While it may seem like an overwhelming task in the beginning, trading stocks can be quite a simple process once you’ve got a grasp on the basics of trading and an idea of how to start.
Creating A Plan
Regardless of how much or how little capital you have at your disposal, the very first step for anyone looking to trade stocks is to create a financial plan. To do so, you will need to factor in all of your finances, including salary, living costs, debt, and any other flow of money you currently have. Once you have that down, you will need to decide how much of the remaining capital you are willing to invest. The amount will vary greatly for everyone, but the important thing is that it is an amount that you are confident you can comfortably live without.
The second step then, and a fundamental one in the basics of trading, is setting a goal for your investments based off your budget. This doesn’t necessarily mean that you have to invest all of your available budget, but you should work to determine what your end goal is, and what growth percentage would be needed to attain that goal based on the amount you are willing to invest. This will be especially useful to you later on when you’ll need to choose where to start—that is, which type of stocks align with your financial position and goal.
Deciding Where to Take Your Capital
Once you’ve got all your financial planning in order, you are almost ready to start trading stocks. All you need to do now is choose an online stock broker and do your research on the stocks you want to buy.
Choosing a stock broker may seem intimidating, but it shouldn’t be as long as you know what you are looking for. The primary, and most important factor you need to confirm is their accreditation. All credible stock brokers should be a member of the Financial Industry Regulatory Authority (FINRA), which will normally be clearly noted on their page. Apart from that, you should determine what is important to you in a broker (eg. deposit requirements, fees, platform, security, etc.) and use your own personal criteria to find one that is the right fit for you.
The last step in the preparation process, before we dive into how to start with the operations, is the market research. While there is a vast array of options to choose from in any given market, a simple way to begin is to research stocks that interest you. Look into companies you are familiar with and dive into their financials and market movements to determine whether they are a worthwhile investment. The best way to start with this process is by looking into companies’ annual reports and their letters to shareholders; both of which contain tons of useful information that you can break down and evaluate using various tools that your stock broker has to offer.
Opening a Position in the Market
Finally, we are ready to get into actually trading stocks. Now that we have established our foundation and decided where to invest, all that is left to do is determine how many shares to buy and the stock order type. Remember that there is no need to put all your eggs in one basket and that it is completely fine to start out small. In fact, if you are still working on getting a grasp on the basics of trading, it can be quite beneficial to start out small, and work toward expanding and diversifying over time.
In terms of the order type, while there are a quite a few options you can execute, as a beginner it is advisable to keep it simple and start with market and limit orders. Of course over time you can learn to implement other types of orders such as spreads and stop losses, which you can learn more about through various resources such as a beginner trading course.
Now that you’ve made it through the steps you should have a good idea of how to carry it out for yourself, but there is one thing to keep in mind after the order is made: don’t obsess about the price movement. Considering stocks are a longer-term investment, it is normal to see the price experience highs and lows. While you should keep an eye on it every once in a while to ensure things are still going according to your beginning plan, it is also important not to become too fixated on it as to avoid dealing with any unnecessary stress.
In conclusion, whenever you are looking to trade stocks, it is absolutely necessary to create a plan in advance in order to attain your goals. Always do your research on the best choice for an investment as well as a platform through which to do so. Over time, and with practice, these basics of trading will practically become second nature to you.