How Do Beginners Trade Stocks?
How do beginners trade stocks? They do it carefully, at leas that's what they do if they want to avoid risking their money.
It's tempting to jump in feet first and start trying to make a profit right away when you first get into trading in the stock market, but this is a reckless approach that can be disastrous.
Don't make that mistake.
What makes making this type of mistake particularly painful is the fact that many people that do it end up giving up on their dream of making money with the stock market.
While giving up on stock trading after taking a hit is understandable, it's not the right thing to do.
The truth is, that even when educated and experienced in trading on the stock exchange you will suffer some losses.
With that being said, you can minimize the chances of taking losses by having a solid strategy, which means learning ins and outs of the stock market before you start to risk your money.
Choose Your Broker
If you want to buy a stock you can't just go down to a store and order it. You need a third party to make the purchase on your behalf.
Now, your first option is to use a traditional stockbroker, and if this is the route you go with there's nothing wrong with it.
A traditional stockbroker can offer you solid advice and help you to manage your trades, at a price. Stockbrokers provide a valuable service to their clients, so it's not surprising that they charge fees for this service.
A word of caution: these fees will add up quickly and cut into your profits if the stock market is volatile or unpredictable - which again could happen whether you're starting out trading stocks or have been in the game awhile with an established portfolio!
Rather than hiring one of those expensive brokerage on Wall Street who require large minimum account balances before granting access to real information about what trades are going down every day (and thus creating high entry costs), consider bringing an online broker services onto your team instead!
Companies like this offer a number of advantages that make them an excellent choice for people new to the exciting world of stock trading.
First of all, they are far less expensive than a traditional stockbroker. When you are trying to earn a profit, reducing fees can make a huge difference in whether or not you are making money.
Which Online Broker(s) Do I Recommend?
For Beginners & Day Traders, I recommend:
Overall, TD Ameritrade is the best all-around online broker for beginners because it provides a very easy and convenient way to trade in the stock market. The company offers free stock trades, which means you won't have to pay any fees! Plus, their educational content can walk new investors through how they should invest wisely with limited funds.
Big companies make it a point to reduce operating costs, which increases their profitability, which is why you should do the same thing yourself.
TD Ameritrade and E-Trade offer tools to help investors in their free account.
The demand for this type of online brokerage has increased steadily over the years, as they provide a range of benefits which may be difficult or costly otherwise.
These include access to news outlets, daily market updates, research reports on individual stocks from third parties that are not associated with TD Ameritrade itself; which can help customers make educated decisions before investing or making a trade in the stock market!
Stockbrokers have a reputation for being greedy and unscrupulous, but not all companies are out to make money off of investors.
Some charge relatively low fees with the understanding that if you're trading on their platform they'll get something in return too.
In other words, they have your best interests at heart, and will do whatever possible give you every advantage as an investor.
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Decide On An Investment Strategy
With stock investing there are two general approaches, you can invest with the intention of building wealth over a long period of time, or you can try to turn a profit more quickly.
Now, you may be thinking that turning a quick profit is the obvious choice, but this approach is riskier, so you need to understand what you are getting into before you give this approach a try.
The first approach to long-term investing involves buying stocks that are low risk from established companies that have a history of sustained success.
Companies that have been in business for a long time and are profitable and stable have a much lower risk of losing value.
That means that your money is generally safe when invested in their stock. Over the course of many years, you can watch the value of the stock slowly increase, earning you a profit.
Assuming of course that things go according to plan.
The other approach is to try to earn a profit quickly.
- Is this approach riskier? Yes.
- Does this approach require more effort on your part? Yes.
- Is it worth it? Yes.
When you are trying to turn a profit quickly, and don't want to risk a small fortune to do so, you want to invest in stocks that don't cost a lot per share.
The best option here is penny stocks, which sell for $5 or less per share.
When a stock costs less you can buy more shares of it. When you own more shares of stock, and those shares go up, you make more money.
The big advantage here is that you are making the numbers game work for you.
You don't need a penny stock to perform extremely well to make a big profit. If you own a lot of shares, and each share goes up a small amount, that can add up to a big profit.
Study And Learn About The Stock Market
Before getting started and risking any of your hard-earned money, make sure that you learn as much as you can about the stock market.
Study, then study more, then study more. The more knowledge you have the better your chances of succeeding.
One thing you could try is mock trading (instead of stock trading, get it?).
When you mock invest you choose stocks and simulate the process of buying and selling them by logging down what stock you bought, how many shares you bought, and when you bought them.
You then watch them as if you really had money involved and sell and buy without actually trading real money.
This is a type of trial run that can give you an idea if you have a solid feel for investing, or if you need to spend more time learning before you start to risk your money.
What If You Don't Have A Lot To Invest...?I can cover that too! 🙂
How do beginners invest in stocks with little money?
That's a good question, and it's a question that many people ask themselves when they first start planning out their strategy.
Everybody knows that you should try to start investing money as soon as you are able to. Starting early is the key to building wealth over time, which can let you retire comfortably when you get older.
But, when you are young, finding extra money to invest can be difficult. In fact, many people avoid starting investing at a young age because they don't have the funds available.
So, even if you have been working for some time and haven't started saving money yet, there's still plenty of time for you to get started. The earlier you start the better, but the important thing is that if you haven't started investing money, you start doing it soon with a solid strategy.
What kind of stocks should i invest as a beginner?
If you're going to invest for the next 5 years then a mixture of stocks and bonds should be a good idea - but if you're investing for retirement, then I'd suggest sticking with an index fund.
One of the most debated topics is which index funds are best to buy. Some believe it's better to spread your holdings across multiple funds; others insist that buying one makes more sense because it provides better diversification.
Whatever you choose, you'll want to look at how much risk each has and how likely they are to outperform over long periods (a decade or more).
This means trying not just domestic indexes, but international ones too...and figuring out why
Take Advantage Of Stock Offerings From Your Employer
One way that many people get started in investing in the stock market is through their employer.
A lot of big companies offer programs allowing you to invest money in company stock.
What makes these types of programs beneficial is the fact that they usually offer some type of financial incentive for the employees, such as a reduced price, or an employer contribution to part of the cost of the stock.
The other advantage of this type of program is that it allows you to have money withdrawn from your check and applied to your stock purchases.
This type of investing is what is known as long-term investing. You buy a little stock per pay period, and over a long period of time, the amount of stock you own grows.
Assuming that the value in the stock also goes up, your money will continue to grow. This type of investing is generally considered lower in risk than many other types of investing, but there is still a chance you could lose money.
But, if you work for a large and established company, participating in a stock buying program is usually a safe way to save for the future.
Buy Penny Stocks
Assuming you want a faster turn around on your money, you are going to need a more aggressive solution. That means an investing strategy that is riskier, but the rewards usually make the risk more than worth it.
One strategy you should strongly consider employing is trading penny stocks.
What are penny stocks?
Penny stocks are stocks that cost $5 or less per share. If you are looking for a way to get into investing in stocks without a lot of money, then buying a cheaper stock is a plan that should make perfect sense to you.
Penny Stocks Are A Perfect Short-Term Investment
You may be wondering why you would want to invest in penny stocks if they can be volatile and the risk of losing money with them is greater than with traditional stocks.
The answer is simple, they are cheap so you can get into them with little money, and there is an enormous amount of potential with them.
Referring to the same $100 dollar investment that yielded 100 shares of stock above, what if the stock didn't fail?
What if it went up by 50% or more?
With penny stocks, the low price of the stock means that the potential for growth is tremendous.
It's not unheard of for penny stocks to double in price or money in as little as a day, so day trading with them can be quite profitable if done carefully and correctly.
So, while you are assuming a greater risk with penny stocks, the greater potential rewards are also much higher.
The thing you need to remember about penny stocks is that they are not a long-term investment solution. You don't want to put your money in them and leave it there for years assuming it will be there when you retire.
Could the penny stocks you buy today grow long-term and end up worth a small fortune? They could, but penny stocks are unstable by nature.
There's just as good of a chance that they will end up failing in short order.
So, if you make a sizeable profit on your trade, then be smart and sell before the price drops back down.
You may end up regretting it if the stock continues to climb, but if it crashes you'll be thrilled you got out when you did.
What About Day Trading?
Day trading is a type of investment strategy that allows traders to make multiple trades during one day, often with the intention of making money on short-term price movements. It's important to know what you're getting into before diving in headfirst.
The idea of day trading is to make a profit on the short-term price movements of stocks, bonds and other financial instruments.
You can either trade stocks that are out in public or do a "dealer" type of trading where there is no customer involved.
The latter involves buying and selling stocks for your own account through a broker-dealer.
You're basically acting as an intermediary between the buyer and seller with regards to particular transactions while earning commissions from both sides at once.
This type of trading may not be for everyone though because it requires considerable knowledge about investments, markets and regulations."
Day trading typically entails heavy risk: A trader's ability to make money quickly will depend largely on his or her skill set as well as luck."
Day traders need to be knowledgeable in the stock market and have a high level of patience due to the time span that they commit their trades for.
They do not day trade in all markets but make the majority of their money by day trading stocks and futures contracts.
The rest of their money comes from short-term interest rates and foreign currency exchanges where it is also possible to engage in day trades with more limited risk since those investments are already established and stable while stock values swing up an down every hour.
Try Taking Advantage Of Mutual Funds
If you want all of the advantages of the stock market, while also reducing your risk level greatly, then a mutual fund may be just what you are looking for.
What is a mutual fund?
Simply put, it's an investment program that is professionally managed, that uses client money to invest in a diversified number of stocks and other securities. Since mutual funds invest in a diversified way, investors are insulated against a single stock failing.
They are typically used as a long-term investment, and they are a great way to get started if you are just starting to save for the future.
There are a lot of funds that allow you to get started for very little money, the key here is to get started and keep adding a little more money to the fund whenever you can afford to.
Don't Be Afraid To Start Out Slowly
Your investment goal may be to be independently wealthy, but unless you are born into money it's going to take time for you to get there.
It's easy to look at your current financial situation and think that the $5 you can spare to invest isn't even worth the effort.
It's easy to think that way, but thinking that way is a mistake.
Take that $5 and use it wisely.
Put it in a savings account and keep adding to it.
Once you have enough money saved, start an online trading account and learn how to use it.
Use the free stock charts to learn the stock trading game, and start to put your money to work for you.
You Can't Succeed If You Don't Get Started
If you're thinking about getting started with stock trading, then stop wasting your time and do something to make it happen.
It doesn't matter if you only have a little money to start with,' the important thing is that 'you get started.'
It's easy for people to put off things until later in life when they've lost all their ambition or motivation - but don't let this be one of those things!
Start learning more about the stock market, picking an investment strategy, choosing who will help guide you by doing trades online (which these days pretty much anyone can find), and soon enough making strides towards building up wealth today.
Other Recommendations
Over the years I've reviewed DOZENS of Investment newsletters. As a result of this, I've also spent quite a bit of time doing reviews of my FAVORITE Stock & Investment Newsletters, which you can read below!
I recommend checking out The Power Gauge Report, Louis Navellier’s Growth Investor, Fry's Investment Report, Commodity Super Cycles & of course the Oxford Income Letter.
These are all created by experts at the VERY top of their game, and are 100% worth checking out!
Hey Eugene,
GREAT question! For Beginners or Day Traders, I’d suggest going with TD Ameritrade or E-Trade. You can manage the trades yourself too, and don’t have to worry about having big money to impress the bank to do so! 🙂
Good luck!
Jenna