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The basics of investing in the stock market should be learned by all people who are starting out. Many people believe the stereotype that playing the stock market is an activity only for specialists. In fact, it is quite the opposite. Anyone can learn how to buy shares of listed companies and make money from it.
Basics of investing in the stock market – definition of the stock market
The stock market is one of the basic institutions of the financial market in the modern economy. The stock market is also a trading meeting, which is organized at a specific place and time so that sellers can offer certain goods to buyers at the quotation prices of the day. Transactions are carried out not only by individual investors, but also by stock brokers, who carry them out on behalf of their clients.
Buying and selling between members of exchanges is regulated by strict conditions. To ensure the integrity of institutions, their activities are controlled by the state, which issues a special license to operate.
The market price is determined in the course of transactions in the market, that is, demand and supply. Then the price is made public. Exchanges can be divided by types of goods and types of transactions. Types of goods are:
- Commodity exchanges,
- Services, e.g. insurance,
- Monetary instruments – currencies.
In turn, the types of transactions are:
- Futures exchanges,
The role of securities
How to make money in the stock market? Where is the best place to start investing in the stock market? By getting acquainted with the basic concepts. For any business to function, it needs capital. This allows it to grow. Among the popular methods of increasing one’s capital is selling shares. This can be done precisely on the stock market (read also: How much money can you make on stocks).
A stock exchange is a regulated market where players buy and sell financial instruments that are authorized for trading. These include stocks and bonds, as well as options and futures contracts. Selling and buying are mediated by a broker, who is the recipient of all orders. When they pass through a thorough verification, they are transferred to the exchange. Those who invest can keep track of what the price of specific stocks is by using an order book. Trading on the exchange is possible from Monday to Friday, from 9 am to 5 pm.
It is worth remembering that buying and selling on the stock market is intangible trading, and this means that it exists only as an electronic record in the National Securities Depository system. These records are registered with clients, in investment accounts. If certain transactions are made on the stock exchange, they will entail changes in the accounts, which are managed by the National Securities Depository, as well as changes in the accounts of those involved in the transactions at brokerage houses.
Read also: How to invest in stocks
Investors on the stock market
To understand how investing in the stock market works, it is useful to know the major players who transact in securities or other financial instruments.
Issuers put up securities for sale. They can be either entities or institutions, issuing money. However, not everyone can be an issuer of securities. This is a privilege that only certain entities can enjoy. They can be individuals, legal entities, the Treasury, a state bank, a local government, an enterprise or a financial institution.
There are two types of investors:
- Individuals, that is, individuals who invest their own capital to make a profit. Their goal is not to take control in the company whose shares they buy, but only to make a profit. Therefore, individual investors usually trade with lower capital than institutional investors – they choose to buy back much smaller stakes,
- Institutional investors – entities, engaged in investing professionally, such as banks or investment funds. The capital they trade does not come from their own funds, but was obtained from other entities in the form of deposits or contributions.
Where to start playing the stock market? As for the practical side, certainly from the selection of a good intermediary, or broker. It is about an individual, a legal entity or an unincorporated entity. Other people who authorize it to act as an intermediary on their behalf in making transactions for the purchase and sale of products, securities, services, etc. The broker earns commissions on transactions made to the principal.
These are joint-stock companies whose shares or part of them are listed on a stock exchange. In order to operate, companies must meet a number of conditions. And how to invest in shares? It’s very simple. All you have to do is choose a share of a particular company and buy it at a certain price. Although shares have a certain investment risk, many novice investors choose to make such investments.
How to start investing in the stock market?
The key rule of safety when investing in the stock market is to exercise moderation. The idea is to allocate between 5 and 20% of your savings to investments, no more. In addition, from the very beginning you should be aware of the possibility of losing even all your capital.
The basics of investing in the stock market also include the use of investment portfolio diversification. It consists in the investor allocating his capital in a variety of financial instruments, rather than just one type, such as stocks. As a result, in the event of a decline in the value of one asset, he does not lose all his capital, as he still has it invested in other financial instruments, which in some cases can even make up for the loss.
Basics of investing in the stock market – where to look for help?
To be able to make investments on either the stock market or foreign markets, a good investment account will be necessary. Then you can effectively trade stocks, as well as other financial instruments. You can open a brokerage account with any broker.
As for novice investors, it will be important to make a technical analysis of the various brokerage accounts that operate on the market. For novices, such recognition can be quite a problem, so in this case it is worthwhile to use brokerage account rankings, which make it easier to make a choice.
How to choose a good brokerage house?
It is worth paying attention to the following elements:
- The amount of commissions and fees – novice investors make the mistake of deciding to open a brokerage account with the bank where they maintain a bank account without checking the offer of the competition. It is worth checking the rates of at least a few brokerages,
- The offer associated with the brokerage account – it is worth checking whether with the help of the investment platform the investor will have access to the most popular markets, including commodities, Forex, commodities,
- Care of a broker – playing on the stock market is associated with the need to make many important decisions. So, it is worth having the support of an expert who, if necessary, will answer any nagging questions,
- Training opportunities – the basics of investing in the stock market is a necessity to acquire the necessary knowledge, so that the investor will be able to make the right decisions. What’s more, a reputable brokerage house provides its users with knowledge, through periodic training and meetings.
Fundamentals of investing in the stock market – how to make accurate decisions?
To know how to play the stock market, it is useful to know two types of analysis – technical and fundamental. How to play based on these analyses?
Selecting a company based on technical analysis
To do this, you should:
- Invest with the trend – there are 3 main types of trends: downward, upward and sideways. Using a technical analysis program, review the charts of companies one by one and select those entering an upward trend,
- Avoid illiquid companies, which daily turnover closes in a few thousand dollars. In this case, there are problems with closing positions, so even an accurate analysis may not translate into real profits,
- It is worth looking on the charts for companies with a trend continuation formation, such as a rectangle, flag or pennant. The moment there is a signal in the form of a candlestick formation or a trend breakout line, the investor should make a purchase.
How to invest in the stock market based on fundamental analysis?
To do this, you need to:
- Choose companies that are in good financial condition, that is, those that make a profit or have not made a loss in the last 5 months,
- It is also worth noting that the company’s debt is not higher than the value of its capital,
- Calculate whether the company has earned twice as much in the last 20 years as an investor would have earned on government bonds (read also: Investing in stocks and bonds),
- It is worth choosing those companies that offer products or services that the investor knows and understands,
- It is also worth being vigilant if a company changes its business focus too often and issues new shares frequently,
- It is best to avoid companies subject to government price regulation.
Basics of investing in the stock market – practical step-by-step instructions
In order to trade, you need to set up an investment account with a brokerage house that is licensed by the National Financial Supervisory Authority.
Establishing an investment account
A beginner should first go to a brokerage house/broker/brokerage office a to conclude a contract for an investment account. This is where securities and other financial instruments are stored and traded.
How to invest in the stock market? After signing a contract for an investment account, you can make transactions. The customer will sign the agreement at the customer service desk of the selected brokerage house, but can also apply online. To open a brokerage account, you just need to be at least 18 years old and have a valid ID card.
Read also: How much can you make in the stock market
Deposit money into the investment account
After setting up an account, you can immediately deposit money into it. The amount a particular person decides on depends on his individual preferences and abilities. In many cases, a minimum deposit is required to start investing. During the first period of investing, it is recommended not to allocate too much money to investments. The first deposit is best treated as funds that can be lost, and the loss will not have a large impact on the burden on the household budget. How to make money in the stock market, unfortunately, can not be learned without incurring any losses.
When choosing a broker, one simultaneously chooses an investment platform through which to place orders and make trades. In most cases, such platforms are easy and intuitive to use, so any novice investor should be able to cope with such an investment platform. After clicking on the appropriate button, a window should appear with the shares of the selected company and the price, as well as buy and sell buttons. The same is true for other financial instruments.
A brokerage account linked to a personal account
The basics of learning to invest also include knowing how to set up an investment account. It is worth noting that, depending on the chosen provider, 3 ways to open an investment account await the investor.
- Establishing a brokerage account in addition to the personal account you have. If the prospective investor is a satisfied customer of a certain bank and would be happy to use brokerage services as well, he can do so from the level of electronic banking. This is a convenient and fast way to open a brokerage account. This type of opportunity is provided by any banking brokerage house
- Create a personal account to be able to open a brokerage account later. This type of opportunity is offered only by bank brokerages, as banking institutions are keen to have more and more customers who use the personal accounts they offer,
- Opening a brokerage account with a broker – what does it take to enter the stock market? All you need to do is open an account with a broker, which literally takes a few minutes. The most popular brokers include eToro, XTB, Libertex, etc.
Stock market investment course – is it worth it?
To learn the basics of investing in the stock market, it is worth opting for an investment training course. There are a number of different courses and webinars available online that are worth taking advantage of. Depending on your expectations, you can opt for either free training or paid training. This way, you can learn the basics of investing and then opt for an advanced course to expand your knowledge in this area.
Where can you learn to invest in the stock market?
A list of places to look at:
- Coursera – this is one of the most popular MOOC type portals around the world, which offers sets of courses on investing. The stock market training courses last for several weeks at a time, and require about 5 hours per week in terms of learning. For the first 7 days can use the portal for free, and then you have to pay at $49 per month,
- edX – this is one of the main e-learning portals, because there are courses on investing from the most famous universities from around the world. Much of the training is free. The courses take a few weeks each, and to complete them you need to devote between 2 and 10 hours a week to study. Training courses cover both the theoretical and practical side,
- Udemy – this platform offers paid courses, the price of which ranges from a dozen to several dozen euros. Courses on investing are created by specialists from private companies and academics. You can find both beginner and advanced courses there,
- Future Learn – is a platform similar to edX in that it offers free courses on investing, and a certificate of completion is usually paid for. However, in this case the training courses are created by less prestigious universities,
- FOREX Fundamentals – offers a set of training videos for those who are new to investing. The rules are given in a clear and very accessible way. To access them, you need to register on the site (read also: Forex demo account and Forex training courses or Forex currency trading).
How to make money in the stock market?
When an investor begins the adventure of investing, he should answer some important questions. One of them is what level of risk is he able to accept? It is best to start with this very question, as the answer to it will be related to the choice of investment strategy, financial instruments or even specific companies to be included in the investment portfolio.
When answering this question, it is worth considering your professional, material and personal situation. An investor who has a stable job, but also has credit and a family, should invest in a different way, and a single who has a financial surplus every month, with which he does not know what to do.
Investing in the stock market for those who are less risk-averse can be based on passive investing, such as in ETFs or buying shares of reputable companies. Such an investor’s investment portfolio should include a safe portion, such as investments in government bonds.
If the investor is able to accept a higher level of risk, he or she can go into riskier, but possibly higher-yielding investments. The second option is recommended for investors who have more knowledge and experience, and with a lot of financial security.
What to invest in the stock market?
First of all, it is best to start investing in the stock market with small amounts, because even with amounts of USD 500, the investment can result in the generation of considerable capital. The basics of investing in the stock market, unfortunately, also include a less pleasant principle, which is that investing in the stock market always involves some investment risk.
Stocks can always lose value, and the market can go through a sharp downturn. Therefore, one must be prepared for such a turn of events. So how to invest small sums in the stock market in order not to lose? In particular, in the shares of large companies that have a stable and established position in the market.
Among other things, you need to pay attention to their positioning relative to competing companies. Besides, it is a good idea to invest in companies that pay dividends. These are assets that are remuneration in exchange for providing capital. However, beforehand, you should familiarize yourself with the offers of brokers so that you do not pay too high investment commissions. This is very important especially when investing small amounts, because in such cases, through carelessness, the investor in the best situation may come out at zero, but in most cases he loses.
For those who don’t want to take risks, securities are a great option. You can opt for either Treasury bonds or specific companies’ bonds. As for Treasury bonds, they feature lower interest rates, but are much safer. Corporate bonds are characterized by higher risk, but allow you to generate higher returns.
As for the basics of investing in the stock market, ETFs can also be a good choice for beginners. This is an effective method of saving that reflects the state of one stock market. In this case, you don’t search for individual companies, but invest in indexes. ETF funds allow you to trade ETF units, in turn, often no commission is charged for their purchase.
What to invest USD 1000 in the stock market?
It is a good idea to invest small amounts in the stock market in three-month bonds. This is a great solution for beginners (read also: Stock market investments for beginners). Thanks to such an option, the investor gets to know the profit already on the day of purchase, in turn, the investment itself does not have to last for years. Usually in such a situation the interest rate is more or less 0.5%, while the selling price is USD 100. When 3 months pass, the money in the investor’s account will appear in the amount of the cost of purchase together with the interest for the bonds.
What to invest large amounts in the stock market?
Large amounts can be invested in gold and silver (read also: Gold investments and How to invest in silver). This is a very safe form of storing, as well as saving money. When crises arise, their value increases, as players begin to invest in them. It is worth remembering that gold cannot be added, which means its quantity is limited. Gold comes in various forms – bars, coins or securities.
And what to invest in the stock market if not gold? You can opt for silver, whose rate depends on the value of the first raw material. To calculate this, the Gold/Silver Radio ratio is used, which indicates the ratio of the two metals to each other. You can also allocate small amounts of money, in the order of a few hundred dollars, to invest in gold and silver.
Basics of investing in the stock market – what to remember?
When deciding to invest in the stock market, it is worth remembering several important principles, the implementation of which will allow you to minimize investment risk.
Emotions, unfortunately, are not a good advisor when it comes to investing. It is definitely better to use common sense and take a cool-headed approach to making investments. It’s not an easy skill to acquire, but it’s worth cultivating and developing, as it comes with its own benefits. Cool calculation is something that is associated with investor success.
You can test your knowledge when it comes to the basics of investing in the stock market by playing on a demo account. Currently, every good broker offers the opportunity to use a demo account completely free of charge for a certain or unlimited time. It is worth taking advantage of this, as it allows you to implement yourself in investments, without having to risk your money. You can also check what functionalities a certain investment platform offers and whether it meets the investor’s needs and expectations.
Read also: Apps for investing in the stock market
In a demo account, virtual funds are traded, and although there will be no real excitement in such a case, since no real money is involved, you can learn the principles of the stock market through it. This is a great advantage for newcomers. Instead of a demo account, you can also use a stock market simulator, where you can also make transactions with virtual money, without incurring investment risk.
Expand your knowledge
The basics of investing in the stock market are not enough if an investor wants to get into investing for a living. In this case, it is necessary to constantly learn new things and keep up to date with all news, information and innovations. It is worthwhile to take advantage of various types of training and courses, whether online, onsite, free or paid. Such webinars, eBooks, online articles, etc. are worth considering. By improving his knowledge, an investor becomes better and better at his craft.
Investing with your head
The amount of money an investor allocates to playing the stock market is important. At the very beginning it is recommended to invest as much as you can lose. That is, it should be a loose amount that is not needed for any other important expenses. It is also worth remembering that playing the stock market is not gambling and one should not borrow to make investments. When an investor starts borrowing from friends or banks, it’s a sign that he’s on the wrong track.
When it comes to investments, one should not act without a plan. Choosing the right investment strategy will certainly help you make trades, as well as minimize investment risks. Therefore, before trading in the stock market, it is necessary to familiarize yourself with the various strategies available and choose the one that best suits the investor’s needs. You can find many sample strategies on the Internet, from which you can choose one or combine several.
Investing in well-known financial instruments
Do not immediately throw yourself into the deep end. In the first place, it is best to invest in those financial instruments about which one already has some idea. Investing funds in assets about which the investor knows nothing is not the best idea and may bring even greater losses. Always invest in small and incremental steps and according to your knowledge.
Diversify your investment portfolio
Having even a small capital, it is worthwhile to allocate it in such a way as to divide the funds and place them in different financial instruments. In this way you can reduce investment risk and protect yourself from losing all your capital. When, for example, stocks lose value an investor who has money placed in other financial instruments is not at a losing position.
And how to invest in stocks and how to diversify the investment portfolio, when only stocks are the object of the investor’s interest? In this case, funds should be invested in various companies, rather than in one type of stock and one company. This allows you to partially protect the invested funds and minimize the investment risk.
What are the basics of investing in the stock market?
The basics of investing the stock market certainly include:
- Learning the basic concepts of investing,
- Establishing an investment strategy,
- Knowing how to set up an investment account and make transactions,
- Becoming familiar with basic financial instruments and knowing exactly which ones one intends to invest in initially,
- Diversifying the investment portfolio, i.e. investing funds in various assets rather than one financial instrument.
Investing in foreign exchanges
Investing in foreign markets is a good option for those who are experienced and have a certain level of knowledge. The greatest attention is usually concerted on the American stock market. If you choose this type of option, you need to pay attention to whether customer service is available in your language, including for those who know English well. In the case of foreign exchanges, the range of options is probably much wider than on the Stock Exchange in your country. Access to foreign markets is offered by some brokerage houses. However, it is advisable to take an interest in them once you have acquired some knowledge and experience in making investments on the domestic stock market.
The basics of investing in the stock market should include the most important principles of its operation, concepts and definitions with which every novice investor should become familiar. To learn how to play the stock market, it is advisable to opt for a course on investing in the stock market. This ensures that the investor has received sound knowledge that will help him in making investments.