A beginner’s guide to investing in stocks
Even if you’re new to the trading world, chances are you’ve heard of the stock market. This is a collection of publicly listed companies open to investment via shares, bonds and funds. Buying stocks gives you a real stake in that business, and majority shareholders can control company operations.
The stock market is made tradable by stock exchanges around the world, created to facilitate the purchase and sale of securities. As shares are traded, companies increase or decrease in value based on supply and demand. Stock traders can garner a return on their investments if their chosen companies grow in value and their securities are sold ahead of a downturn.
Discover the best practices for beginners looking to start investing in stocks, from tips on choosing the right investments to managing your portfolio.
Choosing the right investments
With thousands of companies listed on the London Stock Exchange alone, identifying the best investment opportunities is no mean feat. Professional traders make a career out of this skill – and still make mistakes. Remember your overall goal: to profit from the money you invest.
Begin with market research to see how often and dramatically it fluctuates and to find patterns in these trends. While past performance is no indication of the future, it’s a useful guide to the typical actions of your fellow traders.
You must conduct specific company research too. Look into the management, business goals and their position in the sector compared to competitors. Analyse their financials including the price-earnings ratio, balance sheet and income statement. Companies with USPs, consumer appeal and the funds and structure to enable rapid growth are likely to be good investments.
If in doubt, follow the general market trends to try and get small wins from popular stocks.
Managing your portfolio
Unless you intend to trade full-time, finding an easy way of managing your portfolio is essential.
Feeling confident about entering the market? You can set up an account with a trusted stock trading broker like Tradu which gives you full control of your investments and instant access to the market.
For more support and guidance, work with a financial advisor. This is especially useful in the initial stages of stock trading when you’re less experienced in identifying potential opportunities. Financial advisors can be real people practised in using the stock exchange or automated services that provide algorithm insights based on real-time data and trends.
Understanding the risks
Before you start trading on the stock market, make sure you have a thorough understanding of the risks. All investing is a risk-reward relationship, and you have as much chance of making a loss as a profit.
Always keep a portion of your savings separate in a secure place such as a bank account, and never invest more than you can afford. The road to success might be slow, but there’s every chance of strong returns if you trade carefully and patiently.
