5 golden rules for trading stocks as a beginner

Monday July 6, 2020

Published on: coinmarketplus.com
Anchor text: can you trade stocks on Forex broker platforms?
URL: https://fx-list.com/stock-forex-brokers

Trading stocks can be a bit tricky, especially if you’re a novice. But here are five golden rules that will help you improve your chances of success. 

The Stock market is a fascinating but scary place, especially when you are at the beginning. Although there are a lot of profit opportunities out there, the stock exchange is also a risky investment.

It has its own temptation and attraction to it is natural as the kind of wealth it has created for people around the world is fascinating. Yet, there is always two sides of a coin. Many people lost a hell lot of money too.

We have listed five necessary rules that will guide you in taking forward your long-term investment plans.

1.      Invest only the money you can afford to lose

Although it may seem obvious or even overly cautious, the stock market investments are really risky, and you are never safe from losing everything. Moreover, it’s really easy to get carried away by the moment and invest more to double your profit or to get back the money you’ve lost. So, yeah, it’s definitely worth mentioning that you should never put all your savings on the stock market.

Also, it’s not smart investing the maximum amount that you can lose without experiencing financial hardship either. The reason why is because if you lose everything, not only that you’ll not have the initial capital to get back there on the market, but you’ll also feel tempted to invest more money that you can’t afford to lose.

Before you invest in the stock market, make sure that you ask yourself the following question: would the consequences you face if you lose your entire stock market investment involve severe financial hardship? If the answer is “yes”, you’ll most likely struggle to pay your expenses if you lose. So, don’t make things hard for yourself by investing all the money you have.

2.      Only invest in companies you know and understand

We can’t stress this enough: trading on the stock market can be really risky, especially when you are an inexperienced novice. However, the risk is even more significant when you put all your money in a field or a company that you know nothing about.

Let’s say, for example, that you are passionate about cars and you often read on the subject to stay informed about the latest models, technologies, and features on the automotive market. By doing so, you’ll quickly learn all the strengths and weaknesses of the market and the cynical nature of the market.

This way, you’ll not only know the companies on the market that are worth investing in but also how your stock investments will be affected by external factors such as the economic status of your country.

3.      Don’t keep your eggs in the same basket

Investing all the money you have is not a smart decision, but investing it in a single stock is a terrible decision that might cost you everything.

One important rule that every professional investor already knows is that you should never keep all your eggs in the same basket if you want to minimize the risks. In other words, you need to diversify your holdings. In fact, if you take a look at the portfolio of most professional investors, you’ll see that they often hold around twenty stocks or more in their portfolio.

Now, as a small beginner investor, you won’t have the same initial capital to invest in twenty stocks. Yet, it would be best if you had a portfolio of around two to three stocks.

The thing about diversifying your portfolio is that it helps you maximize returns by investing in different areas that would each be impacted differently by the same event. Investing in multiple different stocks is a great long-term financial strategy as it helps you minimize the risk of losing everything overnight.

4.      Never deal with unregistered brokers

Many reputable online banks are particularly competitive when it comes to their prices for conventional banking. Yet, they usually don’t offer the best services for stock market trading.

Thus, instead, you should trade on the stock market with an online broker who is specialized in this field. They often provide many stock opportunities and trading tools, and you’ll also avoid paying enormous account fees.

If you are already trading on the Forex market or you are thinking about entering this market as well to diversify your investment portfolio, you may be wondering “can you trade stocks on Forex broker platforms?”. The answer is that you can as many Forex brokers offer hundreds of stocks for trading.

Yet, choosing a good broker is half the battle won. Thus, when selecting a broker, make sure you take your time to check their background and reputation before opening an account.

5.      Avoid sheep mentality

Going with the crowd without understanding why is rarely a good idea. And, in the stock market, it can be a really terrible decision.

In our daily life, our actions tend to be influenced by the people around us, be it our relatives, neighbors, or acquaintances. Yet, when it comes to your financial objectives, you should never decide based on your peers.

In the stock market, the general tendency is to invest in a particular stock if others do so too. However, there’s a big chance here that you may not make the right decision.

World’s greatest investor, Warren Buffett, famous quote is worth-mentioning here to learn from a pro why you should avoid the sheep mentality: “I will tell you how to become rich. Close the doors. Be fearful when others are greedy and be greedy when others are fearful.”

Investing in the stock market is risky and can be really overwhelming when you are a beginner. But, by applying these five rules as best practices in your stock trading approach, you’ll minimize risks and increase your chances of success.