To trade stocks, one must understand the know-hows of the venture before jumping in. It may be daunting at first, but learning the ropes always pays a lot in the longer run. This particularly true if you’re serious about making a lot of money from trading stocks.
So, here are some key steps you should follow to start stock trading.
Choose a Broker
Stock trading needs you to open and set up an account. To do that, you first need to find a broker. After that, you can set up a trading account.
You must be careful when choosing an account type, because certain accounts have features different from the others.
You can open an account with an online broker with just a few clicks. If you’re planning to trade frequently, remember to check how much the broker charges for every trade, if any.
Allocate a Budget
The rule of thumb in trading stocks is that you shouldn’t risk what you cannot afford to lose. That means you should have money that’s dedicated only to stock trading.
For specific examples, do not risk your mortgage payment or your rental payment for trading stocks. Remember that although stock trading is a lucrative venture, the risk of losing your money is also very real.
Study Market and Limit Orders
After setting up an account and allocating a budget, the next move is to study the process of trading itself. And one crucial part of it is learning how to use market and limit orders.
In a nutshell, market orders are trades that let you buy or sell the specific stock immediately at the best available price. Meanwhile, limit orders let you decide to buy or sell a stock at a specific price level.
Use Demo Trading
Of course, it’s true that practice makes perfect. Even if that sounds cliché, it works, especially in the world of stock trading.
Using a demo account lets you trade in real market conditions without risking any real money. You can use this as a way to practice the strategy you want to use for when you get into the real stuff. It also lets you set your expectations right before you jump in.
Now, here are some tips that will help you survive trading stocks.
Build Positions Gradually
You don’t have to start big. It’s much, much better to start with small good positions and them build them up gradually as the trade goes well.
Don’t Follow Hot Stocks Without Researching
When you first start out, it’s easy to get swayed by the market news. They tout hot stocks that promise huge profits if only you would invest in them. It’s better to do your own research first. Most of the time, these hot stocks only last for a few days or weeks. And the research you’ll do will help you know which stocks have real promise, which are just gases.
Last but not the least, diversify. Nothing is riskier than concentrating your holdings on a single stock. Apart from that, it’s also risky to invest only in one sector or stock group. To properly diversify, invest across sectors and industries, so that you don’t put all your eggs in one basket.