The world is going through tough economic conditions. There is unemployment everywhere, inflation has skyrocketed over last five years and many people are just barely scraping through their lives even after having regular decent jobs. The returns on investments or ROIs on government bonds and bank deposits have plummeted to the ground. Many of us can no longer expect a secure future with the traditional modes of investments. We need other financial vehicles that will help us get our incomes appreciated at a healthy rate on a regular basis. The first option that jumps to mind is investing in the stock market. But the stock market is a cruel playground. It can cut you a loss just as easily as it can shower you with profits. So there is some basic information that you need to learn and consider before taking the plunge.
1) Do Some Research Before You Invest
By research I mean reading articles like this one and some basic economic and financial studies related to stock market. Try to to get an idea about how the stock market works and how you make profits upon investing. Wrapping your head around terms like “Bullish”, “Bearish”, “Intraday”, “Position”, “Blue Chip” and “Penny Stocks” should set you off on the right path. While researching, you will get tons of information on trading strategies, trading styles and how to effectively use “Stop Loss” to minimize your losses. The main idea behind stock investment is to buy a stock when it is Bearish and sell it off when it is Bullish while keeping a decent Stop Loss so that even if the price of the stocks fall after you buy, it gets sold automatically so that you do not lose too much money. Simple, isn’t it?
2) Find Yourself A Good Broker
You need the help of a broker to buy and sell shares. There are plenty of broker houses and independent brokers who would love for you to sign up with them. But you have to be careful before choosing a broker. The main things to look out for are the “Brokerage” they charge and their track record. There might be a number of people in your office or in your neighborhood who already trade in the stock exchange. You can ask around and find out which brokers they use. After you have put together a list of broker farms, compare their commission rate and successful calls. You should usually go for a farm that charges medium commission rates and have a decent success rate in terms of calls.
3) Have Some Dedicated trading Money Set Aside
Before you start buying shares, you should have a certain amount of money set aside for trading. This should be the money that even if lost completely will not affect your savings, livelihood and other important affairs. The reason behind this is you cannot always expect rosy returns from the stock market. At times your portfolio will plunge and your money will be stuck in the market. Hence decide on the amount of the trading money carefully. If you have no such money to spare, you are not ready for investing in the stock market. Try to save some money for a few months first and then enter the market.
4) Do Not Put All Your Eggs In One Basket
This is something that every stock investment guide talks about. It is the fundamental driving force behind successful investors. This philosophy means that you should never invest all of your trading money into a single stock. The right way to go is to invest portions of your money in multiple stocks. As a rule of thumb, do not invest more than 10% of your trading money into one stock. That way you will never run the risk of losing all your money at once. This is a mistake many rookie investors fall prey to when they start investing in shares.
5) Do Not Get Intimidated By Losses
Profit and loss walk hand in hand in the stock market. There is no trader out there who has never incurred a loss in shares. So if one of your stock prices goes down, always remember that you are not the first and you most certainly are not the last. As long as most of your shares are in the profit, you should be fine.
6) Keep Learning About the Subject
in the morning get up before the market starts and read relevant news articles or watch TV shows on share trading. The latest information will make you prepared for the day ahead. Keep yourself informed about all the current affairs in the business domain. For example, if a major company loses an important lawsuit, it is likely that their share prices will take a hit at least for the day. It is the right opportunity to buy their shares as you can sell them for profit later as the company recovers from losses and share prices stabilize.
7) Lean To Read Monthly And Yearly Trends
These trends often hide information about great investment opportunities. There are certain things you would learn as you gain experience in the market. For example, stock prices of housing and constructions companies usually go down during the rainy season as construction projects get stalled during this time. Other dependent industries like cement, concrete and brick also go down during rainy season. So you should do a trend analysis for last 2 to 3 years and if the prices match the assumptions each year, you should know when to buy the shares of construction related companies.
8) Stay Away From Future, Options And Forex Trading
it is likely that your broker will try to talk you into investing in Forex, Futures and Options. Do not fall into that trap. These are highly complicated financial vehicles that even the experienced share traders keep at arm’s length. You will have to learn a lot about the global economy and finance before you can expect to make profits from these markets.
These are the best tips that come to mind when it comes to stock investment. There are tons of other information available on the net. Research well and be careful while you invest. All the best for your success in share trading.