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How to start investing in the stock market?

In this article, you will find basics on what you should take into account when trying to invest in the stock market.

What is a stock market?

The trading of stocks, commodities, currencies, and other investment derivatives takes place on stock exchanges (markets). In the past, investors and brokers would physically gather in a stock exchange facility, but nowadays, most financial trading is done electronically and automatically.

Investing is a way to a passive income. The type of income, where money works for you, and you enjoy life. It can happen thanks to different stock exchanges. The stock exchanges operating in New York, NYSE and Nasdaq, are the two main US exchanges. 

Read also: How to analyze the stock market with financial ratios

The stock market can be a difficult challenge, especially when you have zero experience. It can be difficult for even seasoned investors to move and make decisions in volatile markets. Before you begin investing, you should consider getting ready and following a few steps to a successful outcome.

How to start investing?

Knowledge is key

Entering a field in which you have little or no experience is one of frequent errors people make. An investment in oneself is the finest investment a person can make. Increase your knowledge of the market. Know how things really work by reading a great deal of financial literature.

“Failing to prepare is preparing to fail.”
John Wooden 

Define your goal

Investing, as many other aspects of life, requires setting clear objectives. Everybody has various objectives. A person at the age of 18 could desire to be financially independent by the time they are 30, while a 30 year old might want to invest in their children’s schooling, wedding expenses, or other life events. If you’re older, you might want to increase and protect your money in preparation for retirement.

Your financial goals often include a time frame, commonly referred to as the “time horizon.” Consider your investing objectives and the amount of time you will need to invest to achieve them. Some of them can be deadlines you set for yourself, and some will be a set time frame over which you have no influence.

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For instance, if you want to save for your kid’s higher education when they are only 4 years old, it will take you 14 years to attain your goal (assuming they enter college at 18). Given the limited time frame, you should pick assets with lesser risk to enhance your chances of achieving your objective.

Set aside what you are willing to lose

Setting a budget you can risk is also essential. You should define how much money you want to spend for a lower risk investment and how much money you are willing to put down in a riskier environment. Remember, usually the higher the risk, the higher the potential of a reward.

Consider your personal financial condition for a minute before you begin investing. Establish a spending plan so you know exactly how much money you make and where it goes each month. Next, determine what percentage of your money may go toward investments and savings.

Start as soon as you can

The stock market experiences a wide range of emotions, fluctuating between buoyant and excited and desperate and scared. It’s crucial for a newbie to experience these feelings since they allow an investor to learn in real time. Everyone should start earlier and begin investing if they want to participate in these significant periods and be sure that they can manage their feelings.

“To forgo consumption now is to have the ability to consume more later.”
Warren Buffet

Do it regularly

Regular investments, however small, can yield significant returns over time. This is also called compounding. The key is to start with your investments as soon as you dare. The stock market is a fantastic place to begin with.

Where to start investing?

For investing, you need to find a broker who will facilitate your trades and transactions to actually buy the assets you want. There are a lot of brokers offering different types of services and different fees, minimum deposits, commissions etc. It is wise to go with a well-known trusted broker. Cheaper is not always better.

Read also: Building an investment portfolio – 5 easy steps

Several institutions require you to deposit a minimum amount. It is good to compare your options, and not just go with the cheapest one. Some portfolios are exclusive, and you need an exclusive minimum deposit to get in. Some companies offer benefits above a certain amount and will wave some expenses such as trading fees and account administration fees. Some offer a given number of transactions for free.

Typically, whether you purchase or sell stocks, your brokerage will charge a fee each time you trade.  Trading commissions can be as much as $10 per trade or as little as $2. Commonly, brokers charge commissions in percentages from the amount traded. 

Related: Recession: what is it and how to protect against it?

Some brokers don’t even charge trading commissions, instead, they compensate for the difference in fees. Based on how frequently you trade, these costs may stack up, have an impact on the return on your portfolio, and cut down your money available for investment.

Some ways of investing in stocks

There are several ways to participate in the stock market. One of those is through a firm or a broker, who has its own product portfolio, where you can participate. Banks often offer products like this. This type of participating eliminates your need of direct involvement, as companies manage the portfolio and make the transactions themselves. This method is the most common and is suitable for beginners and traders who don’t want any fuss.

Another way is to trade directly through a platform, where you see live prices, graphs, indicators, and other instruments. This kind offers to be fully in control of your money. It, however, also brings more responsibility as live or direct trading needs much more attention. You need to do your own research in most cases on what you are about to buy and analyze the situation before you enter a trade (also known as a position).

Many brokers offer a stock market simulator, also known as a demo account. This type of account uses virtual money on a trading platform, however, operates on a real exchange. This way you can try investing or trading directly without any risk before you try the real thing.

Ultimately, it is up to you how you want to invest, however, the key is always making a step to participate even if it is a few dollars a week or a month.

Tomáš is a financial reporter with US markets as his main field. Tomáš is an aspiring author and entrepreneur aspiring to help people get better in financial knowledge.

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