It’s easy to get carried away when you take your first steps into the stock market. You might be tempted to start spending money straight away on exciting new brands or looking for the SpaceX stock price online.
However, before you get carried away looking for cash cows, or spend too much of your time examining the current trading trends, it’s important to learn how to begin trading.
As any investor will tell you, the people that end up being the most successful in this area are the ones that take their time to learn about where they need to spend their money, and how they can reduce their losses as much as possible.
Before You Make Your First Purchase
Ultimately, unless you’re purchasing an exchange-traded fund to help diversify your portfolio, your focus is going to be on the opportunities afforded by individual securities. That means that you need to be familiar with a few key areas before you start spending your hard-earned cash on any stock. Start by looking at:
- Financial definitions and metrics: Make sure that you know how to measure and evaluate the different opportunities in the market. For instance, understand the definition of things like the P/E ratio, and the earnings per share of a company, as well as each brand’s return on equity. You’ll also need to get familiar with terms like compound annual growth rate, or CAGR. Understanding how each of these measurements and metrics are calculated will make it easier for you to compare different companies and find the ones that you should be investing in.
- Stock selection and timing: Once you’ve got your trading glossary full of useful terms, you can begin to think about stock selection and timing. Make sure you know how technical and fundamental analyses are performed in the stock market, and how they differ from each other. It’s also worth learning how each option works in a stock strategy.
- Stock market order types: Make sure that you know the difference between the different kind of orders you can engage in with a broker. This includes the limit order, market order, stop limit order, and even the trailing stop loss order. If you’re not sure about any of these things, speak to an investing mentor, or talk to an expert at your broker company.
Always Start Slow with Investing
Ultimately, the stock market is a very exciting place, full of opportunities to make money and improve your wealth. However, if you jump into action too quickly, without taking the right amount of time to assess your options, then you could end up in trouble.
You’ll need to know the essential differences between things like various investment accounts, and the kind of trades that you can perform. It’s also worth understanding how margin is calculated, and why stock prices change so rapidly.
The more you can learn about the basics of stock market trading, the less overwhelmed you’ll feel when the time comes to make your first purchase and watch your investments grow.