Trading Stocks for Beginners 2023
Learning to trade stocks in the current market today is a great benefit. Due to global pandemic, there is has been a massive interest for the investors from various levels arriving in the stock market. There are various information related to stock market out there but we want to give you the best solution out of all that. That is the reason of our team here StockMarket.com, who have put this comprehensive beginner guide on how to start trading stocks in 2021. If you are new to the stock market or maybe you just need a refresh then this guide will definitely help you to move ahead further.
What Are Stocks?
Before you start investing your earned amount, let us make sure you understand the basics first. If you have no prior knowledge of the stock market, you might be saying “What exactly are stocks”? Maybe you’ve heard a family member or co-worker talking about stock market investing, or day trading stocks. Well, a stock by definition means it is a security that represents the ownership of a company. This is not to be confused with a share, which refers to the stock certificate of a specific company. The main reason people invest in the stock market is to earn a return on their investment. This usually happens in two ways:
The stock amount of the company you invested keeps on going up. This allows you to sell your stock for a profit if you choose to. For example, if I buy 100 shares of ABC stock at $10 a share, I have invested a total of $1,000 ie., (100 shares x $10 a share). If I hold my ABC stock shares for 3 years and ABC stock is now trading at $20 then my position is now worth for $2,000. If I chose to sell my ABC stock shares at $20 dollars a share I would stand to make a $1,000 profit, representing a 100% return on the investment.
Investing in Profitable Stocks. All companies don’t pay profits, but a lot of them still do. Profits are distributions paid out regularly by a company to its shareholders out of its profits. Profit stock investing is a popular strategy among the long-term investors who are looking for predictable income.
Furthermore, there are two types of stocks, which are common and preferred. Holders of common stock have the ability to vote on corporate events such as electing the board of Directors and other corporate policies. On the other hand, preferred stock allows the shareholders to have a higher claim to profits and the asset distributions than the common stock. Also, preferred shareholders usually have limited or no voting rights. Now that we have got all this covered, so let us get into the various difference between the various major stock exchanges.
Difference between the stocks in NASDAQ & NYSE
It is more likely to know if someone is talking about buying and selling stocks, it’s usually associated with the NASDAQ or the New York Stock Exchange (NYSE). That’s because these two major exchanges are responsible for the majority of stock trading not just in North America, but also across the globe. However, the two exchanges are different in regards to their operations and the type of equities they list. Understanding the differences between how these two trading works is only possible when you start buying or selling stocks. Let’s take a deeper look into some of the differences.
NASDAQ is a global e-marketplace that permits investors and traders to buy and sell stocks. It is the world’s first electronic stock exchange. The term, “NASDAQ” is also used to refer the Nasdaq Composite. This is an index made up of more than 3,000 stocks that are listed on the NASDAQ exchange. Most of the big technology names you have grown accustomed to like Apple (NASDAQ: AAPL), Amazon.com, Inc. (NASDAQ: AMZN), Facebook (NASDAQ: FB), and Alphabet (NASDAQ: GOOGL), the parent company to the search giant Google are all listed on the NASDAQ exchange.
New York Stock Exchange (NYSE)
The New York Stock Exchange or NYSE is the oldest American stock exchange that’s still active and is one of the biggest in terms of the total market capitalization of its listed companies. The NYSE is considered as an auction market, which utilizes designated Market Makers (MMs) or specialists. While NASDAQ is called a dealer market that consists of many market makers that compete with each other. Some of the best stocks to buy for beginners that trade on the NYSE are; Shopify (NYSE: SHOP), Sales force (NYSE: CRM), and Walt Disney (NYSE: DIS) to name a few.
Beginner’s Guide To Trading Stocks
Making money on day trading or swing trading stocks is an acquired skill that takes the proper education, research, discipline, and most importantly practice. If you’re reading this and you are brand new to the market, then this section below will help you speed up your learning course. Below we have put together the step-by-step instructions on how you can start trading stocks. It’s important to note that there is a difference between investing and trading. Investing is more like long-term and active trading is more like short-to-mid term investing. For this guide, we are just going to cover how to make money trading stocks online in 2021. Before we jump in, let’s just briefly discuss the two most popular active trading strategies in the stock market today.
First, let’s take a look at day trading stocks. Day traders are active traders who execute intraday trading strategies to profit off-price fluctuations for a specific asset class. To put it simply, a day trader is someone who is buying or selling stocks on the same trading day. Day trader’s trades can last anywhere even for a couple of seconds, minutes, or hours based on daily price volatility. Technical analysis is something that is often associated with day trading stocks.
Next, we have the swing trading strategy. Swing trading is a style of active trading where a trader tries to capitalize on short-to-medium-term gains in a stock. Whereas day trading is usually intraday, with swing trading, trades can last from a few days, several weeks, or months. Similar to the day traders, swing traders also deploy technical analysis to identify profitable trade ideas. However, you may see a swing trader also include fundamental analysis into their game plan, which is not as common to see in day trading.
Ultimately, choosing which active trading strategy is right for you, comes down to a few questions you need to answer for yourself.
What are your overall investment goals?
In what time horizon do you want to achieve these goals?
What type of investment strategy best matches my personality and current lifestyle?
What is your risk tolerance?
How much time do I have to commit to learning this new skill?
After answering these questions, you should have a better understanding of which active trading strategy would be best for you to start trading with. There is nothing right or wrong, just what make sure what is right for you.
Open a Brokerage Account
What Is A Brokerage Account?
A brokerage account gives you access to a wide range of investment products that you can invest in. The most common asset classes are stocks, bonds, options, and mutual funds. You have the ability to transfer money into and out of your brokerage account similar to a traditional bank account, though, unlike banks, brokerage accounts grant you access to stock market investing as well as other investments. You own the money and investments in your account, the assets are yours, and you can liquidate them at any time. Just think of the brokerage or investment company as a “middle-man” between you and the investments you want to purchase.
How To Open A Brokerage Account In 3 Easy Steps
Nowadays, most of the stock brokers in 2021 allow users to open a brokerage account quickly online. Top discount brokerages like Interactive Brokers, TD Ameritrade, E-Trade, and Robin Hood have made it easy for new investors and traders to open a brokerage account by not requiring a large initial deposit to open an account, and offering commission-free trading. However, you will need to fund your account before you start making any investments.
Here’s how you open a brokerage account in 3 simple steps.
Step 1: Decide How Much Help You’ll Need From Your Brokerage
There are so many different kinds of broker accounts, with their own pros and cons. The first step to open a broker account is to do your due diligence on the top brokerages to see which best fits your needs. A few things to consider while doing your homework are the following:
What are the fees associated with the brokerage account?
What education and resource tools do I have access to?
Is the brokerage’s online platform easy to use for me?
Is there a minimum balance required?
Despite there are different brokerage accounts, it ultimately falls under two umbrellas, a self-managed or managed brokerage account. They are exactly how they sound. A self-managed brokerage account is one in which the account is managed by oneself and a managed brokerage account is one that is managed by a financial professional like a financial advisor or a registered investment advisor. Again, this ultimately comes down to personal preference and how much hands-on help you think you’ll need.
If you’re learning more about the day trading strategy then a self-managed account would be your best option. If you’re gravitating towards swing trading, then a self-managed brokerage account may be a good option for you to consider.
Step 2: Apply To Open Your Brokerage Account
You’re almost there! You have done the research and selected which brokerage account you need to open. Now what? Well, it’s time to apply for your account. As I stated above, most of the best discount stock brokerages today allow you to apply online directly and can take less than 10 minutes to complete the process. The best part is, you can open an account from your
Laptop, desktop, tablet, or smart phone. Didn’t we say there’s never been easier to start investing in the stock market? We meant it.
If you’re now saying to yourself, “what information do I need to provide to open a brokerage account?”, just keep reading…
Here is some of the information you will need to have on hand to set up your account:
Personal Information: In terms of the personal information you need to provide when applying for your stock brokerage account, you will have to provide items such as your:
Social security number.
Current financial situation and assets.
Tax Status: You will also see some questions (not limited to) on the application such as:
Are you creating the brokerage account under your personal or business?
Are you filing individually?
Or are you filing jointly with your spouse?
Risk Tolerance: There will be asked questions about your risk tolerance. You’ll likely see questions about your:
Investment Strategy & Goals.
Although, these are not the only questions or items you may need to provide, these items mentioned above have been generally universal across all the best stock brokerages in 2023.
Step 3: Fund Your Account & Start Trading Stocks
You are now technically ready to start building your future wealth within the stock market. It’s an exciting feeling, and the only thing left to do is invest your new brokerage account.
The stock market has the potential to significantly appreciate your money, but nothing is guaranteed and you can also lose the money you invest. With that being said, if you’re trying to figure out how much money you should start with, the answer is, you can try with a smaller amount and check for the risk availability.
You obviously wouldn’t want to risk your rent and bill money to start trading stocks. This is because if you lose that money you’d be homeless with no food. However, if you have extra money after all of your obligations are paid for, then that may be a better option to use that money to start learning how to day trade or swing trade stocks. Ultimately the choice is yours, but before you get trigger happy, you should keep reading.
The 5 Biggest Stock Market Myths
Most of the investors wonder if they should invest in stock market. Before deciding to invest, it's important to have an accurate understanding of stocks and trading rather than blindly accepting common myths. Here are five of those myths and the truth behind them.
1. Stock investing is akin to gambling.
Many people avoid the stock market because of this logic. We need to study what it means to buy stocks in order to grasp why investing in stocks is fundamentally different from gambling. A share of common stock indicates a company's ownership.
It entitles the holder to a claim on the company's assets as well as a portion of its profits. Shares are sometimes misunderstood by investors as only a trading vehicle, and they forget that stock signifies ownership.
Investors in the stock market are always trying to figure out how much profit will be left over for shareholders. Stock prices change because of this. The prognosis for business circumstances, like the weather, is continuously shifting.
Assessing the value of a company is complex. There are so many variables involved that short-term price movements appear to be random (academics call this the random walk theory). However, over the long term, a company is supposed to be worth the present value of the profits it will make. In the short term, a company can survive without profits because of the expectations of future earnings, but no company can fool investors forever—eventually, a company's stock price will show the true value of the firm.
In contrast, gambling is a zero-sum game. Gambling simply transfers money from a loss to a winner. No value is ever generated, yet investing enhances an economy's overall wealth. Companies compete through increasing productivity and developing products that help people live better lives. Investing and wealth creation should not be confused with the zero-sum game of gambling.
2. The Stock Market is a Members-Only Club for Brokers and the Wealthy.
Many market experts claim to be able to predict every move the markets make. Almost every study on the subject, however, has shown that these claims are untrue. The majority of market forecasters are notoriously wrong. In addition, the Internet has made the market far more accessible to the general public than it has ever been. Individuals can now access data and research tools that were previously exclusively available to brokerages. Furthermore, discount brokerages and robo-advisors enable investors to participate in the market with a small initial commitment.
3. The Fallen Angels Will Rise Again Eventually
Whatever the attractiveness of this fallacy, nothing is more damaging to novice investors than believing that a stock trading around a 52-week low is a smart investment. Consider the proverb on Wall Street: "Those who try to grab a falling knife only end up hurting themselves."
Let's say you're considering the following two stocks:
• X had an all-time high at $50 last year, but has subsequently dropped to $10 per share; Y is a smaller firm that has recently gone from $5 to $10 per share.
Which stock would you invest in if you had the option? Whether you believe it or not, the majority of investors prefer the stock that has dropped from $50 because they feel it will eventually rise to those levels. In investing, thinking like this is a cardinal fault.
The cost of an investment is only one factor to consider (investing is different from trading because the latter uses technical analysis). The objective is to acquire growth enterprises at a fair cost.
Purchasing a company just because its market price has dropped will generate no results. Stock investing should not be confused with value investing, which involves purchasing high-quality companies at a discount to their market value.
4. Stocks that rise must fall.
The stock market is not subject to the rules of physics, and there is no gravitational force pulling equities back to even. Berkshire Hathaway's stock price soared from $7,455 to $17,250 per share in just over a five-year period over 20 years ago. Instead of falling, the price soared to approximately $344,000 per share in February 2020.
Although it is incorrect to claim that stocks never experience a correction, the idea is that the stock price reflects the company. There is no reason why the stock of a great company operated by exceptional managers should not continue to climb.
5. Having a little knowledge is preferable to having none.
Knowing something is always preferable to knowing nothing, but in the stock market, it is critical that individual investors understand what they are doing with their money. Successful investors are those who do their homework.
An investor who does not have the time to conduct extensive research should consider hiring an advisor. Investing in something you don't completely understand is significantly more expensive than hiring an investment advisor.
Another proverb goes, "What's obvious is obviously wrong." It indicates that knowing only a little will compel you to follow the herd like a lemming. It takes a lot of time and effort to be a successful investor. Consider a partially informed investor as a partially informed surgeon—their financial health could be jeopardized if they make mistakes.