Investing in stocks can be an overwhelming process, especially if you’re new to the stock trading world. Understanding some of the basic terms and phrases associated with stock markets and trading can help you feel more confident. As you become more familiar with the practice of trading, you can start buying and selling stocks to potentially earn high yields on your investments. Follow this handy guide to investing in stocks and go from a beginner to an expert.
Investing in Stocks for Beginners: Where Do I Start?
Investing in stocks for beginners often starts with a brief lesson on the various markets available for trading, timing your purchases and sales, the meaning of certain commonly used words and phrases, and choosing which stocks to trade. In today’s tech-heavy world, investing in stocks is easier than ever because you can do it from your smartphone or tablet. User-friendly apps make it easy to buy and sell, even if you don’t have a lot of money to invest.
A stock is an equity investment that allows you to purchase a portion of a corporation. When you own a portion of a corporation, you become a legally entitled recipient of the company’s assets and earnings. When you own common stocks, you hold voting rights, but you don’t have a guarantee that you will receive payments of dividends. Owning preferred stock does guarantee a dividend payment, although you don’t have voting rights.
You may also hear people refer to a security, especially when you’re learning more about how to invest in stocks for beginners. A security is a certificate of ownership, and it used to be a paper certificate but is now recorded electronically. Before you invest in stocks, you should always do some research on the company you are considering investing in so you know what to expect. It is also smart to know more about the various markets that offer trading opportunities, how to time your trading habits, and whether you need to work with a broker to get started.
One of the best ways for beginners to invest in stocks is to practice with play money before you start investing with your hard-earned cash. As you become more confident in your practice trades, you can start investing real money with the skills you have learned.
Give yourself a budget and start researching companies and stock prices. You can use a variety of resources to learn more about different corporations that offer their stock for sale. Public companies that trade on the major markets are more transparent with their financial details, allowing you to assess which are trending upward and may be poised for a major increase.
Here are some other important guidelines:
- When investing in stocks as a beginner, the first step is understanding some of the commonly used words and terms, such as securities, common and preferred stocks, and dividends.
- Gaining a better understanding of the various markets that offer stock trading opportunities can help you become more confident. The main markets include the New York Stock Exchange, the Nasdaq, and the American Stock Exchange.
- Another aspect of becoming a more experienced stock trader is learning how to time your purchases and sales. Certain times of day, days of the week, and times of the year are more volatile, while others are calmer and more appealing to beginners.
- As you become more familiar with the stock market, you can research different aspects of a company, including its financials and payout history, to determine which stocks may be worth considering for investments.
- You may need to work with a stockbroker to buy and sell stock, although you can do so through smartphone apps and other online tools that make the process quite easy.
There are three major securities markets in the U.S. where you can invest in stocks. They include the:
- New York Stock Exchange (NYSE)
- American Stock Exchange (AMEX)
- National Association of Securities Dealers Automated Quotation System (Nasdaq)
The NYSE is the largest market in the U.S. while the Nasdaq is the nation’s largest electronic screen-based market. The AMEX includes mainly exchange-traded funds (EFTs). Some of the larger cities across the U.S. have their own major markets as well.
Some newcomers to stock trading choose to trade over the counter. This is a better option if you want to purchase smaller amounts or spend less money, although these companies aren’t subject to the same regulations as those on the major markets, so the risk can be higher. If you choose to trade over the counter, you can purchase stocks, commodities, currencies, and other assets without going through a central exchange or broker. A dealer provides a set price for an asset, which a buyer can purchase electronically.
How to Time the Market
Investing in stocks and shares for beginners also requires some understanding of timing the market. Learning to spot trends and shifts can help you increase your chances of success, even when the market has a downturn, which will happen at some point. All major markets experience upswings and downturns, so timing your trades can help you capitalize on the upward motion while maximizing your dividends and returns. Looking at the best times of the day, days of the week, and times of the year to trade will help you avoid major shifts.
When the markets first open in the morning, the volatility rates tend to be the highest. Various situations and events that take place after trading hours cause stock values to shift dramatically during the first few hours of trading. Many beginners choose to avoid trading completely until around 11:30 a.m. when the volatility tends to decrease a bit. From then until about 3:00 p.m., you can make trades and decide how you want to proceed. Near the end of the trading day, the volume of trades goes up, resulting in increased volatility once again.
As for the best day of the week to buy, many experts agree that it’s Monday. News releases and events that occur over the weekend, referred to as the weekend effect, can cause prices to go down, allowing you to buy low and potentially sell high. If you plan to sell, consider doing so on a Friday before the weekend effect begins once again.
It’s impossible to time your trades perfectly every time because factors will impact stock values that are beyond your control. Part of becoming a more seasoned trader is learning how to bounce back from trades that aren’t profitable. You can also learn how to manage momentum shifts and assess the potential for high returns on investments.
Choosing Stocks to Buy
There are two key ways to make money through the stock market. The first is to buy stock at a lower price and sell it at a higher price. The second is to hold onto stocks and earn interest and dividends from the success of the company. Your investment portfolio can include a diverse mix of stocks to improve your success rates and allow you to expand your horizons. As you decide which companies you want to invest in, take some time to research trending industries, as well as companies that may be in a position to grow or increase in value.
Some industries come with more risk than others. For example, marijuana is a hot industry right now but can be impacted by political events and other factors, making it riskier than an industry that may not be as affected by shifts in the political climate. Before investing, you should determine how much risk you can tolerate and how well you can manage risk. Higher risk stocks can provide higher yields, but they can also create a lot of stress among those who don’t have as much experience.
Working with a Broker
You may need to work with a stockbroker to invest in stocks. For beginners, working with a more experienced broker can offer a number of insights that help them become more successful. Many brokers provide options that are commission-free, allowing you to spend more of your money on investing rather than paying someone to broker a deal. The exception to this rule is if you plan to buy stocks over the counter rather than through one of the major exchanges. OTC trading doesn’t require the use of a broker because it is a decentralized market.
The stock market can be a confusing place to invest your money, but it is one of the most profitable options for those who are willing to take the time to learn more about it. At Raging Bull, we have the tools and resources to help you become a more experienced and knowledgeable trader.
Take advantage of a free training session with one of our seasoned trainers or download a complimentary e-book to get started. We also host webinars to teach beginners more about the practice of trading stocks. With the right resources, you can learn as much as you want about buying and selling stocks to begin building your own investment portfolio.