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How to Start Stock Trading

Updated on July 28, 2020
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Arto Laakso is a well-known advertising agency entrepreneur, best known for his multi-channel marketing communications skills.

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If you want to know how to start stock trading, the first thing that you will need to do is figure out how stocks work and what they can offer you. Stocks are basically just shares of ownership in a particular corporation, while the stock market is the place where these stocks are purchased and sold. All countries have their own unique stock markets, and each local stock market is governed by its particular stock exchange. Likewise, a stock exchange is basically a corporation which specializes in managing and trading various types of stocks. Several good examples include the Dow Jones, the New York Stock Exchange, the Tokyo Stock Exchange and Euronext.

People who purchase or invest in different stocks do so in order to benefit from their company’s value potential over a given period of time. In other words, when you invest in a particular stock, you become a shareholder or partial owner of the corporation that issued that stock. This is basically how stock trading works and once you’ve figured out the basics, everything else will easily follow.

How Do You Make Money Through Stocks?

There are two ways by which to make money through stocks:

– Capital Appreciation
– Earning Dividends

Capital Appreciation refers to the gradual growth of the market price of the stocks that you own over a given period of time. This is typically caused either by an increase in the potential value of your stock or by market demand. Basically, the faster a company grows, the faster the price of its stocks will appreciate.

Earning Dividends, on the other hand, are best thought of as incentives given out by profitable companies. Dividends are given either as cash or as additional shares of the company’s stocks.

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Why Should You Invest in Stocks?

Stocks generally offer better rewards than many other investment instruments. This basically improves your chances in achieving your financial goals more easily than if you were to invest in, say, bonds or foreign exchange. This is because stocks are equities rather than debt instruments, and unlike other investments, they are more likely to compound the value of your initial investment over time, which of course leads to even greater dividends and rewards.

If you don’t want to purchase stocks through the phone or directly through a stock trader, you can always go to the internet. Online stock trading for beginners is relatively easy to understand, and the rewards can be quite substantial. Furthermore, stock trading online is both easy and convenient.

How To Buy Stocks For Beginners

Tips On How to Get into Stock Trading

If you want to know how to do stock trading, you have to keep in mind that stock investments have to be managed in certain ways. The following tips will give you a general idea on how this works.

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Invest as Early as Possible

The sooner you start investing in stocks, the sooner you’ll get plenty of great returns. Stocks have compounding value, which means that if you were to invest in a $10,000 stock with an average 10% yearly growth, you will have $50,000 in the next 40 years.

Make Regular Investments

Instead of investing just once, it’s a better idea to keep adding new investments every year. This way, the value of your stocks will exponentially grow whenever you make additional investments. For example, let’s say that you initially invested $25,000 in stocks that grow by about 8% per year. Now, imagine if you were to add a similar amount into your investment every year for the next 30 years or so. By the time you’re ready to retire your stocks will be worth at least $6 to $7 million.

Invest in the Long Term

Stocks are meant for long-term investments. Not only does this help solve problems related with short-term volatility, it also promises better rewards than short selling. Although the price of stocks are affected by all kinds of factors, such as natural calamities or political instability, they are ultimately determined by general economic trends, which is why it’s important to firmly fix your goals in the long-term.

Diversify Your Stocks

Risk management is one of the most important aspects of stock trading and should always go hand in hand with how you choose your investments. The best way to contain risk is to simply spread out your investments across a wide range of sectors and companies, instead of just one single class of assets.

Aside from understanding how stock trading works, you will also need to look for a reputable stock trader to handle your investments. Not only can they give you some additional useful tips on how to start stock trading, they can also help you figure out how the stock market is doing and how future stocks are likely to turn out. So if you want to increase your finances in a sustainable and practical way, invest in stocks soon.

Have You Ever Invested in Stocks?

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How To Trade Penny Stocks

Penny stocks refer to stocks trading at a low value in the stock market. Traders are usually attracted to them because of their sudden and high upward move at times. In most cases, there is no fundamental reason behind this huge movement of penny stocks. Trading at stock exchange is based on the principle that there must be buyers and sellers to make money.

However, this is a bit risky as falls in the penny stocks can be enormous. Therefore, it is important to be very careful when day trading penny stocks in order to avoid losses. If you want to invest in stocks, here are some strategies that you need to employ to double or even triple your investments within a year.

Tips on How To Trade Penny Stocks

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Monitor Price Movement:

To participate in online trading of stocks, you need to monitor the price movement of the shares for some time. Before you invest any money, it’s advisable to track them for at least one month. This is because such stocks usually don’t have a clear trend and they can enormously move up or down within a short time. So, if you are a beginner, follow this suggestion and you will certainly make considerable money from the penny stocks.

Select a Safer Sector:

When trading in stocks, it is advisable to buy shares from safer and stable sectors that are not often affected by market fluctuations. Stocks from sectors that are always on the news can be a bit unstable. On the same note, investor sentiments for different sectors can change at different times of the year; hence you need to study the market carefully to know the stocks in demand.

Study Technical Charts:

Another thing that can help you to choose stocks is the technical charts. Studying technical charts of stocks would enable you to arrive at an informed decision. The price patterns on the charts would not only allow you to make a decisive conclusion but would also help you to predict future penny stock prices.

Buy on Dips:

The key to making money with stocks is to buy them at lower prices. Some investors usually buy stocks at the wrong time when they should be selling them. Eventually, they will end up making losses when the selling pressure from big market players reduces. Therefore, buying stocks at lower levels is beneficial to any stock trader.

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Sell on any Rise:

For anyone who wants to learn how to make money with stocks, selling shares on any rise is the ideal solution. If you notice any opportunity of booking profits, don’t wait. To know when there is an opportunity to make some profit, you have to monitor the stock market carefully. This will enable you to react faster.

Avoid Over Valued Stocks:

It is advisable to buy fairly valued penny stocks in comparison to their peers. Valuation is very important when it comes to penny stocks as they react sharply to any news. Therefore, you need to compute their fair value using valuation ratios, like net profit ratio or price to earnings ratio.

Do not Invest Huge Capital:

It is not a good idea to invest everything. Penny stocks are associated with a lot of risks and hence you need to invest only 8-10% of the total money you have allocated for share trading. Avoid buying penny stocks of smaller companies with the hope of doubling your money in a couple of days.

Have Correct Stop Losses:

Stop loss refers to the price below which an investor exits from stock because it may touch rock bottom thereafter. Therefore, it is important to have a stock loss price at the right level to protect profits and lock them in time. The stop-loss order is placed with a stock broker and he executes it over the phone.

In conclusion, trading penny stocks may be achieved only with good stock research and systematic stop losses. You can also seek assistance from brokers and experienced traders, particularly when dealing with a huge stock market such as NYSE. If you follow the aforementioned tips, you will certainly reap the benefits of your investment. At the end of the day, your success will depend on your research and decisions.

Have You Ever Invested in Penny Stocks?

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How To Start Forex Trading

Forex is a multi-billion industry on which tens of thousands of people trade on a daily basis. However, what sets a few apart from the rest is that they know how to start forex trading and make a lot of money. On the other hand, beginners don’t really need to shy away since there are a lot of tips that can help them learn about how to trade in this ever-changing market. With that being said, the forex trading guide below will provide beginners in the Forex market with a few useful tips to start their journey, hopefully, towards a bright and financially secure future.

Forex Trading for Beginners

What Is Forex Trading?

Before giving out any tips, people should first of all know what is forex trading. Forex is a type of trading that is generally done through a market maker or a broker. Individuals can thus choose a currency pair they’ll expect to change in value and then place a trade accordingly. For instance, if someone bought 1000 EUR in January 2005, this would’ve cost them around twelve hundred dollars. Throughout that year though, the EUR vs. USD value increased and by the end of 2005, 1000 EUR was equal to thirteen hundred dollars. This means that if the trader chose to end the trade at that point, his earnings amounted to 100 dollars.

Broker Selection

Many people choose to open up mini accounts when they’re still learning how to do forex trading, but that doesn’t bode well with the big players. As a result, the broker will generally take the opposite side of the individual’s trades. To make people better understand what this means, idealistically it’s like playing at the kid’s pool where they can get wet, but since it’s not connected to the big pool, they won’t be able to make too many laps in it.

Trading Forex

While how to start forex trading may be a question that makes a lot of people blink fast in excitement and in cognizance, trading in this market is not as hard as it sounds. Every time someone trades Forex, they’re buying and also selling currency at the same time. As a result, they’re always quoted in pairs. As a result, the quoted price will represent the amount of quote currency the trader can purchase with a single unit of the base currency. For instance, if the currency pair of EUR/USD was quoted at 1.3700, then that means one can purchase 1 EUR for 1.37 dollars.

What is Leverage?

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Depending on the market people choose to trade in, they can get a leverage of up to 1:200. This means that by just investing a small amount of money, people will be able to take much greater positions on the market. To offer an example in this regard, with 1000 dollars, a trader can purchase contracts valued at 200.000 dollars and because of that, his chances for making profits are massively increased.

Forex Charts

Depending on the trader’s interface, Forex charts can have vary a lot in terms of looks, yet there are indeed certain common parts in every Forex chart. The majority of charts will show info such as:

  • Time.
  • Most recent or closing price.
  • Lowest price.
  • Highest price.
  • Opening price.

Those who are still learning how to forex trade may find them a bit difficult to understand in the beginning, but that should not be a problem in the long-term. Using them people can check everything they did on their account in the past ten years and up until the last-minute. By doing so, they can easily understand market trends and use that info to their advantage.

Software

As a beginner wanting to know how to learn forex trading, it’s best if one can use specialized Forex trading software. There are many software packages to consider out there and each one has their own benefits. The program analyzes the currency price charts and using criteria set by the user, it can find a currency pair that can generate profit and then makes the trade automatically. The software though can do so much more and that is why if they want to make Forex trading as simple as possible, people should go with a popular one.

So at the end of the day, what is forex trading all about? Well, Forex trading is all about timing, knowing all about the current and past marketing trends, knowing exactly when to trade and also be aware of the currency that can offer the most profits.

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This article is accurate and true to the best of the author’s knowledge. Content is for informational or entertainment purposes only and does not substitute for personal counsel or professional advice in business, financial, legal, or technical matters.

© 2020 Arto Laakso

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    • Abby Slutsky profile image

      Abby Slutsky 

      6 weeks ago from LAFAYETTE HL

      Thanks for sharing. A lot of the information I knew, but you offered some new information too.

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