The stock market is also known as a securities exchange, it is vulnerable to regulations of the government and set of rules established. You can buy and sell shares or stakes. The number of shares you have of a particular company determines your stake in the company. Read about stocks 101 in this article.
There are ETFs or exchange-traded-funds, treasuries, and bonds that you can invest in. The NYSE or New York Stock Exchange and NASDAQ are the world’s biggest stock exchanges.
Stocks 101- How to start trading?
There is a difference between investing and trading. When you invest, you hold on to the shares or any financial instrument for a longer time. And when you trade, you place your trade and then sell off your investment vehicle with the hope of making a profit. Trading is usually done on a day-to-day basis.
If you have just started in the stock market, and want to invest in Stocks and bonds 101, you can always seek professional help and hire the services of a broker, if you are not very sure about your instincts.
Stocks trading 101 the safe way
Follow these tips to get the best returns-
Select a good online broker
First of all, zero-in on a reputed brokerage firm after doing your bit of homework and due diligence. There are few aspects that you must take into account before settling for the best brokerage firm. These are as follows-
- Trading commission fees
- Past track record of the company
- Online tutorials for beginners -how well have they posted for traders
- How intuitive is the app or the brokerage company
Selecting the best broker for trading will determine to a great extent how successful you are if you intend to invest or trade. There are well-known stalwarts like Fidelity and Charles Schwab. Also, there are a few newcomers like SoFi, Robinhood, and Weibull.
Research stocks before investing and trading
If you are trading for the first time, it is best to keep stocks at bay and instead, buy ETFs or exchange-traded funds. You can also try out stocks 101 for dummies that can help you to practice before you finally take the plunge.
With the help of ETFs, you can buy a bundle of stocks giving you the privilege to select one company over the other, in case you are not certain about which company to choose. Exchange-traded-funds help to replicate like S7P 500, NASDAQ, and Dow if you are trading on the U.S stock market.
Bonds are another option where you can invest as a hedging financial instrument when the markets are dwindling. To settle for the best company, use financial analysis ratios to find out the performance of the individual companies.
Find out the type of trade that is right for you
You have the option to choose in which order you want your traded assets to work. The two most common types of orders are market orders and limit orders.
In the case of the former, the traded assets are immediately traded so that you get the best price. In the case of the latter, you will not get the best price promptly but you receive the best price over some time and you have greater control over your trading asset.
When you buy a stock, you can place a trailing stop-loss sell order. It allows you to continue with positive momentum for the trade and when it appears that the trade is turning on you, it sells.
Remember, there is no proven record that one type of order is better than the other. It depends on individuals, their objectives of trading, and the prevailing scenario in the market that helps them to make a decision.
Buying stocks 101- Know how much it costs
An important factor that will decide which stocks you would trade is cost. You have to be prepared for the commission fees, and the amount you pay for trading securities of your choice.
If you are buying stocks through a broker you may not be charged any commission fees. However, if you start trading mutual funds, exchange-traded funds, or any other investment type, you must take into account the expense ratios.
This is because when you trade assets from the above category, you will have to shell out some cash. After all, these types of funds are taken care of by individuals that are paid a certain percentage for the assets annually.
Monitor your risk tolerance
Hypothetically, you can calculate your risk tolerance by assuming the scenario when you suddenly lose 50% of the value of the financial instruments you have invested in. Understand and plan what would you have done in such a case whether you would buy more stocks or wait or take on more risks.
There is a fine line of demarcation that will help you to realize what happens when you emotionally break down after losing and what would be your state when you become financially unstable by losing the same. So, understand where you stand emotionally when such a scenario arises.
Last but not the least, never invest in a single stock or from one industry. It involves greater risk and if stocks from the same sector start dwindling, you lose all your money and investment.
However, if you diversify, you place your trade-in different sectors and in different industries. So, if one industry performance fails, there is still hope from the other sector that you have invested in.
In a nutshell, it is not just the amount you are spending for trading financial assets but your emotional well-being counts too. Find out the steps or the tips that can help you to trade better involving minimum risks.