I want to try. Where to begin?
Starting with modern electronic trading, you can trade stocks online from the comfort of your couch. However, there are a few important considerations to keep in mind.
- Assess how much money you are willing to invest In theory, you can start with any amount, even as low as $1,000. However, such a small amount may not cover the transaction fees or justify the time spent on trading. It’s better to consider investing a few tens of thousands of dollars. It’s important to imagine a scenario where you could lose all of that money. If you understand that it wouldn’t be a financial disaster for your budget, you can give it a try.
- Determine how much time you are willing to spend If you are willing to undergo training, immerse yourself in the subject, and constantly monitor the stock market, you can try trading on your own. In that case, you will need a broker who will act as your intermediary for accessing the market. You will make the decisions to buy and sell, while the broker will execute your orders.
If you don’t intend to spend a lot of time and effort on investing, it’s better to consider one of the forms of managed investment. Professionals will handle the investment of your funds.
You can enter into an individual agreement with a portfolio manager, transfer your money to them, and they will make decisions on your behalf regarding when and what assets to buy and sell. Their goal is to invest your savings with the maximum profitability within the risk level you choose.
Another option is to invest in mutual funds. These are ready-made portfolios of various securities or assets, such as shares of US mining companies. The asset allocation and trading decisions are made by the fund’s management company.
You can choose a suitable fund and purchase its shares either directly from the management company or through a broker on the exchange. If the company invests successfully, the share price will increase, and you will make a profit. If it declines, you will incur losses.
- Select a strategy and assets A strategy is a set of investment parameters that define your behavior on the market. It includes the instruments you choose, the expected return and acceptable losses, the investment period, and the frequency of transactions.
In the simplest form of a strategy, you would choose:
- Assets: government bonds, shares of pharmaceutical, oil and gas companies, and a fund that invests in precious metals.
- Investment period: 1 year.
- Maximum allowable losses: 20%. This means that if the assets decrease in value by 20%, you would sell them immediately, even if the year has not yet passed.
When choosing managed investment, you also need to determine your strategy. However, in this case, you will choose from existing offers in the market or discuss an individual strategy with your portfolio manager.
- Find a brokerage firm Once you have defined your strategy, you can start looking for a brokerage firm. The most important thing is to ensure that the broker, asset manager, or mutual fund management company is licensed by the U.S. Federal Reserve.
If you opt for self-directed investing, you will need to follow these steps:
- Sign a contract with a broker.
- Open and fund a brokerage account.
- Install a specialized trading platform.
- Start buying and selling securities.
If you choose managed investment, you will only need to sign a contract and transfer your funds to the portfolio manager or mutual fund management company.
Common Mistakes: What Not to Do
- Don’t invest all your money in securities. First, create a financial safety net by setting aside 3-6 months’ worth of salary in a bank deposit. Only then should you start trading on the stock exchange. Invest an amount that you can afford to lose.
- Don’t act impulsively—get educated. If you decide to trade on the exchange independently, it’s essential to undergo training. Most brokers offer courses for beginner investors. Trading platforms often have demo modes where you can practice without risking real money.
- Don’t let emotions dictate your actions. Acting impulsively can lead to many mistakes. Beginner investors should avoid reacting abruptly to minor price movements on the market. However, it’s important to act decisively when prices change significantly.
Set a limit for the losses you are willing to tolerate. For example, if assets decline by 20%, it’s advisable to sell and “cut losses,” as they say in the stock market. The desire to wait in the hope that prices will rebound may be strong, but it’s crucial not to give in to it. Otherwise, you might end up losing even more.
- Don’t put all your eggs in one basket. It’s better to buy securities from companies in different industries to diversify risks. For instance, if you invest only in oil companies’ stocks, the risk of losses will be very high. During a drop in oil prices, shares of all oil and gas sector companies usually decline. However, if you purchase securities from various sectors such as chemical industry, machinery, and telecommunications, it will help reduce the risk of losing your invested money.
- Don’t believe promises of making 500% profit in a day. Only charlatans can guarantee anything in the stock market. A responsible broker should warn you about the risks. The market situation is volatile, and you bear sole responsibility for the decisions you make.