Whether you want to jump into the action with active trading or want to invest for the long-term, ignorance will cost you dearly. It is the staggering losses of newcomers who didn’t do their homework that causes many to write off trading as a waste of time. Yet there are many who earn a living trading, and in most cases, knowledge is the key to success. Here are 4 things you need to know to get into the trading business.
What You Can Invest In
When someone talks about trading, the first thought many people have is the stock market. Furthermore, they tend to think about buying and selling stocks. However, there are many more things you can trade. You can buy shares in stock mutual funds instead of buying and selling individual stocks, for instance. Or, you could go with options trading where you aren’t investing in stock per se, but on the value of the underlying stock.
It’s essential that you learn about the different types of investments available to you so that you can find the right one for you. Stocks can be day-traded or bought and held until the price comes up. Options are an exciting way to make money with a fast turnaround, and with a good strategy, it has less risk than day trading stocks. Different securities will be a better fit for a different trader, so pick one that fits your trading style the best.
Your Options When It Comes to Trading
Trading is popular with those who have a do-it-yourself approach, but you could also work with a robo advisor or human advisor. Once you decide how you’d like to trade in the market, you can start shopping for platforms or investment services that meet your needs.
If you’re going to be a heavy trader, search for a platform that keeps trading fees to a minimum. If you’re not interested in constantly monitoring your investments, a managed mutual fund may be a better choice. If your plan is to invest in a wide variety of stocks and commodities, you’ll benefit from a site that gives you access to tools for research.
You should also know the rules before you invest money with an institution. For example, you can’t day trade in your retirement account. Depending on your situation, you may have to set up a separate brokerage account to trade in options or day-trade stocks.
You should also understand your trading platform’s rules. They may not let you withdraw money until you’ve hit a set threshold. You should also always do your research before you deposit money into the account and know that you have plenty of options available to you when it comes to platforms.
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There are two questions you need to answer before you get started. One is how much money the platform or investment service requires to open an account. The other is how much you can afford to risk.
The one thing you should avoid at all costs is borrowing money to invest. Instead, you should only invest money in stocks, options or another financial instrument that you can afford to lose. Minimize your losses as you’re learning by starting small.
This is more than buy low, sell high. For example, you can buy options that pay out if the stock or commodity price goes down. More advanced traders can use options to manage their risk, such as when you buy a stock on the hope that it goes up but use options to cover the losses if the stock price goes down.
Learn about the various trading strategies that are available to you. Choose strategies that fit your schedule and personal risk tolerance. Then try out the strategy on a small scale in your investment account. Ideally, you’ll be able to practice your trading strategy on the platform before you commit money to the trades.
Trading can be an exciting and rewarding way to make money. However, you need to have a plan and set goals in place before you officially enter the market so that you become one of the few success stories.
Author | Emily Forbes
An Entrepreneur, Mother & A passionate tech writer in the technology industry!