Stock trading can be an effective way to build your long-term wealth. Whereas, learning how to invest wisely and patiently can pay you more profits than any income you will make as a full-time employee. It all depends on how well you understand how the stock markets work, your investment objectives as well as your ability to take a little or a lot of risk. In today’s article, we will provide you with a comprehensive guide on how to trade stocks for beginners, and put you on the way to investing in the stock market. All you have to do is keep reading to find out more about it.
How to trade stocks for beginners
What do shares mean?
Shares are a share that represents legal ownership in a company. In other words, when you buy shares (shares) in a company, you become a partial owner (partner) in that company, and the power and amount of power a partner has depends on the number and type of shares he owns. Companies offer their shares for sale in order to raise money, where shares come in two forms: Ordinary shares: entitle the owner to obtain a share of the money commensurate with the company’s profits and losses. Preferred Shares: They come with pre-determined paid dividends.
What is stock trading?
The concept of “share trading” expresses the process of buying and selling shares in a particular company. If you own one or more shares in a company, this means that you own a part of that company and you have the right to dispose of it as you wish.
Benefits of stock trading
Investing through stock trading has recently attracted the attention of many, and its popularity is increasing day by day, especially with the possibility of trading via the Internet, its ease and the ability to invest and trade with small amounts of money that suit everyone. You may find yourself hesitant or not completely convinced of this way of investing, but there is no doubt that it has important benefits and advantages, among which we mention the following:
A great way to save yes, one of the best ways to save money in the long term is by trading stocks in a correct and effective way. Even if you want to get profits in the short term, this will contribute to saving your money in the long term.
A great way to make money too!
Perhaps you do not have a large amount of money
That allows you to open a private project,
Alternatively, you do not have enough time,
Alternatively, perhaps the required skill in entrepreneurship and investment, but you still want to earn more money and provide a stable and continuous income for yourself…
Well, stock trading is the way to do that, by dedicating some time to buying and selling suitable stocks, and by investing a small amount of money, you can make reasonable and sometimes huge profits without spending a lot of effort, time or money.
Making a positive change around you Investing in the stock market is not only about making money and making big financial profits, it can also help you make a difference in your community and have a positive impact on those around you.
Here comes the importance of ethical stock trading.
Meaning that you buy and sell shares of companies that seek to provide ethical services that benefit and support communities, for example companies that work in environmentally friendly economic activities, for example, or that aim to provide health services or help the less fortunate…etc.
How to Trade Stocks for Beginners You may be surprised to learn that a $10,000 investment in the stock market nearly 50 years ago turned out to be worth about $1 million today.
This is an important indication that stock trading, if done correctly, is the most effective way to build wealth in the end.
Here is how to start trading stocks systematically:
The first step: Define your investment approach
The first thing you should think about before you start trading stocks is defining your investment approach.
How would you like to invest in stocks?
Some may buy and sell shares individually while others may opt for a less active approach. Before you make your decision about the nature of the investment to make,
Determine which of the following statements apply to you: I am an analytical person and enjoy analyzing numbers and doing research. I hate math and do not like doing a lot of arithmetic. I have several hours a week that I can devote to the stock trading process. I like to read about the different companies I can invest in, but I have no desire to dive into the complex math involved in investing in them. I am a busy employee and do not have time to learn how to analyze the stock markets.
The good news is that whatever statements apply to you, you are qualified and able to enter the world of stock trading, the only thing that will change is the “how”, in other words, the way or how to invest in the stock market.
Here are three ways to do this:
You can invest in individual stocks in only one case,
That is mean: you have the time and desire to do in-depth research, evaluation and analysis of stocks constantly.
If you are, we encourage you to take an individual approach to stock trading.
It is a perfectly suitable method for a smart investor with analytical skills and sufficient patience, who will inevitably be able to speculate in the market and make attractive profits.
However, if complex calculations and analyzes are not attractive to you, there is no harm in resorting to another, less active method.
Exchange Traded Funds
An investment style follows a specific indicator in the market.
Such as the S&P 500 index in the American markets, which tracks the 500 largest investment companies in the United States of America according to their market value. There are also many types of ETFs, some of which track the largest technology companies, or the largest institutions operating in the energy, health or tourism sectors…etc.
If you are one of those who do not like to invest individually in stocks directly, you can resort to trading in exchange-traded funds as their cost is lower and you can buy and sell in them just like the stock market.
An option that has become very popular in recent years, an automated advisor is a broker that invests your money on your behalf in a portfolio of index funds appropriate for your age, risk tolerance and investment goals, for a set fee. If you want to trade stocks without caught up in the vortex of complex analyzes, this method is very suitable for you.
Second Step: Determine the amount you want to invest first
Let us talk about money that you should not invest in stock trading. Realize that the stock market is not a place to invest money that you may need for the next five years. Why? Ok, although the stock market is always witnessing a certain rise in the long term, it nonetheless contains a lot of uncertainty and ambiguity in the short term.
An annual decrease of 20% is not surprising. In fact, during the year 2020, the stock market witnessed a decline of more than 40% because of the Corona pandemic, but it returned to rise to unprecedented values in just a few months.
Make sure not to invest any of the following funds in the stock market:
Your emergency reserve savings (often equal to the value of your monthly income for a minimum of 6 months).
Money you will need to pay your tuition fees or your child’s fees.
Money you keep to pay certain installments, or to pay off debts you have accumulated with it.
So what money can you invest? In addition, what is its value?
It is simply the sums of money that you will not likely need during the next five years, which is what is called
As for the amount you can invest, it depends on many factors. These include age and your willingness to take risks.
The general rule is that as you get older, stock trading becomes a less suitable option to put your money in to. When you are young, you have years and decades in front of you in which you can afford to lose and get back on your feet again, but the same does not apply if you are retired completely dependent on the returns on your investment.
Here is a simple rule that will help you determine how much you should invest:
Determine your age and then subtract it from the number 110.
The number you will get is the percentage of what you should invest in the stock market from your investment money (which you will not need for the next five years).
If you are 30 years old,
For example: 110 – 30 = 80, then 80% of your investment money must be used in the stock market. Of course, you can adjust this percentage up and down according to the degree of your willingness to risk, if you do not want to risk much, you can reduce this percentage, and if you are impulsive and not afraid of losing, in this case you can raise the percentage to 90% or more.
Third Step: Open a trading account
All of the above advice remains meaningless unless you have a special investment account that allows you to buy and sell stocks.
These accounts also known as brokerage accounts such as Q8 Trade. XTB Corporation. TD Ameritrade.
In addition to many other brokerage firms around the world. Where you can easily open your own trading account in one of these platforms and feed it with the appropriate amounts of money, whether through checks or bank transfers.
There are number of things that you should take into consideration before choosing the right brokerage firm for you:
Account Type Determine the beginning of the type of brokerage account you need where you can choose between these two popular types:
2-Standard Brokerage Account
3-Individual Retirement Account، or IRA for short.
4-Both accounts allow you to trade in stocks or ETFs، but the difference between them lies in how easy it is to access your money and why you invested in stocks in the first place.
If you want trade stocks to get profits, that you can withdraw when needed, your best option here is the Standard account, and if your goal is to invest for saving for retirement, IRA account would be a great option, but its only drawback is the difficulty of withdrawing your money before you reach a certain age.
Fourth Step: Choose your shares now
After I answered the questions about your preferred approach to trading and the amount of money you would like to invest. After you have chosen the broker platform, that you will start trading through and created your own account, it is time to start buying real shares and then start the trading process.
It is undoubtedly difficult to go through everything related to buying stocks in a few short paragraphs,
However, we can summarize the most important notes and tips that you should take into account as follows:
Be sure to diversify your portfolio of companies and stocks that you buy.
Invest only in businesses that you truly understand.
Try as much as possible to avoid cheap small stocks or Penny Stocks because the rate of fraud and fraud is very high.
Learn the basic metrics and criteria for stock valuation.
To learn more about this, join this free course from Coursera on the basics of trading.
Step Five: Keep Investing It is one of the investment secrets advised by famous investor Warren Buffett.
The best way to make profits from stock trading
She continues to invest smartly.
You don’t have to make huge investments to get amazing results, all you have to do is buy stakes (shares) in big and reliable businesses and stick to those stakes as long as the business is successful (or until you need to withdraw your money from the market).
If you do this, you may experience some fluctuations without a doubt, but you will reap very rewarding investment returns and you will definitely be satisfied with the result. Read more about entrepreneurship Become entrepreneurship and innovation, read many useful articles about how to open your own business, read entrepreneurship articles, so you have a general idea of how to trade stocks for beginners, and you can start investing in this field.
However, of course, you need to gain more knowledge about the matter and see more information, such as how to invest,
Through specific platform or how to read the market and analyze its indicators etc. In order to do this, you can always resort to free online courses, or visit the official websites of the various trusted brokerage platforms, each of which provides a full explanation of how to trade in them.
You can then make comparisons between the different platforms and then decide which one is right for you. Share with us any other information you would like to know about how to trade stocks, and do not hesitate to register on our website to receive all new articles and special opportunities.
Sources: fool, thebalance, Investopedia, educba