While the stock market has provided investors with impressive returns, it is not without its risks. Trading stocks can be a great investment, but it is important to do thorough research before starting.
There is no way to avoid risk when investing in stocks, and the stock exchange is notoriously volatile. This volatility is easily understood by anyone who has not studied the history of market crashes such as the Great Depression or the 2008 financial crisis.
The stock market is also a well-known and trusted investment option that has proven to be a good return on your money. What do traders need to know to feel confident investing in the stock exchange?
#1: Don’t invest what you can’t afford to lose
Although it may sound simple, this is important to remember. You can lose all your money if you invest in the stock, bonds, or other assets.
Investors who make risky moves could end up in serious trouble. This could be the case if you invest money that is unnecessary for your daily living expenses to generate compelling returns.
FXCM: Why trade shares?
- $0.00 Commission*
- Mini Shares – Fractional share trading with minimum trade sizes up to 1/10 of a share
- Low Margin Requirements
A budget is a good way to figure out how much you can afford to invest.
#2 Do Your Research
There are many strategies that stock traders can use. Investors looking to trade stocks can benefit from the simple rule of “Do your own research” (DYOR). This means you will need to do a lot of research before making any investment decisions. Everyday investors could outperform Wall Street professionals making it worth doing your research.
#3 Open an Investment Account
After thorough research, you can open an investment account. A brokerage account allows you to trade stocks and buy them back, usually in return for a commission.
There are many service providers, including discount brokers and full-service brokers. The former can evaluate the client’s financial situation, then recommend stocks. However, the latter is much more hands-off. They offer very little advice but help customers to make transactions.
Stockbrokers can be found somewhere in between. They offer greater information than discount brokers but less assistance to clients than full-discount brokerages.
A Robo advisor is another option for aspiring stock traders. This online service uses technology, such as algorithms, to help clients build wealth. These online services can be inexpensive and cost between 0.25% to 0.89% per annum. Many of these services require very little money to start, which lowers the barrier of entry.
It would help if you remembered that trading could be very profitable. Avoiding high fees will allow you to save thousands of dollars.
#4 Stocks with low-risk potential
It is good to start stock trading by focusing on less risky stocks. You are less likely to lose your money if you buy shares in a large company than if they were shares of a penny stock.
You can also reduce risk by focusing on stocks of consumer staples businesses known for their low volatility. These companies produce basic goods that everyone needs, like soap and food. You might also consider investing in shares of utility companies if you are a beginner stock trader. They have experienced steady growth over the years.
#5 Stay Rational
Stock market volatility is a risk factor. Members of the media can amplify any developments. It’s easy for you to become stressed out if market news impacts your approach. You may even let your emotions influence your investment decisions, making choices that don’t help you achieve your goals.
An investor who is new to trading stocks may benefit from having a strategy and sticking with it. No matter what strategy you choose, it is important not to let the latest news distract you from your goal.
The stock market has always offered investors attractive returns. Investors who are just beginning to trade stocks can still benefit from these basic tips. First, don’t invest any money that you cannot afford.
This is a good rule of thumb. However, it’s important to research all stocks you are considering and the entire stock market. Before you can make trades, you will need an investment account. There are many options.
Consider sticking with lower-risk options to reduce your chances of losing significant amounts. You can also benefit from having a plan and sticking with it.