Investing in the stock market is a significantly faster way of growing your savings relative to putting it in a savings account. That being said, it involves a degree of risk that should be acknowledged and respected. Here’s a beginner guide on how to trade stocks responsibly and profitably.
Figure Out Who Manages the Account
You can get started in stock trading either by opening your own account and making your own trades or by having a professional fund manage your portfolio for you. The latter is done through Robo advisors, which is essentially a low-cost portfolio management service. A Robo advisor will pick stocks for you based on your investment objectives. If you choose the DIY path, you’ll have to figure out your stock selection strategy.
Come Up With a Trading Strategy
Stock trading without a strategy leads to inconsistent stock picks and unpredictable results. You’ll want to have a strategy that gives each trade a better probability than 50/50. There are various ways to trade stocks or any asset for that matter. This includes MACD crossovers, arbitrage, buy-and-hold, etcetera. Determine which one best suits your risk profile and investment goals.
Open a Broker Account
This sounds like a fairly easy step, but finding the right broker can take some time and research. How quickly a broker can execute your trade orders, how fairly they can price your trade orders, and how easily you can access their technical support team will all have a collective impact on your bottom line. In addition, check what assets they offer, what fees they charge, and what educational resources and trading tools they provide.
Focus on Long-Term Growth
It’s human nature to be tempted to make as much money as you can in as little time, and effort spent. This narrow and slothful way of thinking can lead to more losses and slower portfolio growth. Pick stocks that will appreciate in value over time. It’s highly recommended by successful stock investors, such as Warren Buffett, to go for index funds rather than individual stocks. Split your portfolio into low-cost funds, such as the S&P 500, and individual stocks that you believe can grow considerably in the long term.
Having a fundamental understanding of stock trading is important. That being said, your bottom line as a trader will be predominantly determined by your risk management approach.