Now is one of the best times to learn how to start trading stocks. The market it volatile creating a lot of opportunity for savvy traders knowing what to look for.
In this article, we will breakdown the basics, ranging from how to choose a broker, the risks involved, the money you need to get started, the time required for trading, and more!
How to Start Trading Stocks
The novel coronavirus (COVID-19) pandemic has battered the economies world over and left tens of millions of people without jobs.
Here in the United States, stocks have seesawed in recent months as data continues to suggest that the country is far from bringing the pandemic under control.
Some traders on Wall Street are extremely worried about the damage caused by the virus and thus opted to sit on the sidelines. On the other hand, some believe that now is the best time to take advantage of the volatility and start trading stocks.
However, there are a couple of things that you need to know about stock trading, particularly if it is your first time trying it.
Things to consider:
- Is trading right for you?
- Educating yourself on the markets and the style of trading you want to consider
- Picking a broker
- Practicing your trading skills and mastering a strategy
- Going live and making money
Let’s get started…
Stock Market Primer
A stock is a financial instrument that signifies a percentage of ownership in a company or a corporation. There are three types of stocks: common stock, preferred stock, and dividend-producing stock.
Stocks are also known as shares or equities.
A stock market is where stocks are bought and sold. It is like an auction platform where traders buy and sell shares based on the lowest price a seller is willing to sell their shares for and the highest price willing to be paid by a buyer.
An example of a stock market is the New York Stock Exchange (NYSE). Major U.S. stock markets including the NYSE generally open from 9:30 a.m. ET to 4 p.m. ET, but there is electronic trading in the after-hours.
Understand what you are getting yourself into
Now that you know what stocks are and how the stock market operates, the next step is to know what stock trading entails.
Anyone new to stock trading is likely to wonder, “what I am getting myself into?” At first, the idea of trading stocks may seem scary especially if you are a beginner as there are a number of risks you are likely to face.
For instance, you could suffer severe financial losses. Moreover, some traders are particularly prone to psychological biases that make trading difficult. Stock trading can also consume a lot of your time, and there is no guarantee it will be successful.
You also need to be aware that trading can be a stressful and a mentally exhausting activity that may consume a lot of time.
But despite the downsides, the stock market also provides plenty of opportunities to grow your wealth. For instance, trading stocks helps many people to stay ahead of inflation and grow with the economy.
There are also many other benefits to learning how to trade like being your own boss, being rewarded for your hard work, and working from home or wherever you want!
Learn about the markets and decide how you want to trade
For a new trader entering the stock market, one of the first things you need to do is consider what you are going to be trading. Start by educating yourself on how the stock market works and learn about the different markets available.
A good starting place for new traders is to study the various styles of trading. These options could include:
Day trading is when a day trader places a trade that they are looking to capitalize on a stock’s price movement on the same day they place the trade and are not looking to hold a trade overnight.
Scalping is a very fast paced style of trading that requires you to be in and out of a trade very quickly. You take smaller profits with the goal of doing this a bunch of times to add it up to larger sums of money.
On the other hand, swing trading is generally defined as a short-term trade that lasts longer than one day and less than a month.
Learning a style that fits your psychology and skill set is crucial.
For instance, if you’re an overthinker then you probably won’t be best suited for fast-action scalping and would rather want to looking at daily position trading or swing trading.
Take a trading course
If you are looking to get started in stock trading, taking an online trading course is a superb way to acquaint yourself with the market while avoiding costly mistakes that are often made by beginners.
We specialize in day trading courses with an in-depth look at everything you will need to start your trading career including a simulator to practice and an active chat room for support and trade ideas.
For a full overview of our courses you can click the link to see the course syllabus.
Practice, practice, practice
Practicing strategies and learning to control risk over and over are two of the most crucial aspects of achieving success in the day trading world.
If you want to get into trading but don’t feel like an expert, it is vitally important to practice in a simulator before you begin to use real money.
At Warrior Trading we have a proprietary simulator platform that was built by traders for traders. You’ll have all the tools needed to learn how to trade including hotkeys, advanced charting, Level 2 and much more!
Decide on a Broker
If you want to trade stocks, you will need to find a stock broker to facilitate your trades.
Stock brokers are firms or professionals that execute buy and sell orders on behalf of their clients, enabling them to trade company shares and other financial instruments that would be otherwise impossible to invest in.
Simply put, they are professional firms that serve as intermediaries between the stock market and traders.
There are plenty of brokerage firms to choose from, and each offers something a little bit different. Examples of brokers include:
Your choice of broker ought to be influenced by the type of stock trader you are and by how much money you are going to trade with. No single brokerage firm is good for all traders, so determining your trading style before you begin to trade is always a wise decision.
However, there are some common things you need to consider when picking a broker:
- Execution speed: This is an important thing to consider because of the high number of trades you are likely to make in a day.
- Trading platform: Make sure your broker offers a trading platform that suits your trading needs. The platform needs to deliver crucial tools such as advanced charting tools that will help you improve your trades and make informed decisions.
- Costs: Stock brokers charge some fees and commissions for offering their services (facilitating transactions) to traders. Find out how the charges are calculated and how much they will be. There should be no hidden charges and each charge incurred while transacting ought to be specifically mentioned.
- Regulatory compliance: You also need to make sure your broker is regulated by a financial authority. This will protect you from unscrupulous brokers. A regulated broker will be legally obliged to protect your financial interests.
- Customers support: Customer support is crucial when picking the best stock broker. Look for a broker that provides 24/7 support and is easily accessible to help you solve any issue that may arise.
Once you have chosen the broker you will work with, it’s time to open a brokerage account with them. You can typically open an account online in about 10 minutes, provided that you have all your documents and information at the ready.
How much money do I need?
This is a very common question and one that we get everyday.
It’s not a simple answer like you need X amount of dollars to trade. There are different factors to consider so we created an in-depth video and blog post breaking it down for you. Click the link to read more!
Risks associated with trading
When trading stocks, the potential for making money more often than not overshadows the risks associated with it.
Therefore, it is not surprising that some traders are unprepared for the losses they may suffer.
Here are some of the risks that every trader should know about:
- Liquidity risk: Liquidity risk occurs when a trader is unable to buy or sell a stock quickly enough to prevent or minimize losses. Traders can minimize this risk to a good extent by diversifying.
- Capital loss: Even if a majority of your trades are profitable, you will still face considerable up-front costs. For example, one must pay hardware, software, and initial news services before they can start trading.
- Technical difficulties: System failures can delay a transaction, resulting in losses. For instance, you may have bought a stock at one price, but technical difficulties may have negated the transaction.
By the time the issues are finally resolved, the stock price may have gone up. This could result in you having to pay more for the stock than you planned. Check into what safeguards your broker offers to protect you if technical difficulties arise.
- Trading addiction: Trading addiction is a serious condition that can drive you into compulsive behavior with harmful outcomes. Trying to win back everything you lost and restore control by trading more is one of the most common signs of trading addition.
As a trader is your primary goal is to manage your risks. Without this your trading career could be shortlived.
Bottom line
Trading stocks may seem tricky at first, but all you need to do is go step by step.
Understand what you are getting yourself into, educate yourself about everything trading, determine what type of trading you want to get into, take a trading course, practice using a simulator, choose a broker, and learn about the risks you are likely to face along the way.
If you have any questions let us know in the comments below!
