How to start trading in stock market?
Whether you are looking to actively start trading in the stock market or you have some money set aside that you'd like to invest in hopes of making a profit, there are a few things you should know before you get started to ensure your stock trading efforts go as smoothly as possible.
Here are five things to consider before you enter the world of stock trading.
EDUCATE YOURSELF
Get extremely acquainted and learn everything you possibly can about investing in the stock market.
Thanks to the digital age, there is a plethora of educational resources out there in terms of courses, videos and blogs where you can really learn some great tips about how to get started trading in the stock market.
If you are interested in investing in stocks of a certain company, take your time to research that company, its outlook, and so on. Because stock prices continually fluctuate mistakes can be quite costly.
CHOOSING AN ONLINE BROKER
As a beginner it can be quite hard to choose an online broker, after all, there are so many options to choose from some of which are legitimate and some which are not.
A reliable broker doesn't engage in any risky behaviour with your money, highlights the potential risks of trading, provides you with the necessary research tools and has low fees.
There are many comparison websites that compare online brokers allowing you to make your decision easier.
It is best to select a broker that best matches your needs, choose a broker that has great customer support, educational videos and blogs that you could benefit from.
Most online brokers also offer demo accounts where you can really get the feel of what trading is like without having to spend a dollar. Just keep in mind that if you make a profit on the demo account, that does not necessarily mean you will make the same profit on the same trade in the real market.
ESTABLISH YOUR PURPOSE
Ask yourself what you would like to achieve from trading. Are you looking to invest in some stocks you can hold long term? Is this something you would like to do on a daily basis or just a couple of days a week? Perhaps it is something that you'd like to get into in addition to your full-time job?
The truth is there is no right or wrong answer. You may want to do just one of these options or all of them; it is really up to you. But by asking yourself these questions it gives you a better idea of how to plan out your strategy, which leads us to the next point...
DETERMINE YOUR STRATEGY
It is extremely easy to get caught up in the whirlwind of the stock market and it can be highly emotional which is understandable because losing money never feels good. It can also be just as easy to get caught up in the excitement of winning, where you potentially make an impulse investment at the wrong time and this is exactly why having a strategy is vital. It eliminates the panic of losing money and balances the excitement of winning.
Your strategy helps you control the emotional rollercoaster that comes with trading in the stock market.
Although it will require you to constantly research, re-evaluate and adjust your strategy once you determine what strategy works best for you and you stick to it, it will most likely pay off in the long term so you can reap the best rewards of your well thought out strategy.
CONSIDER YOUR FINANCES
Never invest more than what you can afford to lose. It's always best to start small and grow as you gain more experience rather than going big and losing big, this is also why practising risk management is instrumental to your success.
Determine your goals and make sure you're ready for all types of scenarios.
Consider these options before you invest any money in the stock market:
Outstanding debts - if you have debts then consider paying some of them off before you begin trading in the stock market because as I mentioned before if you invest more than you can afford to lose that will only take you further into debt.
Family circumstances - do you have other family members who are financially dependent on you? Perhaps you're bringing a baby into the world which also requires a sufficient income when planning for a new arrival. Is your family situation stable enough for you to begin investing?
Employment - is your income from your job secure enough to allow you to begin investing?
Once you have determined and evaluated all these aspects, it is also recommended that you put some money on the side as a cash reserve which can act as an emergency fund.
This is to protect you in the event your usual income is disrupted, therefore, it is recommended that you have a cash reserve equal to at least three months minimum in order to be able to cover your living expenses.
Once you have your emergency fund set up, the best place to start investing is in a retirement account. The retirement account can be a 401 (k) which sometimes can be done through your employer or an Individual Retirement Account (IRA) if it’s not provided through an employer.
Aside from being tax-sheltered retirement accounts are an excellent start because they are a representation of long term investing. They are funded through your payroll deductions and the best part of having a retirement account is that you can accumulate money without having to actually invest until you are ready to do so.
THE BOTTOM LINE
Trading comes with many risks and rewards so research, research, research! Thus evaluating everything mentioned above and drawing up a plan tailored to your specific needs, in addition to you acquiring an excellent knowledge base and strategy that will help prepare you for all possible outcomes paves the way for you to be one step closer to becoming a successful trader and enjoy the benefits of all your hard work.
