5 Easy Steps to Start Trading Stocks Today
With the world experiencing a crisis the likes of which we may have never seen before, more and more people are turning towards the stock market in an attempt to shore up their financial future.
This can be a path fraught with risk, but it can also bring huge financial dividends.
Whether you’re someone who’s looking to find a new source of income in the short-term, or someone who is after somewhere to invest over a longer period of time, there are certain things you need to be aware of before you dip your toe in the financial waters.
Knowing – at least in broad terms – what to expect and what tools you will need to survive on the stock market will make sure your first entry into stock trading is as painless as possible.
Here are five things to do that will help you begin your trading journey today.
1. Learn Stock Market Basics
Before you begin trading, you will at least need a cursory knowledge of how the stock market works.
Let’s begin with the basics.
“Stocks” are tiny pieces of a much larger company, with the price of a “Share” in that company dictated by the people trading in that company’s stocks.
The more people looking to buy a stock, the pricier it will be and vice versa. Stocks, therefore, do not have anyone price, they fluctuate constantly as demand increases and decreases.
Stocks are traded on exchanges, for example, the New York Stock Exchange.
These exchanges are generally open 9:30 am to 4:00 pm in the timezone they operate in.
While stock exchanges are open, you can buy and sell any of the stocks that appear on them.
The aim, obviously, is to buy a stock at a low price and sell it at some later date at a higher price.
As you obtain more knowledge about stocks you will also learn that it is possible to sell a stock without buying it, with the expectation that the stock’s value will fall.
This is known as shorting.
2. Acknowledge the Risks
Trading isn’t a win-win exercise. In fact, it’s often lose-lose. Just because you invest your money in to a company you think is rock solid doesn’t mean that you’re guaranteed to get back everything that you put in.
With that in mind, it’s extremely important that you are aware of the risks, and plan accordingly. Putting your life savings in to the stock market in the hope of making it big is an incredibly silly idea. Your savings are your savings for a reason, and you really shouldn’t be delving into them for any reason, let alone to make risky trades on the stock market.
That being said, a diversified portfolio is a goal everyone should be striving for. Stocks should absolutely have a place in that portfolio, so long as they’re from a wide range of market segments and represent a few of the major industries.
Long story short, you should make sure you have enough savings set aside for both the short and long-term before you begin dabbling with stocks, and never have all your eggs in one basket.
3. Do Your Research
You wouldn’t jump head-long in to anything without knowing what you’re doing, so why would you do it with your financial portfolio?
There are infinite ways to choose which stocks to buy. Some traders like to invest in products they like; for example their favourite airline, or their favourite T.V. network.
The best traders, though, do in-depth research on whatever stocks they’re interested in before they buy. That doesn’t mean you need to spend hours and hours in front of charts and graphs, but it does mean looking in to a company’s backstory; checking its financial status, price history and past movements. It involves spending time wrapping your head around complex terminology and learning how to read various statistical measures.
Don’t stress though, while this can sounds like it’s going to be a complicated process it can actually be fairly simple. Most online brokers now have a range of educational resources (videos, webinars etc.) while some have physical offices where you can go to speak to someone in person.
There is also, of course, websites like ours!
4. Proceed With Caution
Some people like to jump in to trading head first, others like to take it slow. While we’d never dismiss anyone’s chosen methods, in our experience it’s always better to proceed carefully, at least initially.
We like a method called “dollar-cost averaging”, which essentially means investing a certain amount of money at certain set intervals. Using this method will – literally – force you to take things slowly, and while research can show that getting your money in to the market earlier tends to pay off, while you’re learning the ropes it’s better to be sensible.
Dollar-cost averaging means deciding on a budget and then using your budget to buy shares of a company (or multiple companies) at certain set intervals. When share prices are up, your money will buy less shares and when they’re down they’ll buy more. That inherently means your money is safer than it would be if you’re going all-in when prices are at any one level.
5. Pick a Broker
To put this in the bluntest way possible: there are thousands of brokers out there vying for your services, and you need to pick the one that suits you best.
While that can make it tricky to choose, it also means that broker fees are way, way lower than they were two decades ago. Costs aren’t everything though; you also need to focus on what else a broker can offer you; e.g. educational resources, user-friendly trading platform, good customer service etc.
Most brokers these days also offer demo versions of their trading platforms, so you can trial out your strategies with fake money initially before moving to the real stuff. This allows you to practice without the fear or danger of losing.