Equities Investing for Beginners Made Easy: A How-To Guide to Stock Market Trading

One of the most popular ways to build wealth involves stock market trading. For beginners, though, this could be daunting. There is such a wide variety of different stocks, strategies, and outcomes; thus, it can be very easy for people to be intimidated. 

With the right knowledge, tools, and psychology in place, anyone can get started and thrive in the stock market. This guide will lead a beginner through the basics of stock market trading, what stocks are, how the stock market works, and strategies that will help one thrive in this exciting financial arena.

What Are Stocks?

At its core, a stock represents ownership in a company. Owning stock in a company is essentially buying a tiny stake in that business. Businesses issue stocks to gain money for expansion, research, or some other business-related need. In return for your investment, you become a shareholder with potential dividends—in other words, a share of the company’s profits—and capital gains should the stock appreciate.

The major types of stocks are of two types:

Common Stock

• Gives a right to participate in shareholder meetings by giving ownership voting rights.
• Owners have the potential to receive dividends.
• They are also the last ones in line upon liquidation.

Preferred Stock

• The owners have no vote in corporate governance.
• Its holders are prioritized with the process of dividends over the holders of common stocks.
• The liquidation payment is made ahead of common stocks.

How Does the Stock Market Work?

The stock market is a collection of exchanges where stocks are traded. These exchanges are a platform where buyers and sellers can meet. In the United States, the two most known exchanges are the New York Stock Exchange—or NYSE—and NASDAQ. While the NYSE is an auction-style exchange, in which buyers and sellers are matched up through brokers, the NASDAQ is an electronic exchange.

You are participating in this market every time you sell or buy a stock; you agree on a price at which to buy stocks, and that was the price at which owners of those stocks were willing to give them up. The supply and demand determine the fluctuating prices of each stock: the higher the demand for a stock, the higher the price; and if the supply is high, meaning more people want to sell the stock, then the price falls.

Why Trade Stocks?

People trade in stocks for a number of reasons. Some of these reasons include:

• Wealth Building: Historically, the stock market has provided high returns on investment, outpacing inflation and other asset classes over the long term.
• Dividends: Many stocks provide regular dividends, thus providing a passive income source to the investor.
• Liquidity: Stocks can be easily sold and bought, therefore allowing flexibility to investors who need access to their funds.
• Diversification: By buying shares, one can diversify their portfolio, which diminishes overall risk and heightens the prospect of return.

How to Start Trading Stocks

To start trading in the stock market, a beginner must take some initiatory steps. These steps will place one on a very firm foundation before one proceeds into more advanced areas of learning in the market.

Step 1: Choose a Brokerage Platform

You’ll need to set up an account with a brokerage firm for stock trading. Brokers are agents acting between you and the stock market. Several online brokers include:

• Fidelity: User-friendly, easy to use, and offers great research tools.
• Charles Schwab: Offers very low fees and is one of the leading online trading platforms.
• Robinhood: Commission-free trading through this app-based broker.
• E*TRADE: Advanced tools and research are provided for the more seasoned trader.

When choosing a brokerage firm, take into consideration such points as fees, investment product range, customer service, and educational resources. Some brokerage firms offer commission-free trading and are, therefore, very attractive to beginning traders.

Step 2: Fund Your Account

Once you have selected a brokerage, the next step will be to fund your account. Most brokers will allow you to deposit funds via bank transfer, credit/debit cards, or even PayPal. Before depositing, make sure you understand any of the fees that may be associated with your deposit method.

Step 3: Understand How to Buy and Sell Stocks

Before making your first trade, it’s important to understand how stock orders work. The two most common types of orders are:

• Market Order: A market order buys or sells a stock at the current market price. It’s executed immediately, but the price can vary based on market conditions.
• Limit Order: In a limit order, you can set the price at which you want to purchase or sell a stock. The stock will be traded only if it reaches that particular price.

Additionally, you can place stop-loss orders to avoid massive losses. This type of order will automatically sell your stock in case it drops to a certain price. It will minimize your risks.

Step 4: Develop a Trading Strategy

There are different approaches to strategies that traders undertake in the stock market. As a beginner, one needs to know what best works for their goals, risk tolerance, and time commitment.

• Day Trading: This includes buying and selling stocks within the same day. A good understanding of market trends and price action is needed in this strategy.
• Swing Trading: In the swing trading approach, one holds stocks for several days or weeks, looking to exploit the short- to medium-term movements in prices.
• Buy and Hold: This is a long-term strategy whereby investors buy stocks and hold them for years in anticipation of appreciation in the value of the stock over time.
• Value Investing: Value investors buy stocks that they believe are undervalued by the market, expecting the stock price to rise when the market recognizes its true worth.

Step 5: Monitor Your Investments and Stay Informed

After making your initial investments, it is equally important to stay tuned with your portfolio from time to time and keep updated with the market outlook. That includes reading financial news, keeping track of key stock performance indicators, and adjusting your strategy based on your objectives.

Utilize stock screeners and technical analysis to evaluate potential investments. Most brokers also provide research reports and educational resources to make better trading decisions.

Risk Management in Stock Trading

Stock trading involves risk, and it’s essential to manage that risk. Here are a few tips to minimize losses:

• Diversify Your Portfolio: Don’t put all your money into one stock. Spread your investments across different sectors to reduce risk.
• Set Stop-Loss Orders: Protect your investments by automatically selling stocks that drop below a certain price.
• Start Small: If you’re just starting to invest in the stock market, do it with smaller investments until you get comfortable with the market.

Frequently Asked Questions – Stocks Trading

Conclusion:

Stock market trading can be an exciting and, sometimes, lucrative method of building wealth over time. Knowing the basic ways in which stocks work, choosing the right brokerage, creating a good trading strategy, and then applying risk management techniques will get you on the road to becoming a successful stock trader.

Step into the world of trading with a trusted partner.