Trading in stocks can be a great way to invest your money if you have a solid grasp of the concepts and adopt some basic discipline. For someone starting out, it’s imperative that you adopt a wait and watch approach before you make a big investment. Here are some basic rules to get you started and give you the knowledge foundation on how to invest in stocks.
Create a Portfolio
When you invest in stocks, you need to have a diverse portfolio. This basically means you never put all your eggs in one basket. When you invest in a diverse manner, you bring down your risk substantially and protect your capital. An investment portfolio is essentially the sum and total of your investments in different stocks and bonds.
You can implement your portfolio by putting your investment in a wide range of stocks or an ETF, which basically covers an industrial niche or sector. Mutual funds are another option, but there are plenty to choose from, so it’s better to exercise some restraint.
Getting the Right Broker
When you start out, choosing your broker is one of the most crucial decisions you will be making. A good broker should be able to help you build a sound and diverse portfolio and make your options clear rather than pushing you to make a decision. You need to ensure that your broker has a reliable platform that caters to your specific investor needs.
The variables to consider while selecting a broker include trading frequency, industrial preferences, and the intended investment strategy. A good platform will be versatile and provide you with the advantages of today’s technology.
Stocks can be broadly classified as common stock and preferred stock. With common stock, you have a direct stake in the profits yielded by a company. This will be through dividends. Common stockholders are entitled to maintain their ownership share. They also have the power to vote and this power is directly proportional to the amount of shares owned.
Preferred stock however gives the investor much more stability, but with it a lower probability for substantial profit margins. The fixed dividends are received over a period of time. Common stockholders will have variations in their dividends depending on performance. It should be known that in the case of bankruptcy the preferred stockholders are entitled to priority payment.
Invest as you Can
A lot of people hold the misconception that you need a large capital to invest in stocks. Technology has changed the way people invest in stocks dramatically. Don’t let anybody tell you that you can only invest if you have amount “X.” Today there are a wide range of mobile trading platforms that allow you to start investing with just five dollars.
Now that you have a basic understanding about how stocks work, you can start out by trying some simulator trading platforms. Warrior Trading provides you with some advanced trading simulators that give you real time trading exposure sans risk to your capital.