How to Get Started Trading Stocks
2020 has been a year when a huge number of retail investors have started trading.
The volatility of the stock market amid the coronavirus pandemic led to many new traders opening brokerage accounts.
Are you interested in becoming a stock trader but aren’t sure where to start?
Let’s take a look at what you need to know about how to become a stock trader.
What Is Stock Trading?
A professional stock trader is a person that buys and sells stocks in order to profit off of the daily price fluctuations. They are short-term traders who are betting that they will be able to make money in a short timeframe ranging from minutes to months, rather than long-term investors that by socks to hold for years or even decades.
If you are becoming a stock trader, you want to know that you different types of trading.
When an investor places 10 or more trades each month, they are engaging in active trading. These traders are attempting to take advantage of short-term events in order to turn a profit in weeks or months.
When an investor opens and closes positions on the same stock during a single trading day, they are day trading. Day traders are attempting to profit in a shorter timeframe, the minutes, hours, or days.
How to Become a Stock Trader
If you want to become a traitor, you’ll want to do some research ahead of time. It is often advised that buying and holding a diversified mix of low-cost index funds can create a better long-term outcome than short-term trading. However, there are certainly people who are professional stock traders that make decent income each year trading this way.
Open a Brokerage Account
The first thing you’ll need to do is you’re going to be working as a stock trader is to open a brokerage account. You’ll need to fund the account before you start trading.
Set a Budget
It’s important to set a budget for yourself no matter how talented you end up being in trading stocks.
Managing risk is a major aspect of working as a stock trader. You’ll want to do as much research as possible into risk management.
Some basic do’s and don’ts include:
- It is not advised to allocate more than 10% of your portfolio to individual stocks
- Don’t use money that you need for necessary expenses, i.e., don’t use money you can afford to lose
- Don’t invest an amount of money that you couldn’t afford to lose
Starting small can be a good way to minimize risk and ensure that you don’t lose more than you can afford to. As will discuss later, it is also advisable to practice with a virtual trading account before engaging in daytrading.
Learn to Use Limit Orders and Market Orders
You’ll need to also find a trading platform in order to trigger stocks in addition to brokerage. You can use your online brokers website or find another trading platform.
There are a number of different order types when it comes to buying and selling stocks.
The main to types of order types are market orders and limit orders. A market order will buyer sell a security at the best available price right away. When you place a limit order, it will buy or sell securities at a specific price you set or a an even better price than your specified price.
Practice With a Simulator
Practicing with the simulator can give you hands-on experience to learn about your trading platform in the market in general.
One thing that you want to take into account, however, is that practicing with a virtual trading account can never fully simulate the experience of actually daytrading. This is because you don’t really have money in the game and you, therefore, don’t psychologically experience it in the same way.
Measure Your Returns
If you find that you have an edge working as a stock trader versus more traditional investing, and that’s great. But you want to take a look and let your returns against an appropriate benchmark. This can ensure that you aren’t wasting your time trading more actively when you would actually be better off investing your money in a more traditional manner.
Study, Study, Study
This cannot be emphasized enough. You don’t want to start trading just because of advice you found on a forum. People can be successful rating stocks, many other people blow their entire accounts quickly.
You’ll need to learn how to read charts, about quarterly earnings and how they affect the market, trading psychology, how to use your trading platform, and so much more.
There is a lot of risk when you engage in stock trading. It’s important to learn as much as you can and also take a look at the tax implications of being a trader.
Understand the Importance of Psychology
One of the most vital aspects of working as a stock trader is understanding the importance of psychology in trading. Fear and greed can drive you to make decisions that you wouldn’t otherwise. It’s important for traders to think quickly and make decisions quickly, but it is important to keep a certain presence of mind and calmness about you.
Investors who are successful are able to control both fear and greed. They are able to act in a disciplined and objective manner. If an investor cannot overcome these emotions, it is difficult if not impossible to be successful.
Become a Trader: Is It Right For You?
Now that you know how to become a stock trader, the real journey can begin. There is a lot to learn in the world of investing and trading do you want to take your education very seriously.
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