The world of stock trading is enticing. It offers many opportunities for increasing wealth, but it’s worth remembering that trading has little to do with pure luck. Most successful traders follow carefully thought out tactics and plans in order to secure their investments in the long run.
The good news is that you don’t have to be an experienced trader or a person with a stuffed wallet to start trading. The stock market is open to anyone willing to put some effort and time into learning about its mechanisms. However, it’s still important to remember about the risks involved.
“Trading is risky and unpredictable, you may end up with some good trades and make a profit or lose some money because of a bad trade.” say experts from Trade Wise.
That’s why at the beginning of your journey, you may benefit from the support of communities of traders online who share their knowledge and can offer you great support.
If you want to become a trader, here’s all you need to know before making your first transaction!
A good starting point would be to explain what a stock market and online trading are. In simplest terms, trading is buying and selling stocks of companies listed on the stock market. By purchasing stocks of a company, you are getting shares, meaning part of ownership in that company.
All of these transactions take place on the stock market. After the introduction of computers, trading became automatized, and most of it started to take place online. That is why we’re talking about online trading today, as it’s one of the easiest and most accessible ways to start trading.
And how to start trading? Well, the first step is what you’re doing right now. Researching this topic is crucial before you start trading because you’re putting your money on the line. Below you’ll find all the information you need to become a successful stock market trader.
It only makes sense to start from the key terms and mechanisms of how the stock market works. Learning all the essential information will help you navigate the trading world and maybe avoid some rookie mistakes. You should learn about terms such as:
- Ticker symbol
- Market liquidity
- Short selling
- Bid-ask spread
Additionally, you should start taking an interest in the latest stock market news and major world events that may influence the market. You can look up the Federal Reserve System’s interest rate plans and follow economic and political news to stay on top of things. All this information will be valuable when you start doing your first trades.
At this stage, you can also take an interest in companies you wish to buy stocks of. Observe, analyze (with the help of specialists in a given field) and take notes.
The key to success in trading is a solid strategy. To build that strategy, you should choose what kind of trader you wish to become. There are several different paths to choose from. One of the most popular is a day trader.
Like the name itself suggests, day traders make transactions during the day. They are very active traders who make more than four trades throughout the five business days when the stock market is open.
Swing traders can be characterized as traders who choose more of a long-term approach, making transactions that can last up to several weeks.
The long-term traders interested in buying and holding on to their stocks for a long time are called investors.
You can mix these paths and change your approach to trading along the way, but when you start, it’s better to stick to one way and learn the ropes.
To be a day trader in the U.S., you must have at least $25,000 in your trading account. There is no such requirement if you want to swing trade, so it might be a valuable option for those who don’t operate such capital yet.
Investing also doesn’t require much money initially, as you make long-lasting purchases.
Remember that besides paying for various transactions, you will have to pay your broker commissions. If you wish to limit those expenses, you can make more significant transactions less often.
One valuable step you can take to learn in practice what trading looks like is to practice via a demo or virtual trading account. This way, you can invest your time instead of your money and learn what trading looks like and what your style or strategy may be.
A broker is a person who will manage your transactions. In the beginning, it’s recommended to find somebody reliable and with low commissions. A broker will offer you access to a trading platform from which you can view stock quotes and charts and place orders.
Trading can be a great adventure, a way to build wealth and try yourself in various scenarios. The key to success is to have a good plan and spend some time researching this topic. Make sure you know what kind of trader you wish to be and connect with online trading communities to learn from more experienced traders.
Find a good broker and practice before you start to trade with real money. This way, you’ll gain confidence and won’t take unnecessary risks.