Is the stock exchange a good place to start investing? Yes, but only on condition of thorough theoretical preparation and acquisition of knowledge of security measures. Investors who underestimate the power of the stock exchange may very quickly lose all capital. Here are some important tips for investing in the stock market.
- A good intermediary is crucial. The stock exchange, regardless of whether the investor is investing in the domestic or foreign stock exchange, can only be accessed through an intermediary. As nowadays, most of the operations on the stock exchange are carried out online, the broker usually provides a platform for the investor to use. Each transaction, therefore, incurs an appropriate commission. So when choosing a broker, pay attention to:
- the commission, especially when the investor’s strategy requires a large number of transactions over a period of time. Usually two types of commissions are given – minimum and percentage-based. The minimum commission means that making many investments for small amounts will be pointless, while the percentage-based commission cuts off some of the profit on large transactions. Therefore, before choosing an intermediary, it is worthwhile to find out how often and with what amounts you want to operate and make the choice of your broker dependent on your own strategy.
- the conditions and reliability of the broker. Here, nothing changes with regard to intermediaries offering access to the forex market or binary options – you should check whether the company is registered in the European Union and whether it has been issued with the relevant certificates. It is also worth testing the trial version of the platform, which is provided by the broker.
- Follow the trends. Trends are set by big players – central banks and giant corporations. An ordinary investor cannot create a trend, many small investors can only create a speculative bubble. The trick is to leave the trend before the bubble bursts, or to invest in assets that actually increase their value, for example, shares of thriving companies.
- Minimise losses with the stop-loss tool. Any trustworthy intermediary should offer the option of an automatic resale of the asset in the event that it loses a dozen or so percent of its value. Typically, it is not a good investment approach to expect a trend to reverse and the shares that have suddenly fallen by fifty percent to recover.
- Don’t bet everything on one card. The diversification of your investment portfolio is necessary for insuring yourself against the loss of all your capital. Don’t invest everything in many similar companies that may lose their value as a result of an unfavourable trend in the industry. A good approach is to invest in both British and foreign shares, in several independent areas of the economy.
- Keep track of technical analyses and expert opinions. Before you develop your own investment strategy, look at how famous investors and economists are doing it. Compare conflicting opinions and check whose predictions were correct and whose thinking was wrong. Try to understand for yourself how this came about and whether the stock market situation could have been predicted.
- Accept that you are going to lose sometimes. There is no ideal way to make a great fortune on the stock market, usually if someone gains, another person loses. Moreover, in some cases, for example, in the case of speculative bubbles, crises or economic collapses, almost everyone can lose part of the capital and few can gain. Even in an ideal scenario, entrepreneurs are likely to make misguided investments.
- Make yourself resistant to failure. This is related to the previous point. Investing is not for people who mourn every lost penny and their perfectionism does not tolerate even the smallest losses. The stock market does not work this way by its very nature, so the examples of people who invested once and repeatedly multiplied their fortune are definitely an exception to the rule. If you react too violently to even small failures, it will affect the efficiency of all your investments.
As you can see, investing safely in the stock market is not particularly complicated. Caution when choosing an intermediary, using the stop-loss tool to minimise losses, as well as the prudent disposal of your capital may not guarantee an immediate success, but it will definitely allow you to keep hold of most of your investments when starting out. It should also be mentioned that aggressive and more risky methods are not recommended for beginners, and almost each of the seven points mentioned above has its own exceptions, which can be used by a more experienced player. However, when taking your first steps on the stock exchange, ignoring the basic rules is unadvisable, at least until the less risky ways of investing are mastered.