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How To Learn Stock Trading for Beginners

There are few better ways for people to grow their wealth than investing in stocks. However, jumping straight into trading stocks without any prior learning is a risky approach that’s likely to result in financial loss. Much like with any other skill, some education about stock trading provides the fundamentals needed to begin practicing the skill and trading as a beginner.

It’s vital that newcomers are aware of the fact that stock prices can move up and down frequently and with little notice. Yet, the increased volatility compared to bonds or money market investments also provides increased opportunity for growth. The basic steps to begin trading are to open an investment account and choose what to invest in. However, some additional steps can provide a better education for beginners and maximize the chances of succeeding at trading stocks.

Key takeaways:

The following steps provide a useful guideline on how to invest in stocks:

  • Take an online course.
  • Read books and blogs.
  • Open an investment account.
  • Understand investment funds.
  • Choose between funds and individual stocks.
  • Establish a budget for trading stocks.
  • Have a long-term mindset.
  • Manage your portfolio.
  • Consider advanced strategies.

Take an Online Course

Online courses taught by successful investors who know what they’re doing can be a great entry point to learn stock market trading. The value of learning from an expert who has created their own course can be difficult to put a price on.

In an online course, new investors can expect to learn about trading terminology, the stock exchange, market behavior, different types of financial instruments, how to make smart trading decisions, and more. Good courses are those taught by experienced trading professionals who are able to show the results that back up their claims. Authentic testimonials and courses with regular content updates are other features to look out for.

The cost of trading courses varies wildly across different providers. A typical introductory trading course normally costs somewhere between $50 and $500.

Read Books and Blogs

Books about investment are excellent resources to help you learn stock trading, and there are tons of books out there on trading strategies. It’s best for beginners to look for books that teach the fundamentals of stock market trading. The basis for reading books should be to gain enough knowledge to build out a personal investment strategy based on the individual’s goals.

Blogs are also incredibly useful resources for learning to trade. Many resources offer free trading tips and more.

Open an Investment Account

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When a beginner becomes armed with enough fundamental trading knowledge from online courses or books, it’s time to open an investment account. An online brokerage account is the easiest path to get started trading stocks. The two main options for online brokerage accounts are to open an Individual Retirement Account (IRA) and set aside money for retirement or to open a standard brokerage account if retirement funds are being set aside elsewhere.

There are many providers of brokerage accounts. It’s wise to shop around and look for the best value in terms of the costs of the account and the available investment choices. The costs typically paid include trading commission and account fees.

Understand Investment Funds

An important decision for beginners to make is to choose whether to invest in funds or individual stocks. When it comes to funds, the two main types are mutual funds and exchange-traded funds (ETFs).

Mutual funds allow investors to purchase a collection of stocks by pooling together money from many investors. These funds are actively managed by professionals who buy and sell fund assets in an attempt to beat the market.

Exchange-traded funds (ETFs) are special types of investment funds that track a specific index, such as the S&P 500. Because ETFs track a stock market index, they are passively managed investment funds.

Mutual funds typically come with higher costs than investing in an ETF. These higher costs reflect the more active role played in managing mutual funds. Some investors want to take on the extra costs because they find the idea of beating the market attractive.

Choose Between Funds and Individual Stocks

Before getting into more complicated investment strategies, the basic choice that people who are learning stock trading face is to choose between funds and individual stocks. People can choose to invest in shares belonging to specific companies. The difficulty with individual stocks is that diversification — spreading investment risk among many different companies — requires significant investment.

Beginners are typically best served by establishing a portfolio comprising mainly mutual funds or ETFs with some money allocated to individual stocks. As investors become more experienced and knowledgeable, they can shift more of their investment budget to individual stocks. The attractive upside of buying individual shares is that choosing the right company at the right time can sometimes lead to huge windfalls resulting from the rapid growth of those companies.

Establish a Budget for Trading Stocks

It’s wise for beginners to have a specific budget allocated to stock market investing. Without a budget, a trader might end up chasing losses in individual stocks and ending up losing track of how much they’ve invested. The precise budget to allocate to stock trading depends on the individual and the type of investment they want to pursue.

Individual stock prices can vary widely from day to day. When it comes to mutual funds, there is typically a minimum purchase price of between $500 and $5,000. Regardless of whether a beginner has a small or large budget, the point is to establish a suitable budget and stick to it by keeping track of their investments.

Have a Long-Term Mindset

One of the most important lessons that beginners need to learn is that stock trading generally requires a long-term mindset. It’s very easy to become bogged down in intricate strategies in an attempt to maximize short-term earnings or mitigate short-term losses. For beginners, these more intricate strategies are difficult to put into practice.

In active trading, the investor should stay aware that successful trading is a long-term game for most people. Advanced strategies can be attempted to maximize short term gains by those who feel passionate enough or knowledgeable enough. Most investors should avoid looking at stocks every day.

Manage Your Portfolio

While relentlessly checking fluctuations in stocks is not the most useful strategy for beginners, it’s important to manage any stock portfolio. The more individual stocks you’ve invested in, the more pressing the need for portfolio management. Investors should check in on their portfolios to ensure their investments are not too dependent on the performance of one sector or industry. Where there is evidence of being exposed to downturns in one sector or industry, investors should diversify and purchase stocks in a different sector.

Consider Advanced Strategies

As beginners become more knowledgeable through experience in trading stocks, they can consider some more advanced strategies to grow their wealth further. The typical advice for beginners is a buy-and-hold strategy by which the majority of a person’s investment budget is put into mutual funds or ETFs with little active portfolio management. A small proportion, say 10%, may be set aside for active trading in individual stocks.

With enough passion and willingness to learn, some investors might want to consider trying to time the market and investing more of their money in individual stocks. Most beginners will not be prepared for a lot of active trading unless they take a specific course taught by an experienced trader.

Closing Thoughts

N ot diving in at the deep end without some type of education is one of the key tenets of learning stock trading. That essential education can come from a good online course or an informative book. Armed with enough knowledge, beginners can then choose a suitable investment strategy that defines how much they’d like to invest in individual stocks versus funds.

Most beginners are best served with a long-term mindset that devotes a small part of their portfolio to individual stock trading. As people gain more knowledge through experience, education, and research, they can consider devoting more money and time to stock trading.