Stocks can be a tricky area to navigate for those of us with little to no experience. It can also be very rewarding and an excellent way to invest your extra cash. It can be a lucrative way to make money from your disposable funds. From the ground up you can learn the skills to enhance your portfolio and earn the big bucks. So, if you are interested in stocks and trading, but do not know where to start, then read on for the top 6 innovative tips for beginners in trading and investing.
- Trader or investor?
The first point of call when you are learning about the stock market is the difference between the terms’ trader and investor. A trader is someone who buys stocks and then sells them quickly. This could be within minutes, hours or days. An investor on the other hand is a person who keeps stocks for the long-term, holding their purchase for months or even years. It is important to be able to distinguish between the two and from here decide which you would like to be. Deciding which path to take is important as trading strategies are vastly different to those used for investors.
- Understanding the basics
This may come as no surprise, but having a good knowledge base before you begin your investment venture is a high priority for beginners in stocks. Simple luck will not suffice if you want to start earning and surpass unavoidable mistakes. To get a general idea of the stock market you will want to take a further look into what stocks are, the stock market timings, who stockbrokers are, and how the market moves. It seems that beginners are more prone to rushing to invest in a bid to make money quickly, but this can backfire. Skipping out on the basics will prevent you from developing effective stock and investment strategies for the future. It will only take a few days to master the basics before you begin trading so that you have a good grasp on what to do once you hit the stock market.
- Select a stockbroker
It is one of the most important decisions that you will make as a beginner in trading. You need to begin your journey by picking a stockbroker. There are so many to choose from so for the uninformed the decision can be difficult. You need to focus on several factors which include the reputation of the stockbroker, the trading portal or software and the brokerage to make the decision. You need to consider that the brokerage that you choose will require payment regardless of whether you make a profit or a loss during your trade. They may offer a flat fee or a percentage of the trade value. This is an important point to note as the brokerage of multiple trades can add up very quickly either way.
- Avoid short-selling when you start out
There are ways to make money in the stock market, even when the price of shares is falling. This is known as short-selling. First, we need to familiarise ourselves with buy orders. A buy order is when you purchase shares at one price and then sell them at a higher price. It is the opposite of short-selling. The difference in the price of the share multiplied by the number of shares that you purchase will be your profit for the sale.
When it comes to short-selling, you place a sell order at one price and then buy the shares at the same or lower price. The difference in price multiplied by the number of shares that you bought is your profit. While this allows you to take advantage of a falling market, it is not recommended to those who are new to the stock market. It is best to master the basics of a buy-and-sell order before you progress to sell-and-buy.
- Avoid a derivatives market
When you start another thing that you should avoid is trading stock derivatives. This market mainly focuses on futures and options. They are contract-based purchases that have a fixed expiry date that is adhered to. Similar to the margin facility, the derivatives market is attractive because it allows buyers to make bigger purchases with little capital. Regular traders often use the derivatives market, but it is not for beginners. It is important to start small and simple and work your way up to derivatives and short-selling.
- The stock market is not for everyone
It may be intriguing because you have heard about or seen someone make it big on the stock market. But it is important to know when you should walk away. It is not as easy as buying and selling stocks, it requires a lot of knowledge, skills and experience that not everyone has. The most important tip for beginners is to stay away from the stock market entirely if you have tried it several times but it has failed to work in your favour. A good way to stick with it if you have not developed the necessary tools to be successful by yourself is to invest in a mutual fund. This is run by experienced professionals who invest your money for you. It is a great way to profit from the stock market without being directly involved in the trading.
So, now that you have our top 6 tips on how to start your trading adventure, it is time to buckle down and do your research. The above areas are important to understand before jumping in and investing your money. Knowledge is the key to making good and profitable decisions and you will find that the more you understand the better you will be at investing and trading. Start small and see if the stock market is right for you. Make sure to always spend within your means and happy trading.