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Stock Market Investing Tips & Guide for Beginners
The Stock Market became very popular with the “common man” in the digital and Internet age. The number of participants has increased rapidly in the last decade. Beginners should pay attention to how they handle their money and investments. This article is for all those who would like to join the stimulating market. Certainly, there are certain factors which need to be taken into consideration before entering the world of finances. People tend to look for easy ways to make money, and that is a natural course of events. The Stock Market has the potential to make you rich giving opportunities for earning tremendous sums of money. Still, it is easier said than done. There is more to it than just speculating without any knowledge about stocks and the securities market.
Define Your Goals in the Right Way
First, you need to know exactly what you want to achieve in what timeframe. If you are planning to make some extra cash for your old days, the Stock Market could be somewhat risky for such a far-fetched goal. It is highly volatile, and traders always have to take into account the high volatility the market is subject to.
Calculate how much you want to invest and what you expect to gain back. There are three crucial factors which determine the success and growth of your invested assets. These are:
- The annual incomes you gain from your investments,
- the invested capital, and
- the amount of time or years of the investment.
You have to gain certain knowledge on risk assessment and the movement of prices, as well as the market in general, to make the right calls. Analyse the market in detail and strike when time is right.
Thorough Market Analysis
Of course, to estimate when time is right to buy/sell stocks requires a lot of background knowledge. The stock market is already unpredictable, but by observing market changes and events, you will be one step closer to crack the secret code of market interpretation. Understanding the market will lead you to develop a strategic approach and trade on the basis of your professional assessments.
Many beginners tend to rely on their gut feeling, and that is certainly not an option at all in the highly risky market. Start with learning the basics of the market, which include the following:
- Familiarize yourself with the terminology of the market like return on equity, compound annual growth rate, etc. Once you know how to calculate the different variables, you will soon be able to compare companies and have a better judgment where and when to invest your money.
- Apply technical and fundamental analyses when required. Once you learn about these techniques, you will know when to apply which, and thereby, increase your chances of profit
- There are numerous order types which need to be mastered. Beginners are often confused by the terms such as market orders, stop market orders, limit orders, stop limit orders, etc. As a trader, you need to know which type refers to what and when to choose the right one.
- You need to be aware of the existence of different account types like the cash and the margin account. Most of the beginners only know how the cash account works, while they lack information about the margin account. Certain kinds of trades are only possible by opening a margin account. As a trader, you have to know how to calculate the margin.
Many experienced investors invest in multiple companies and trade with different assets at the same time. This tactic represents one way of risk reduction. In that case, you might not be affected by a single loss, as when investing all your money into one option. When you have more assets of different companies, you will not take one loss to heart, since you know that you can refund your loss via other positions you hold. Basically, diversification gives you the opportunity to recover faster from a loss.
Leverage is Not Always Good
Many new market participants are thrilled when they see the leverage ratio, e.g. 1:500, 1:1000. The leverages can be enormously high and generate your profits, but at the same time, they can cost you more than you bargain for. Never accept leverage if you know that you could not repay it. It can be very dangerous and drive you into debt if you do not trade reasonable. Always think twice about using leverage. In the end, you entered the market to make some money, not the other way around.
It is very hard, especially for beginners, to grasp the concept of the highly volatile market. It is understandable to be confused and to make a few mistakes at the beginning until you learn from your experience. As long as you are open to developing your trading skills and broaden your knowledge about the market, you are on the right track to becoming very successful in the market.