No one likes to lose money. Moreover, the pain threshold of some is greater than it is with others. If you’re considering an investment in the stock market and the thought of a loss upsets you, you probably shouldn’t invest. However, when you invest there are several things you should know to increase your chances of winning. That’s the subject of this article. Although there are numerous details and caveats, this article will help you understand the basics of how the stock exchange works and why stocks react as they do. We’ll also discuss five things that every investor should know. Let’s dispense with the mystery and take a look behind the veil.
What is a Stock Market?
The stock market is a complex system where shares of publicly-traded companies are issued, bought and sold. To some, it is a nebulous, dark chasm where people gamble. Actually, it’s not gambling at all. Why? Let’s say you put $100 on one roll of the dice. If you win, you win $X. If you lose, you lose the entire $100. When you invest in stocks, you will win $X or lose $Y. It’s rare to lose it all unless of course, you invest in a company that goes bust. You could say that a stock market is a group of people putting their expertise against one another. We’ll touch on that in the next section.
Ways to Learn Stock Trading
1. Open a stock broker account
Find a good online stock broker and open an account. Become familiarized with the layout and to take advantage of the free trading tools and research offered to clients only. Some brokers offer virtual trading which is beneficial because you can trade with play money.
2. Perform a self-assessment
Before you do anything else, analyze your personal financial situation. Are you prepared to trade? Do you have liquid funds to cover both your monthly expenses and a cushion of savings?
How much risk are you willing to take on? What are your goals? What time horizon are you thinking of for your investments? All these considerations are crucial when it comes time to trade.
3. Read books
Books provide a wealth of information and are inexpensive compared to the costs of classes, seminars, and educational DVDs sold across the web. Here on the site, we have a full list of 20 great stock trading books for investors to consider.
4. Locate a mentor
A mentor could be a family member, a friend, the past or current professor, co-worker, or any individual that has a fundamental understanding of the stock exchange. A good mentor is willing to answer questions, supply help, recommend useful resources, and keep spirits up when the market gets tough. All successful investors of the past and present have had mentors during their early days.
5. Ready yourself for volatility
You can potentially produce great returns by investing in the stock market, but you need to be willing to tolerate the ups and downs involved with this particular asset class. Many investors avoid equities entirely since they can experience such severe fluctuations. If you are willing to cope with this unpredictability, you may be greatly rewarded.
6. Read and follow the market
News sites such as Yahoo Finance and Google Finance serve as a great resource for new investors. For in-depth coverage, look no further than the Wall Street Journal and Bloomberg. By monitoring the markets each day and reading headline stories investors can expose themselves to trends, 3rd party analysis, not to mention economic concepts and general business. Pulling quotes and observing fundamental data can also function as another great source of exposure.
TV is another way to monitor the marketplace each day with CNBC being the most popular channel. Even turning on CNBC for 15 minutes a day will broaden an investor’s knowledge base. Don’t let the lingo or the style of news be a nuisance, just simply watch and allow the commentators, interviews, and discussions to soak in. Beware, though, over time you might find that a lot of the investing shows on TV are more of a distraction and are overall full of junk recommendations. This is a natural evolution; you are not alone!
Choose the right on-line stock trading company
To get a good financial return on your investment, it’s important to do your research together with the various online trading firms. Investment research requires getting the right facts and data to make sound investment decisions. Fortunately, many on-line brokerages provide online tools and information to help investors decide where to invest.
For starters, you’ll want to do some initial research around the company’s reputation. Read customer reviews and comments by other investors – anything that points to issues of mishandling money and personal identity is a sure red flag. How popular has the company been with other users?
Trading online is cheaper than paying for a broker. You don’t want to pay hefty commissions for every transaction. Bigger businesses, however, usually take a large commission than smaller ones so do your research diligently.
Watch hidden costs
Even though trading prices are much lower than what you’d pay an agent, watch for hidden costs and facts which are usually revealed in the fine print. For example, you may need to keep a minimum amount in your account balance otherwise, you’ll be charged a monthly maintenance fee. Know what you are getting when you trade. Some mistakes may be costly.