Stocks are an alternate form of investment that can offer high returns briefly. It is also the riskiest type of investment. Many small traders enter this field thinking they will make significant gains but lose money due to a lack of information.
A new investor should keep these pointers in mind when buying shares.
Find out if your broker offers demo accounts
It is always better to use a demo account (offered by most brokers, find more info here) to trade stocks when starting. The idea here is to get familiar with stock trading without spending any real money. Under the ” virtual execution ” section, most brokers even let investors practice paper trading on their websites under “virtual execution” section. This way, you learn how the market works and enjoy all the benefits of trading. Once you have gained sufficient confidence, switch to live accounts.
Many traders dabble in stocks without ever opening a demo account or paper trading online, spending real money straight away on their trades. It is one of the most common mistakes made by new stock players and can be avoided if you know it.
Only trade with what you can afford to lose
While many people expect to make significant returns when they first enter the market, remember that every investment has its risks attached. Stocks are considered one of the riskiest investment forms because past performance does not guarantee future gains. There are even instances where investors lose more than what they invested due to unforeseen circumstances.
Therefore, only invest the amount you are willing to lose. It is also good practice to set aside a portion of your portfolio for this purpose, even if you want to trade with “play money” using demo accounts or virtual execution. This way, you will not deviate too far away from your investment plan and avoid making rash decisions that can cost you dearly in real life.
Do not make investments based on tips/hunches alone
Many small traders enter into stocks thinking they will make gains by following tips and hunches (they may also refer to them as inside information). While it is true that stock markets offer great opportunities for small players, trading based on one-off pieces of information is just gambling and can be extremely dangerous.
No one, not even market experts and analysts, can predict what will happen next in the stock market. By relying on tips alone, you essentially place a bet that the information you received is correct and profitable for your portfolio. Even if it has been correct up to this point, there is no certainty that it will continue to be so in future trades.
Instead of making investments based on hunches or hearsay, be sure to do proper research by looking at past performance and company fundamentals before investing. This way, you won’t end up losing money due to a lousy trade triggered by a false tip given by someone who didn’t know what he was talking about either.
Start small and gradually increase your portfolio
The stock market is for long-term investments. It makes little sense to enter into it with considerable sums that can turn into huge losses if you are not an experienced investor who understands how the market works.
So, beginners should make it a point to start small and gradually build up their portfolios over time. It allows them to learn about different trading techniques without risking too much money. Watching the daily changes in one’s portfolio becomes a habit after some time, allowing investors to become more familiar with the market trend and make decisions accordingly.
Start investing early and stay the course
Many people hold the misconception that they will make more returns if they postpone their investments until later in life after having gained some work experience or achieved a higher income. They think that they can invest more significant sums of money this way, which would give them sizable returns over time.