Trading stock and making money in the process can be a real task. To make a nice profit in stock exchange trading, you’ll want to familiarize yourself with key terms and stock market jargon and as much general information as possible from other traders. With these useful tidbits in your pocket, the work of building a strong trading strategy should be more manageable. The better prepared you are for situations that will occur, the better you’ll get at protecting your trading investments over time.
Which Way Should I Turn?
One of the first things all new traders have to do is decide on a brokerage company to use. There are myriad choices out there, but when you take your own day trading goals into account, which one will be the best for you to partner with? Think a moment about all of the fees and hidden fees, stock availability and potential returns on your initial investment. Each brokerage firm will offer something different in every one of those categories. As a day trader that’s new to the industry, you’ve got to be extra careful. Unfortunately, there’s most likely a large number of brokers out there that would love to take advantage of your novice level of experience with trading and technical analysis and that could end up costing you a whole lot of extra money that you didn’t have to spend in the first place.
At the end of the day, it’s up to you to ask questions and make thorough comparisons. The stock market beginner like yourself that’s taking their first steps into trading would be making a wise decision in choosing one of the least expensive brokerage companies or consultants to partner with. The key here is minimizing the amount of fees that you will incur. Otherwise, you could get in over your head before you’ve made any progress! Be on the lookout for those brokers that make offers to work with you on mutual and exchange-traded funds with no commission.
Don't Overlook Trading Funds
Most people without much knowledge about trading stock have been lead to believe that the money is in hand-picking individual stocks—but that’s not necessarily true. Regardless of what you’ve been told, focusing on mutual funds and exchange-traded funds could lead to a big break in your portfolio in no time at all. A mutual fund is established by pooling money from numerous investors and these funds are then used to reinvest in a variety of assets and ventures. Mutual funds are headed by money managers and it’s the money manager’s job to assign and disperse capital to investments as to create capital gains for the investors of the fund.
Different from mutual funds for the fact that they can be traded like common stock on the stock exchange, exchange-traded funds—also known as ETFs—are liquid financial implements that can be quickly traded in for cash. ETFs, in particular, track bonds, commodities, indexes, or groups of assets similar to index funds. Exchange-traded funds have higher everyday liquidity and generally lower fees associated with acquiring them. The biggest upside to adding both mutual funds and ETFs to your portfolio is the built-in diversification that comes along with them. This is an especially notable point for those investors with conservative budgets to dedicate to their efforts.
Once you invest in mutual funds or ETFs, the funds are spread across your entire portfolio and this minimizes the threat of any huge losses driving down your profit margins like what often happens when one focuses on individual stocks. ETFs and index mutual funds also clearly lay out stock ownership within your portfolio, so you know exactly what you have to lose or gain. Target-date mutual funds go one step further, and they automatically adapt your levels of risk as you near a pre-specified time like retirement.
With all of these facts in mind, it’s clear to see why it is that investing in ETFs and mutual funds would be the most advantageous move for any first-time stock trader. These kinds of assets can help you set a stable foundation within your portfolio and they can help you sustain those consistent returns that make all of the trading ups and downs worth it!
Focus on Low Risks
Just because individual stocks can be extremely volatile, it doesn’t mean you have to avoid investing in them altogether! Rather, you’ll have to choose the industry that you target cautiously. Common sense tells us that the technology industry is bound to be testier than the consumer necessities industry so investing in consumer staple individual stocks would be the safe bet.
The flipside of the coin comes down to prospective profit margins. You won’t be very likely to lose much on individual consumer staple stocks, but you also shouldn’t expect to make any astronomical gains either. These kinds of stocks tend to remain very stable and the returns aren’t really anything to write home about. Returns of any kind are better than losses, however, and any newbie investor can appreciate that. Individual stocks in the technology realm of investing could create huge profits for you, but this industry is always going through developments and advancements that often cause both dips and hikes in stock prices; this can be a whole lot on the plate of someone that’s not had much trading experience. If you had nothing but individual stocks in your portfolio and any of those stocks were to crash, your whole portfolio might be on the verge of ruin. As with anything else, putting all of your eggs in one basket can be a dangerous idea.
Balance is a concept that can’t be overlooked here. When formulating your plan of attack for day trading, it would be most sensible to allocate a majority of your investing budget to mutual funds and exchange-traded funds. Once you’ve got your first few “safe” investments settled in your portfolio, you can ease your way into the individual stocks market with less proposed risks. As long as you don’t bite off more than you can chew, the challenge of investing should be a welcome one!
About Apiary Fund
Located in Orem, Utah, Apiary Fund is a crowd sourced fund management company that develops successful investors and gives them the opportunity to create flexible income by managing a small portfolio of company money. Through technology and education, Apiary empowers traders to work toward their path to success in the financial markets.