How to Start Trading on the Stock Market Even If You're a Beginner
To start a career as a trader in the stock market, you must understand the principles of stock trading, pricing, and be able to select stocks in accordance with your investment strategy. To start, you need an amount corresponding to the broker’s minimum deposit and verification.
The average return of the S&P 500 index is about 12-13% per annum; in some years the return reached 40% or more. You can earn more than 30% in a few months on shares of individual companies in the technology sector. Anyone can become a stock trader and to do this, it is enough to manage capital from 100 USD. Find out how you can make money on which assets and how to start a career as a stock trader in this review.
Start trading stocks right now with eToro!Trading on the stock market for beginners
The stock market is a market where people buy and sell securities, such as stocks, bonds, and futures. Securities represent ownership in a company or the right to receive a certain income. Trading on the stock market is the process of buying and selling securities in order to profit. A trader buys securities at a low price and sells them at a high price.
How trading on the stock market works
Trading on the stock market takes place through exchanges. Exchanges are organizations that provide a platform for buying and selling securities. Find out what time the stock market opens in the TU article.
When a trader wants to buy or sell a security, they submit an order to a broker. The broker represents the trader's interests on the exchange and executes the trade at the best available price.
Key market participants
The key market participants are:
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Investors: Investors buy securities with the goal of generating income in the long term
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Traders: Traders buy and sell securities with the goal of generating profit in the short term
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Professional market participants: Professional market participants, such as investment banks and hedge funds, execute large trades on the stock market
What assets are traded
Various assets are traded on the stock market, including:
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Stocks: Stocks represent ownership in a company
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Bonds: Bonds represent debt obligations of a company or government
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Futures: Futures are contracts that obligate parties to buy or sell an asset at a certain price in the future
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Currencies: Currencies are units of exchange used to trade between countries
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Commodities: Commodities are physical objects that can be bought or sold
Risks of trading on the stock market
Trading on the stock market can be a profitable endeavor, but it can also be risky. Securities can fluctuate in price, and traders can lose money if they miscalculate the market.
Here are some of the key risks of trading on the stock market:
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Capital loss risk: Securities can lose value, and traders can lose money
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Liquidity risk: Some securities can be difficult to sell, and traders may not get the desired price
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Fraud risk: There is a risk of fraud on the stock market, and traders can lose money if they become victims of fraudsters
Best stock brokers
How to Start Trading on the Stock Market
1 Step 1: Open a brokerage account
The first step to trading on the stock market is to open a brokerage account. A brokerage account is an account that allows you to buy and sell securities. There are many different brokerage companies, so it is important to compare them before choosing one.
When choosing a broker, consider the following factors:
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Commissions: Brokerage companies charge a commission for each trade you make. It is important to compare the commissions of different brokers to find one that offers the lowest commissions
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Availability: Some brokers offer broader access to different markets and instruments than others. It is important to choose a broker that offers access to the markets and instruments you want to use
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Services: Some brokers offer additional services, such as educational resources and research tools. It is important to choose a broker that offers the services you need
2 Step 2: Learn to do research
Before you start trading, it is important to learn to do research. Research is the process of gathering information about a company or asset you want to trade.
When doing research, consider the following factors:
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Financial statements: A company's financial statements are a good way to assess its financial health. Financial statements include revenue, profit, debt, and profitability ratios
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News: News about a company can affect its price. It is important to keep up with news about the companies you want to trade
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Analysis: Analysis is the process of using data to predict future prices. There are many different methods of analysis, so it is important to choose a method that is right for you
3 Step 3: Create a trading plan
Once you have learned to do research, it is important to create a trading plan. A trading plan is a document that describes how you will trade.
When creating a trading plan, consider the following factors:
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Your investment horizon: Your investment horizon is the period of time you plan to hold assets. It is important to choose an investment horizon that is right for your financial goals
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Your risk tolerance: Your risk tolerance is the amount of risk you are willing to take. It is important to choose a risk tolerance that is right for your temperament and financial goals
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Your trading strategies: Trading strategies are the rules you will use to make trading decisions. It is important to develop trading strategies that are right for your investment horizon and risk tolerance
4 Step 4: Track your trading
Once you start trading, it is important to track your trading. Tracking your trading will help you understand which strategies are working and which are not.
When tracking your trading, consider the following factors:
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Cost: Cost is the price you pay for an asset. It is important to track cost to determine if your trade was profitable or not
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Profit: Profit is the difference between the price you bought an asset for and the price you sold it for. It is important to track profit to determine how successful your trading strategies have been
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Risk: Risk is the probability that you will lose money on a trade. It is important to track risk to determine how safe your trading strategies have been
How to Choose Stocks for Investing
Choosing stocks for investing is a complex process that requires careful research. Here are some factors to consider when choosing stocks:
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Fundamental analysis: Fundamental analysis is the process of evaluating a company based on its financial performance, such as revenue, earnings, debt, and profitability ratios. Good fundamental metrics indicate that a company is profitable and sustainable
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Technical analysis: Technical analysis is the process of using historical stock price data to predict future price movements. Good technical analysis can help you determine when to buy or sell stocks
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Your investment horizon: Your investment horizon is the period of time you plan to invest your money. If you plan to invest for the long term, you may want to consider stocks of companies that have a stable growth in earnings and revenue. If you plan to invest for the short term, you may want to consider stocks of companies that are subject to market volatility
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Your risk tolerance: Your risk tolerance is the amount of risk you are willing to take on. If you are not comfortable with high risk, you may want to consider stocks of companies that are considered safe or conservative. If you are comfortable with more risk, you may want to consider stocks of companies that are considered aggressive or high-yield
Here are some specific factors to consider when choosing stocks for investing:
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Industry: Choose an industry that you understand and that you believe will grow in the future
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Company quality: Choose companies with strong financial bases and good management teams
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Profitability: Choose companies with high profitability, which means they are making a lot of money on every dollar invested
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Dividends: If you are looking for income, choose companies that pay dividends
Stock Trading Strategies
There are many stock trading strategies that traders can use to generate profits. Some of the most popular strategies include:
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Buy and hold: This strategy involves buying stocks and holding them for a long period of time, regardless of price fluctuations
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Day trading: This strategy involves buying and selling stocks within a single trading day to profit from small price movements
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Swing trading: This strategy involves buying and selling stocks within a few days or weeks to profit from larger price movements
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Trend trading: This strategy involves buying stocks that are in an uptrend and selling stocks that are in a downtrend
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Volume trading: This strategy involves buying stocks that have high trading volume, which indicates interest from investors
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Fundamental analysis trading: This strategy involves buying stocks of companies that have strong fundamental metrics, such as earnings, growth, and profitability
The choice of a stock trading strategy depends on several factors, including:
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Your investment goals: Do you want to generate profits in the short term or long term?
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Your risk tolerance: How much risk are you willing to take on?
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Your knowledge and experience: How much do you know about stock trading?
If you are new to stock trading, it may be helpful to start with a simple strategy, such as buy and hold. As you gain experience, you can start experimenting with other strategies.
Conclusion
Trading on the stock market can be a profitable endeavor, but it can also be risky. If you want to start trading on the stock market, it is important to do your research and understand how the market works.
Here are some additional tips for beginner traders:
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Start small: Don't invest all of your money at once. Start with a small amount and increase it as you gain experience
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Don't be afraid to make mistakes: Everyone makes mistakes. It is important to learn from your mistakes and move on
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Be patient: Trading on the stock market is a long-term game. Don't expect to get rich overnight
If you are ready to start your journey into trading, I wish you the best of luck!
FAQs
How do beginners trade on the stock market?
To trade on the stock market as a beginner, open a brokerage account, fund it, choose a stock, place a trade order, monitor your trade, and close your trade. Start small, use a paper trading account, don't panic sell, and don't overtrade.
How much should a beginner invest in trading?
Only invest what you can afford to lose. A good rule of thumb is to start with no more than 5% of your disposable income.
Is $1 enough to invest in stocks?
Yes, $1 is enough to invest in stocks. Many brokerage firms now offer fractional shares, which means that you can buy a fraction of a share of a stock for less than the price of a full share. For example, if a stock is trading at $100 per share, you could buy 0.01 shares for $1.
However, it is important to keep in mind that you will need to pay commissions on each trade you make. Commissions are the fees that brokerage firms charge for executing trades. Commissions can vary from one broker to another, so it is important to compare commissions before opening a brokerage account.
How to earn 500 per day in share market?
Here are some tips for increasing your chances of earning $500 per day in the stock market:
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Focus on high-volume stocks. High-volume stocks are more liquid, which means that you can buy and sell them quickly and easily
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Use technical analysis to identify trading opportunities. Technical analysis is the study of historical price charts to identify patterns and trends. By understanding technical analysis, you can identify stocks that are likely to move in your desired direction
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Use a stop-loss order to limit your losses. A stop-loss order is an order to sell a stock if it falls below a certain price. This can help you to limit your losses if the stock price moves against you
It is important to note that there is no guaranteed way to earn $500 per day in the stock market. Even the most skilled traders experience losses. However, by following the tips above, you can increase your chances of success.
Glossary for novice traders
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1
Broker
A broker is a legal entity or individual that performs as an intermediary when making trades in the financial markets. Private investors cannot trade without a broker, since only brokers can execute trades on the exchanges.
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2
Trading
Trading involves the act of buying and selling financial assets like stocks, currencies, or commodities with the intention of profiting from market price fluctuations. Traders employ various strategies, analysis techniques, and risk management practices to make informed decisions and optimize their chances of success in the financial markets.
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Investor
An investor is an individual, who invests money in an asset with the expectation that its value would appreciate in the future. The asset can be anything, including a bond, debenture, mutual fund, equity, gold, silver, exchange-traded funds (ETFs), and real-estate property.
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4
Fundamental Analysis
Fundamental analysis is a method or tool that investors use that seeks to determine the intrinsic value of a security by examining economic and financial factors. It considers macroeconomic factors such as the state of the economy and industry conditions.
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5
Index
Index in trading is the measure of the performance of a group of stocks, which can include the assets and securities in it.
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Team that worked on the article
Alex Smith is a professional day trader for a proprietary trading firm within the foreign exchange (forex) and crypto markets. His area of expertise is day trading and swing trading within the 15min-4hr time frames for both the London and NY open.
Dr. BJ Johnson is a PhD in English Language and an editor with over 15 years of experience. He earned his degree in English Language in the U.S and the UK. In 2020, Dr. Johnson joined the Traders Union team. Since then, he has created over 100 exclusive articles and edited over 300 articles of other authors.
Mirjan Hipolito is a journalist and news editor at Traders Union. She is an expert crypto writer with five years of experience in the financial markets. Her specialties are daily market news, price predictions, and Initial Coin Offerings (ICO).