Stock trading involves two extremes: the traders and the investors. The traders buy stocks for the sole purpose of selling to profit from the slightest favorable price change. The trader is always in front of the computer, monitoring stock performance and always buying and selling.
The investor, on the other hand, buys for the long term. Here, the investor buys, holds, and waits, hoping that the stock price will continue to rise as they benefit from dividends. Occasionally, the investor may shed some of his stocks or add some to his portfolio.
What is Stock trading?
Stock trading is the act of buying stocks from someone who already has the stock and selling to someone who wants to buy. The price you buy is the ask price, while the price you sell is the market price.
Foolproof Steps to Investing in Stocks
Opening an Account
The first thing is to open an account with a broker. The Internet has made this more accessible than ever, and all you have to do is visit any broker’s website, fill out a few forms, answer all sorts of questions, and choose how much money you are ready to invest.
Choosing a Stock Brokerage
To start investing in stocks, you need to find a good brokerage firm. You can only trade through licensed online trading at a discount broker or using a fee-based broker who handles all the paperwork for you.
A good brokerage firm is a broker who gives you good advice and won’t pressure you into buying stocks but respects your preferences.
One sure way to find a good broker is to go online and look for a brokerage firm recommended or mentioned by your friends or colleagues. The recommendations will inform whether the firm is genuine.
Set Your Budget
When investing in the stock market, it helps to start with some money you can afford to invest. Further, it is reasonable to set a goal of investing enough to get at least an annual return. Then as time goes, you increase the amounts as you build confidence.
Learn Market and Limit Orders
A trading platform presents several options which dictate your trade. Market orders and limit orders are the most common ones.
A market order allows you to enter at the best available price. Market orders require no further action from you. When you enter a market order, it executes immediately. You can enter and exit orders on any day the market is open.
A limit order allows you to enter the market at the best available price. When you enter a limit order, you can immediately execute the order when the market reaches your specified price. If the market does not match the price you set before the market closes, you cancel your order.
Market orders allow you to get an immediate price, whereas limit orders give you price protection. With limit orders, you don’t always get the price you want, but you won’t pay more than you should.
To gain some experience, you may want to practice through virtual stocks. Virtual stocks provide you with learning opportunities. Virtual trading is a trade-off between risk and learning and lets you practice investing without risking anything.
Be Focussed and Measure Your Returns
When considering investing in the stock market, it’s easy to be overwhelmed by all the conflicting advice, terminology, and statistics out there. For example, some people invest based on the “hot stock pick of the week,” while most invest based on emotion rather than facts.
Safe Trading Tips
Stocks investment is a great way to generate passive income. An excellent way to do that is to follow the sound practices of investing that have produced positive returns for decades.
- Appraise your broker before engaging. Beware of scammers.
- Avoid hot tips because some of the participants are a scam.
- Gradually trade to lower risks.
- Invest what you can comfortably lose, just in case!
- Emotions aside!
Knowing what you want is paramount before placing that first trade. Be careful with what you invest because risk exposure can be your worst enemy. And many people are learning this lesson the hard way.