Stock Market for Beginners: A Complete Guide
Let this article on the stock market for beginners help you clear your doubts and trade like a pro.
Everybody is drawn toward the stock market, as it is very profitable to trade, and the sky's the limit while making money.
Once you master the simple art of understanding the stock market, even as a beginner, you will mitigate losses and increase your probability of profit. This is because investing and trading in the stock market is not gambling; instead, it is an art that can be lucrative when carried out successfully.
What is the stock market?
Stocks are sometimes even called Equities. When you buy a stock, you are purchasing a part of the company; in other words, you become a shareholder and are entitled to a piece of ownership of the company. Companies, when they wish to expand their area of operations and services, usually require money. Generally, they do not approach a bank; instead, they go for crowdfunding, meaning they go public by offering a piece of ownership for money. This crowdfunding process is carried out in the stock market.
Even if the company has been in the market for ages, they too require money to expand their business operations. They, too, issue new shares in the market. Each share's value is determined based on the company's past performance. The shares of a Blue-Chip company are very expensive. As the company has performed well, the price fluctuation of these shares is very less, and a shareholder can be assured that the chances of this company going bankrupt are very low, and even if they do, they will still get their share of the money.
If we consider a new company going public for the first time, they are deemed an Initial Public Offering or IPOs. This is because the value of these companies' shares is very cheap compared to Blue-Chip companies. However, since you are gambling if this company will ever grow in the future, the value of its share in the stock market is quite volatile.
Before the internet revolution, stocks were traded physically in the stock exchange, and the settlement of buying and selling these stocks took time. Today, thanks to the internet, you can trade your shares in the comfort of your home. And the trade settlement is also swift and easy.
If you're a beginner, stay away from individual stocks.
When people trade stocks or invest in them, they assume that their stocks can be the game changer and that they will earn huge dividends.
However, this is not always the case. Since you are just getting your feet wet in the stock market, try Index funds.
Index funds can either be Mutual Funds or Exchange Traded Funds (ETFs).
Mutual funds are a basket of various stocks, and their price depends on the performance of the component stocks that make the group. Since these funds are less volatile than individual stocks, one should consider investing in them.
Most if not all Mutual Funds and ETFs have annual fees compared to stocks that are free of any charges.
Be ready for a downturn
It is disappointing when the stock market is bearish; your portfolio is worst hit if the stocks and funds are badly selected.
Nothing in this life is static, as is the case of the stock market. If the stock market price had been steady, no one would have been attracted to it, as there would be no window of opportunity to make a profit.
You should be mentally strong to not go into a frenzy on asset sell-off just because they are underperforming right now.
You could, however, make most of the opportunity and buy those assets beyond your reach.
Before you invest real money, try out a stock market simulator.
Before you start trading or investing in the stock market, it would benefit you greatly if you had practical experience.
Many brokers offer a demo account where you can practically apply all the theoretical knowledge. These demo accounts run in real-time, so if you make a trade, it will be as if you are trading in the real stock market. The only difference is that you will use virtual money instead of real one. Thus any profit or loss would be virtual. But if you use all the features like Stop-Loss and Take-Profit, it will inculcate a habit to mitigate loss. Therefore when you trade on a stock market trading platform, you will make fewer mistakes and more profit.
Another benefit is that you get accustomed to the inbuilt features, so when you start trading in real money, you tend to make fewer mistakes, thus increasing profitability.
Refrain short-term trading
With this stock market for beginners guide, we recommend you first try to build a portfolio by considering good assets for a long period. This is because the assets you have invested will appreciate after a period.
Once your portfolio has sufficiently been built, you can try short trading with excess money you can afford to lose. Many traders out there speculate based on their market research, and many are seasoned traders.
Furthermore, you may have limited capital, and frequent trading can get expensive as you have to pay the capital gain tax.
It would be in your best interest if you were to gain sufficient trading experience before starting short trading.
Discipline yourself
This is one of the most critical factors where many lose their money due to impulse trading.
You should never get excited if you are making a lot of money and keep pouring in your money while trading. It could be "beginner's luck.
Similarly, if you are making a loss, don't push yourself by wasting your money with the intention of "just one more trade, and I will make a profit."
In both cases, stop your trade immediately and understand what made your trade a successful one and an unsuccessful one.
Learn from these lessons and try to implement them in future trades. Thus you will make a substantial profit and avoid losses.
Conclusion:
The stock market provides ample opportunities to make quick money. However, while approaching the stock market for beginners, you should be aware of the pitfalls a newbie commits
Learn to look for opportunities, and once you have mastered and started making 60% of your trade-in success or have made a small trade with more profit margin, you are good to try your luck with real money.
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