Stock Trading: A Beginner’s Guide
Stock trading has been among popular instruments because of its high profitability. As a novice trader, you might be overwhelmed by a great deal of information for analysis and research. So, this blog will walk you through the fundamentals of stock trading to smoothly kick off your trading career!
How To Choose A Reliable Broker?
If you are an aspiring stock trader, you need to find a good broker for smooth kick-off and the whole trading process. There are two main types of stock brokers, including:
- Full-service brokers take charge of consulting retirement plans, healthcare, or anything related to investments. So, their consumers are high net-worth clients with substantial fees, such as a proportion of transactions, a percentage of your assets, etc. And it is common sense to start trading stock with an account of $25,000 if you use a full-service brokerage. There are some brokers for your references, such as Fidelity Investments, TD Ameritrade, Tastyworks, Charles Schwab, Interactive Brokers, etc.
- Discount brokers provide you with the adaptable tools that support your trade placements. Also, they can share a set-it-and-forget strategy through the robo-advisory services. In other words, it means that you will do the jobs but with the instructions and consultants of discount brokers. The fees for such services are varied so there will be no specific minimums that we can tell you here. Some robo-advisors that you can check out are Wealthfront, Betterment, Interactive Advisors, M1 Finance, Merrill Guided Investing, E*Trade, Personal Capital, etc.
What Are The Minimum Costs To Open A Stock Account?
How much will it cost you to set up a trading account? This aspect is essential for beginners to prepare their initial budget as some firms will not accept your request to open an account unless you make a deposit! Some companies can ask you to place at least $1,000 to open an account while some firms have no request for deposits.
The costs include trading fees, account management, etc. So, when choosing a broker or robo-advisor, you should consider and compare the prices of their services, the requested minimum deposits, commission fees, etc.
Will Your Stock Trading Profits Get Taxed?
Yes, they are according to the holding period. Tax rules prefer long-term investments so the longer you hold shares, the lower tax rates you have to pay. What you pay on stock profits are called capital gains taxes. The note is that if you sell stocks for profits, your tax bill will climb. Meanwhile, if you sell stocks for a loss, your tax bill will drop. Such a situation is known as the wash sale rule!
Stock Research: Why Should You Do That?
Any step of trading needs thorough research, which you should bear in mind. There are thousands of stocks that you can choose to invest in. Yet, the limited account size will keep you from carelessly choosing stocks. Thus, it is essential that you conduct research about stocks before placing your money in any stocks.
There are three kinds of stocks for your consideration. It is up to your trading strategies and trading styles, such as:
- Growth stocks indicate the securities of companies with rapid and robust development of profits or revenues. Yet, they are not from big corps but young ones which still have many rooms for growth in the future.
- Value stocks refer to underpriced shares of companies and wait for the markets to recognize their true values. Then, you can sell them for huge profits. People call it the strategy of looking for low price-to-earnings and price-to-book ratios.
- Dividend stocks mention the stocks from which you can earn income in the form of dividends as a shareholder of a firm. So, it is better to gain a steady stream of income from your investments no matter how volatile the market is.
Don’t Put All Your Eggs In One Basket!
You might have heard of common financial jargon — Don’t put all your eggs in one basket. You can adapt it to every corner of your life. And the same principle can work well with your stock trading. In a nutshell, a range of assets will determine how much risk you might undertake.
Simply put, if you invest all you have in the stocks of one company, you have a 50% rate to lose. Yet, if you split your investments into two or three growing stocks, you only take 25% risk to lose!
Yet, it might be hard for novice traders to diversify their trading portfolios with a humble starting account. As a result, ETFs and mutual funds attract attention and win the hearts of many traders!
Powerful Tools And Smart Choices
Trading with bare hands is not bad but it takes you much more time and effort. Yet, it might lead to big mistakes, especially when the market is chaotic. Thus, you need to find powerful tools that can support and cover you up to minimize human errors. When trading stocks, you should check out stock market simulators to analyze stocks, ETFs, options, etc. for better decision of investments. However, you
How To Develop An Effective Stock Trading Strategy
An adaptable strategy of stock trading needs an intimate understanding about stock markets and cyclical patterns of price actions. Real-time updates of the market status and insights from technical analysis are the main ingredients for the development of strategies.
Yet, there will be no perfect framework from the get-go. It means that you need to monitor the performance of a trading strategy for timely adjustments. As a result, you can earn higher with trading opportunities or bail out from failing trades before it gets worse!
Before You Go
The knowledge we have shared above hopefully helps you systemize the steps to take off your stock trading. There is nothing as a free lunch, which highlights the trade-off in every aspect, so is stock trading! If you want to smartly invest your money in worthwhile stocks, a lot of work needs to be done, such as research about brokers, stocks, strategy development, tools, etc.
We will continue deep diving into the recommended setups for profitable trades no matter how volatile the market becomes. Follow our Medium to update the latest financial news and learn the simpler version of trading knowledge!
References:
https://www.investopedia.com/articles/basics/06/invest1000.asp#toc-online-brokers
