good use. Inflation will only cause the value of your money to go down over the years so why not take advantage of this opportunity? Although the stock market can be rather volatile at times, with the right research and investments, you can hopefully avoid causing expensive mistakes. If you are eager to get to grips with the market and start trading you could check out these stock trading apps.

 

Risk and reward

Trading stocks, like any investment, is all about finding a balance between risk and reward. Certain stocks will be less risky to invest in, however, these will probably yield a smaller reward. Although you can make calculated risks whilst investing your money, nothing is ever assured. You never know when the market could crash or when a global phenomenon (like the current coronavirus pandemic) could affect the price of stocks. Therefore, the golden rule when it comes to investing is to never invest more than you are willing to lose.

A great way to reduce the level of risk in your investment portfolio is by adopting a strategy like diversification. When you invest in a variety of stocks and markets, you reduce your risk of unnecessary losses. If you invest in various sectors, regions, and market capitalizations, you won’t be subjected to losing everything if a specific stock fails. Diversification will never guarantee against losses nor ensure profitable returns; however, it is a strategic way to mitigate the level of risk involved in trading.

Similarly, rather than investing a large chunk of money into a set of stocks as soon as you begin, why not slowly build up the wealth of your portfolio? For example, a great method for investing bit by bit is by using the rule of thirds. This will help you avoid any disappointments, especially as you are just getting started. If you want to invest a total of 600 dollars, try cushioning the blow by purchasing 200 at a time. This can be divided by different investment performances and companies or even by regular intervals like monthly or quarterly cash injections.

 

Basic tips

We know it can be very tempting to check the progress of your stock portfolios every few days or weeks. However, reviewing your stocks once per quarter is enough to do the job. This will help you refrain from making brash decisions over sharp price movements. If you do see a sharp decline in cone of your stocks, ask yourself what the reason for this could be. If it is due to a short-term event, it may be worth holding on to this asset until a later time. For this reason, it’s a good practice to avoid checking your portfolio on a daily basis and focusing on the long-term value of the company rather than the share price itself.

Another golden tip to succeed at trading stocks is to keep doing your research and stay up to date with current affairs. The market does not operate in a vacuum, functions of supply and demand constantly shape the stock market. In order to predict whether a stock will grow or decrease, it is helpful to read financial and business news. Similarly, there are many new strategies in relation to trading that are constantly cropping up. Make sure to read up on stock market strategies so that you can utilize these to your fullest advantage. This will also help you determine whether your stocks have fallen as a result of a long-term consequence or a short-term consequence.

Don’t worry if the world of stocks and trades seems a bit daunting at first. There is definitely a lot of information to get your head around. Just have a bit of patience and make sure to study the stock market before you make a large investment. You should also try to refrain from taking ‘hot tips’ from people who you don’t know and trust. When it comes to investing its best to take your own advice based on your own research and, if you really want to, ask a financial expert to help you with any troubling choices you may have. But for now, happy trading!

*This is not financial or investment advice. Remember to do your own research and speak to a professional advisor before parting with any money.

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