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Stock trading is something of a mystery to many people.
They think that learning to trade on the stock market means becoming a master of statistics, accounting, and other numerical subjects.
But in reality, anyone can learn how to trade stocks.
That’s because the stock market is meant to be accessible and beneficial to the general public.
While certain areas of the stock market are more complex and require a certain amount of financial literacy.
You shouldn’t be intimidated by the stock market or feel that its financial advantages are out of your reach. Don’t believe us? Let’s break down how to trade stocks even if you don’t have any experience whatsoever.
Table of Contents:
What Exactly is Stock Trading?
Don't Worry, We've Got You Covered! 👍
To break this big question down, we’ll need to understand some other key terms:
Stocks can be thought of as pieces of ownership in a company or financial asset. The more stocks you own in a company, the more of the company you own and the more of its profits you are entitled to
You can buy and sell stocks to trade them. It’s ideal to buy affordable stocks that are likely to rise in value in the future and sell stocks that already have good value and are likely to depreciate over time
Stock trading in the long term is an art that takes a lot of research and practice
Stock trading is done on stock markets, of which big ones include the New York Stock Exchange, London Stock Exchange, and similar. Stock trading is regulated by authoritative bodies that make sure insider trading doesn’t occur (a type of trading that uses information not available to the public) and that other illegal activities don’t spread.
Types of Trading
Active trading means placing 10 or more trades per month. Strategies are typically short to long-term and investors will look at likely trends for stocks they should buy or sell
Day trading is a kind of short-term trading practiced by investors that buy, sell and close stocks by the dozens each and every day. They take advantage of price fluctuations
Passive or long-term trading means buying a selection of stocks likely to continue to rise in value slightly but consistently over the long-term for secure gains over months or years. This is the type of trading practiced by investment plans like 401(k)s and IRAs
Why Learn How to Start Investing?
Ultimately, the reason you should learn to trade stocks is so you can make money. Most of the wealthiest people in the world are rich not because of the money in their bank accounts but because of the stocks they own, such as Amazon or SpaceX stocks.
By learning to invest, you can get in on this wealth and build up a portfolio of held stocks that will make you richer and the long-term.
Furthermore, learning to invest is good for your retirement plans. In fact, if you have a 401(k) or another retirement account, you already invest; you just don’t make the decisions to buy or sell stocks yourself.
In the end, stock trading is one of the most consistent gateways to financial security if you can learn to practice it responsibly and wisely. While practicing it responsibly you will eliminate any worries regarding whether or not online trading is safe.
How to Trade Stocks Online 🤔
These days, you don’t have to make a trip to a stock exchange floor to place trades. Instead, you can trade stocks online with a top online trading platform. Let’s break down how you can do this in greater detail.
Open a Brokerage or Trading Account
To start, you’ll need to open a brokerage account or trading account.
In the modern world, there are dozens of different stock trader brokers or services.
Think of brokerage or trading accounts as accounts you open with financial institutions.
You place orders for certain stocks to be bought or sold, then the brokerage or trader places those trades for you. In exchange, they usually demand certain fees or commission costs so they can make a profit as well.
Online brokerage accounts are easy to open. This can be accomplished in just a few minutes. But you should think carefully about the brokerage account you open since certain brokers have more benefits than others or may have more agreeable costs compared to other choices.
Furthermore, some brokers require you to have a minimum account balance at all times. Therefore, some brokers are better for folks with lots of investment cash to spend, while others may be better for beginning investors who don’t have a lot of money to experiment with at the moment.
No matter what kind of broker you go with, you’ll want to educate yourself heavily. Learn everything you can about the stock market and how to place trades wisely. Naturally, this will involve a lot of reading.
- Stock trading books
- Guides on this very website
- Web tutorials
- Financial articles
- Stock analysis reports
You’ll also want to familiarize yourself with some basic stock trading terms, like “close” (securing a trade).
Fortunately, many great stock trading platforms and brokerage services will include educational materials and resources you can use to cut your teeth on these subjects before placing your first real trade.
Set a Budget for Stock Trading
After familiarizing yourself with the stock market trading’s terms and practices.
It’s time to start thinking about your budget. No one should spend all of their life’s savings on the stock market, no matter how confident they are.
In general, it’s a good rule of thumb to never allocate more than 10% of your total net worth or available cash to stock trading, at least until you become more experienced.
Furthermore, never invest more than another 10% of your full investment portfolio into individual stocks. Doing so could make your portfolio more risky and vulnerable to volatility.
Common sense will serve you well when deciding how much money you want to invest. For example:
Don’t ever invest more money than you can lose. Even supposedly surefire trades can go south and result in you losing money over a single day
Don’t use any money that you need for necessary and upcoming expenses for trading. Stock trading is not a solution for wise budgeting or saving, and you shouldn’t expect your trades to pay for expenses in your life
Don’t pursue your losses. If you have a bad day trading and your portfolio ends up in the red with a net negative balance, don’t keep funneling money into your account and try to get that money back. In general, it’s best to stick with your budgeting and stock trading strategy over the long-term even through daily or weekly fluctuations.
The majority of good stock trading platforms will have practice funds (virtual dollars or pounds) you can use to place trades with their interfaces. Then you can see how your trades pan out without having to risk a single cent of your own money.
Practicing your trades is a great way to make sure you have the hang of the stock trading platform or broker you decided to use, plus try out a new investment strategy.
Place Your First Trades
Once you’re confident in your abilities and have practiced a little bit, it’s time to place your first trades. If you’ve never used a stock trading platform before, you might consider purchasing a single stock as an experiment in seeing how it does.
Remember that you need to fund your account before you can place any trades. Additionally, keep the costs for your brokerage or trading platform in mind – they may cut into your overall profits or operating costs more than you might think.
Depending on the type of trade you place, be sure it executes fully before moving on. Market orders should execute automatically. Limit orders may execute over time.
How to Succeed Trading Online
No Secret Formula, Just Hard Work and Dedication 💊
There’s learning how to trade stocks, and then there’s learning how to trade stocks well. Let’s go over some helpful tips and strategies you should leverage for long-term investment success.
Do a Ton of Research
No stock trader becomes profitable by buying and selling stocks without any research.
In fact, the best traders do tons of research every day. Read everything you can from financial experts and stock market gurus.
They can give you great pointers concerning what stocks you should buy, sell and hold, as well as explain how they came to those conclusions.
Over time, you’ll absorb some of this information and be able to make your own conclusions without needing as much assistance.
Get Familiar with Trading Platform Controls
Your top online trading platform for beginners or broker account will have a number of advanced controls you can and should utilize. One good example is stop-loss orders.
These controls will let you tell your trading platform to automatically sell a stock position once it reaches a certain value. This prevents you from holding onto a stock too long and losing more money in the process. It’s a great risk-lowering tool that can keep your portfolio from buckling after some bad luck.
Other good tools include CopyTrading, which is available from platforms like eToro. In a nutshell, this tool lets you copy the trades of other successful investors on the same platform. It’s a perfect benefit for new traders who want to watch others who already know the ropes before making their own investment decisions.
Maintain a Diverse Portfolio
Your “portfolio” is essentially the collection of stocks and other financial assets and instruments you own or have a stake in on the stock market. A diverse portfolio is always better than a focused or specialized portfolio for a few big reasons:
Diverse portfolios are less vulnerable to market dips. The stock market doesn’t typically dip altogether – instead, sections periodically rise and fall according to different conditions or events. If your portfolio is too specialized, you could lose a lot of money if the part of the market you are invested in drops in value sharply
Diverse portfolios are easier to build wealth with progressively. The more sectors you have investments in, the more you’ll be able to take advantage of market rises in those sectors
As you progress with your stock trading, try to diversify your portfolio over time. Don’t ever dive too deep into a particular sector or, as the saying goes, but all of your eggs into a single basket.
Keep a Level Head
No matter what happens with your portfolio, remember to always keep a level head and never chase your losses or make impulsive decisions. The stock market can be consistent or volatile (or both), but your strategy should be well thought out and adhered to no matter what.
It can be tough watching your funds disappear as market positions drop. But don’t act rashly in an attempt to recover your losses too quickly. With the right strategy and a balanced portfolio, you’ll almost always get your money back in the long term.
Don’t Forget to Keep Records for Taxes!
Taxes can become complicated if you partake in stock market trading.
Tax rules are relatively straightforward for investment accounts like IRAs or 401(k)s.
But tax rules are different if you are an active trader buying and selling stocks regularly.
To this end, make sure that you keep accurate records and report all of your earnings at the end of every tax year. This will prevent you from being fined unnecessarily just because you forgot to report some stock earnings one month.
This guide is just a taste of the stuff you’ll learn as you continue to research and build your trading strategy for long-term success. But we also hope it’s clear that stock trading is a graspable, learnable skill that anyone can benefit from if they put in the time and effort.
Fortunately, we also have plenty of other guides and even some recommendations for stock platforms and brokers. Check out our extra learning resources to learn how to trade on the stock market even more effectively.
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