6 Things You Simply Have to Know Before You Start Stock Trading
There are few things more exhilarating than watching the price of a stock that you have invested in explode. If you have always wondered what this feels like but assumed that the stock market was something that was out of reach of the average person, think again. These days, it has never been easier to make your first incursions in the world of buying and selling stocks and shares. If you use a platform which is run by FXTM stock trading is actually pretty easy. But before you jump in at the deep end, there are a few useful investment tips that you should be aware of. Read on to find out more.
1. Do Your Own Research
The world of social media platforms is today populated by thousands of account that market themselves as investment “gurus”. Some of these people can put forward some pretty convincing cases of why you should buy this share or sell that share. While this information may seem to be backed up by solid evidence and research, you should be aware that many of these accounts are in the business of pump and dumping shares. As such, it goes without saying that you should not take anybody’s investment advice as gospel. When it comes to stocks and shares, there really is no substitute for doing your own research!
2. Buy Low, Sell High
When people first start trading, the biggest mistake that they tend to make is to jump on the bandwagon after the horse has bolted. It can be very tempting to look at a stock’s recent spike and assume that things are going to carry on in the same way. However, with a little experience, you will soon realize that this is rarely the case. Successful trading relies on being proactive, not reactive. This can mean buying shares whose trend is on the downturn in anticipation of a rebound.
3. Look for Stocks with High Dividend Yield
If you are new to the stock market, you may not know too much about how dividends work. Dividends are sums of money paid out quarterly by a company to its shareholders from its profits. Companies that regularly pay out dividends include Microsoft, Apples, Exxon Mobil, Wells Fargo and Verizon. You should know that not all companies pay dividends for a number of different reasons. When you start, it may be worth investigating whether the companies that you have got your eye on pay out in dividends or not.
4. Be Aware of Taxes
Investing in stocks is a great means of increasing your wealth and financial security. However, you should be aware that any money that you make on ROI or dividends is subject to the capital gains tax of the country in which you reside. In South Africa, for example, taxes on the profits from stocks are charged at the normal income rate which is applicable to a taxpayer’s income.
5. Look Beyond Share Price
When buying shares, understand that a $100 stock is not necessarily expensive and $5 stock is not always cheap. The key thing here is to look for value. By this, we do not mean monetary value; instead, we are talking about a value calculation based on a combination of things such as growth potential, security and dividend yield. Learning how to value assets is the key to being able to judge whether a stock is underpriced or overpriced.
6. Keep Your Emotions in Check
Emotions are the enemy of effective trading. It is all too easy to get caught up in the moment when you think you have seen something that will put you ahead of the curve. However, more often than not, jumping too quickly onto or off of a stock is fraught with risks. As any successful investor will tell you, decisions made on hunches only have around a 50% success rate. The thing that will determine the success of your trades is research.
Trading well often depends on sticking to your principles, no matter what. The tips above are by no means the be-all and end-all of trading success, but they should definitely inform the strategy of any novice looking to feel their way into the stock market.