Everything is getting costly these days. Housing, grocery, mobile, the Internet; all seem to be more expensive than before. On the bright side, several money-making avenues have opened up, allowing people to earn extra. It’s better to earn extra than to spend like a miser and cut expenses on grocery, broadband, and mobile phones.
But diversifying the income stream is not as easy as it sounds, especially for those who are stuck in a day job. The job is their number one priority, and they fear the new source of income would be incompatible with the existing one.
They can give stock market trading a shot. There’s no upfront investment, no legal paperwork. All they need to do is open a trading account and find a broker.
But is that really all? Don’t they need tips to beat the stock market? They sure do. Here are are some important tips for stock market beginners:
Legit online brokers
There are several benefits of choosing an online broker. The benefits range from easy and hassle-free communication to quick account setup. But alongside the benefits, there are disadvantages that every newcomer in trading should be aware of. The biggest problem with the online brokerage is the lack of authentic brokerage firms.
The online brokerage space is filled with scam artists. It’s easy to fool people on the Internet. Having an only a website, no contact details or physical address is a red flag. If a company only has a website and no address details, don’t sign up.
Here are a couple other things to look for:
- Are they licensed? If they are not, don’t sign up.
- Do they offer a demo account? If they do, tally their trading charts with that of actual instruments. This is to rule out they are not putting a phony chart on display.
- If they are offering an unbelievably high leverage, chances are they are scam artists.
Fake brokerage firms have fooled a lot of people in the past. People lost their deposit and decided not to invest again. Hence, do watch out for them.
Don’t expect overnight success
The stock market is often wrongly portrayed in the media. In the 2011 movie Limitless, Eddie Morra, the character played by Bradley Cooper makes millions in only a few weeks, owing to the newly active neurons in his brain. The depiction of a stock market in the movie was wrong. Yes, it’s possible to hit a jackpot in the market, but not every day.
If you are new to trading, have realistic expectations from it. Don’t hope to make millions in the only couple of months. Understand the market, understand how trading works and most importantly, make it a point not to lose money.
That’s the most interesting aspect of trading. Those who dream to make tons of money, end up losing tons of money. On the other hand, those who take calculated risks and reduce the odds of losing, laugh their way to the bank. It’s actually simple. Winning is opposite to losing. Understand why you are losing money and win over those factors. Then you’ll start making a profit.
Choose trading type
Talk to your broker. Take his input and then decide which trading type is good for you. Brokers advise beginners to invest long-term. In other words, invest now and wait for at least 6 months to 1 year before squaring it off. This advice is useful if you don’t have any rush. But if you want to know how short-term trading works, don’t take it.
Day or margin trading is best for you if you are interested in short-term. However, keep in mind that day trading is extremely risky. According to state figures, 80% of day traders fail. Among those who succeed, 80% fail shortly after some quick glimpses of success.
Margin trading is comparatively safer than day trading. But it is not without its flipsides. The biggest problem in margin trading is the loss of fund. If a stock keeps falling and traders keep investing in it, soon they run out of margin.
Take your time and talk to people who are in the know. Take their advice and add your own thoughts to it. This way, you’d be able to make better decisions for yourself.
Too many strategies
Just as too many cooks spoil the broth, too many strategies, often contradicting each other, can sabotage your trading plan. It’s better to stick to one or two strategies. This way, you can test those strategies and frame a solid plan.
For example, if your strategy allows you to backtest, it’s for making steady but low profit over the time. Don’t club it with another strategy aimed at making a windfall return, but only once in a while. Rookies take time to understand these tips, but once they get a grasp, they keep advancing at a surreal pace.
The four tips given here are copybook types. That’s because we assumed at the start of the article the readers will be beginners in trading. These tips will help you set foot. The real trading lessons – the ones that are customized – can be learned through actual trading.