If you’re thinking of starting to trade in stocks, but aren’t ready to give up the security of your day job just yet, here’s the good news! It’s never been easier to get started, and there are many ways you can learn how to trade successfully, without taking huge risks. Let’s take a look at some of the basics.
1. What’s your starting position?
Before you jump in, take time to really analyse why you’re interested in stock trading. What are your long-term goals – financial independence, a more comfortable lifestyle, a hobby which you can enjoy while it earns you extra cash?
How much do you have to invest? Another way to ask this question is: how much can you afford to lose without a negative impact on your life?
Next questions: how much time do you have and how much effort do you want to put in?
Are you interested in learning about the markets? Or are you willing to pay a bit more to rely on the professionals making money for you?
2. Select your online broker
There are plenty of stock trading platforms available, many of them with a very low entry point. A quick google search will identify a list of top free stock trading apps. These allow you to operate a training account, with an opening balance of several thousand ‘virtual’ dollars, so you can get a feel for how it all works, without risking your own money. Share prices rise and fall in real-time, so you start to understand the workings of the markets. Give yourself a time limit and assess whether your starting balance has grown or if you’ve actually lost money.
3. Start Small
The golden rule when you’re entering the world of stock trading is to start small, and, as your profits accumulate, grow your investment. Unlike higher-risk day trading, most shares take time to create returns, so you’ll need to be patient and ready to sell when the time is right. Traders typically fail because they are too reluctant to let go of shares that are losing value, for too long.
4. Diversify your Portfolio
If you’re entering the market with, say $1000, it can be hard to create a genuinely diversified portfolio, but by doing so you’ll ‘hedge your bets’ – when one stock is not performing well, others, which are doing better, can protect the overall value of your investment.
5. Are mutual funds a good idea?
If you want to invest, but aren’t confident that you have enough knowledge to make wise decisions, mutual funds solve two problems. First, they’re managed by experienced professionals with access to a tremendous amount of data, and secondly, as they involve a ‘basket’ of investments, they spread the risk. Also, it’s sometimes possible to buy into a mutual fund with a monthly payment, rather than by investing a lump sum. So yes, in general they are a great investment option.
Investing in shares can be rewarding in many different ways – just take time to understand what you want to get out of it, and you’ll be most likely to make the right choice. Good luck!
Danis Woods in Businessman, investment banker and stock exchange traders. On the same time he loves writing financial blogs to shed lights on different aspects that new and existing businessman are not aware of.