How to start investing in stocks? or how to start stock market trading? Every beginner has many questions like this. Investing in stocks is one great way to grow your money with time and consistency. Even during the course of high volatility, a downturn in stock investing will just infer that stocks are on sale.
Stock investing is a way of a happier future. Many beginners use stock investing as a way to gain experience before entering other complex markets.
Investing in stocks is the best method of investment. Many individuals have opted stock trading as their full time carrier option. Stock trading is having the great protentional if done properly and correctly.
There are several methods to start stock trading or investing. No matter in which you want to trade in, famous names like Google, or speculate in shining stars like Tesla.
Below will see what are stocks? how stock markets works? and detailed guide on how to start investing in stocks.
What are stocks?
Stocks are referred to as equity investments and signify legal ownership of the investor in the company. So when you buy shares of a particular company, you become a part-owner of the company. There are two kinds of stocks issued by corporations to raise money; preferred and common stocks. Preferred stocks entail a predetermined dividend. Common stocks, on the other hand, give entitlement to a share of profit to stockholders.
In general, when people talk about investing in stocks, they talk about common stocks.
A simple Explanation of How Investing in Stocks Works:
when your shares’ price increases, you are in profit. Or you make a profit from the quarterly dividend payments. Because of compound interest, stock investments can render consistent, reliable yields.
Why do Prices in the Stock Market Fluctuate?
The whole stock marketplace functions similar to an auction. Investors can be individuals, governments, and corporations. So when the demand for stocks is more in the market, that means there are more buyers than the sellers, the prices will go up. On the contrary, when the sellers exceed the buyers in the market, it means the supply is more than demand. This will lead to a reduction in prices.
The way a company performs in its business and the stock market has an indirect influence on its stocks’ value. But the reaction of investors to the performance of the company is what matters and affects the price of its stocks majorly. Therefore, when the company is performing well, more and more people would want to invest in it. On the other hand, investors would resist investments and pull back from companies performing poorly in the marketplace.
The Capitalisation of the Stock Market
The capitalisation of the stock market refers to the total of all the outstanding shares multiplied by the price of the share. Market capitalisation holds more meaning than the cost of the share as it aids in the evaluation of a company in terms of sizes and facilitates comparison to the companies of similar market cap and sizes. A small-cap company should not be compared to a mid or large-cap company. Companies are grouped and sorted according to their market capitalisation:
- Large-cap Companies: Market cap more than 10 billion dollars
- Mid-cap Companies: Market cap between 2 to 10 billion dollars
- Small-cap Companies: Market cap between 300 million dollars to 2 billion dollars.
Stock Price versus Stock Value
The price of a stock may not have a well-formed connection with the value of the stock. Sometimes, a stock priced at 100 dollars in the market may be more valuable than a stock of 900 dollars. The reason is that the share price does not mean anything on its own.
The connection of net assets and price-to-earnings is responsible for the determination of the value of any stock. If a company never facilitates a stock-split, it can keep the price of its stocks high, artificially. This way, the costs can rise even when there is no firm foundation.
Therefore, while start investing on stocks, one should not make any decisions based on just the price of the stock.
How To Start Investing in Stocks: How to buy ?
You can buy stocks through an online brokerage account or via investment applications. These investing and trading platforms let you sell, buy, and store the stocks you purchased on your laptop, PC, or mobile phone.
If you are looking for an online brokerage account to facilitate stock investing, would we recommend you to check out Olymp Trade. Olymp Trade is a highly regulated broker offering trade in a wide range of instruments like stocks, ETFs, CFDs, forex, cryptocurrencies, indices, commodities, and more. The broker provides the trade with low trading charges.
Open an Account and Deposit the Funds.
After selecting the broker, the next step is to open an account and deposit the initial funds. Through this account, you will manage all your funds and investments like bonds, stocks, etc. The account opening process is straightforward, and you can open your account through the online process. The account is activated the same day, or it can take some multiple days based on your documentation submitting time and method.
Once the account is activated, you will need to add funds to that to start your trading. The minimum deposit amount and payment deposit options can be different with every broker.
You can also open the demo account with many brokers. This account works the same as the live account. You can practise all your stock trading strategies before jumping into the live market and putting all your savings in risk.
Avoid opening an account with scam brokers, as there many scam brokers in the industry. Before opening the account, please ensure that the broker is legit and regulated, and authorised by the top financial authority.
Fees and Commissions
There is no free food when it comes to financial investing and trading. However, most of the brokers are now in a race to reduce and eliminate commissions on trade. But one way or the other, the broker will charge the investors and traders.
Most of the time, the broker will charge you a commission every time you buy or sell a stock. The trading fee can range from 2 dollars and can go up to 10 dollars for some brokers. Some brokers offer commission-free trading but charge in some other ways. After all. The whole investing in stocks game is not running on some charity.
The commission and fees in stock investing depend on the frequency of trading. If you go in and out of trading positions very quickly, your profitability can get affected to extremes.
A single trade represents an exchange of shares in one company. So if you purchase multiple shares at a single time and all belong to different companies, you have to pay commission on each trade.
Diversifying and Reducing Risks while start Investing on Stocks
Diversifying leads to healthy investing in stocks. When you invest in a wide range of stocks of various industries and companies, you spread, and therefore, mitigate the risks. So if one stock did not perform well, it would not hurt your entire portfolio of stock investing.
Diversification can require a lot of money. With just a thousand dollars, you cannot invest in multiple companies and build a varied trading portfolio. If you begin with such a small amount, all you can do is invest in stocks of one or, to the most, two companies. This can increase risks in stock investments.
Enter ETFs and mutual funds. ETFs and mutual funds act as an umbrella for a variety of stocks. This way, one can diversify with small funds and mitigate the risks.
Some points to keep in Mind While Buying the Stocks
While choosing the stock, always do the proper research about the stock market and particular company whose share you are willing to buy.
You can get the information of the company by the income sheet and some news about the company.
To understand the dynamics of the market, you can read some books written by legendary investors like Warren Buffet, Benjamin Graham, etc.
How to Start Investing in Stocks: Final Thought
Investing in stocks is possible even if you are starting with small capital in your hands. Stock investment is much more complicated than choosing the right stocks. It is essential that stock investors and traders keep their investing and trading goals structured and clear.
One must pursue diligent research and homework before going with any stocks. You must understand the company’s fundamentals if you are thinking of long-term investing with that company. On the other hand, traders who want to regularly trade stocks need to focus more on the stock’s technical aspects.
Overall investing in the stock market is a good option and anyone can invest. Only selecting the right broker and executing the proper trading method is the key factor. Start your trading journey by opening a demo account before going with a live account.
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