Stocks
What are stocks?
Stocks are securities that a company issues in the hope of raising additional capital from investors. They, in turn, purchase the stock at market price, with the prospect of further growth. The better a company is doing, the more expensive its shares are. The higher their price is, the more favorable deal the investor has made. However, if the value of the securities begins to decline after the purchase, the investor suffers losses, because he bought them more expensive.
Originally, trading in stocks was impossible without actually buying ownership of the asset, the securities themselves. Over time, CFDs were introduced to make this market accessible to a wider audience.
Contracts for Difference allow private traders with small capital to make transactions on changes in the value of metals, indices, energy resources and other categories of instruments, including Forex and stocks.
Stock trading involves immersing the trader in the news on the companies that are chosen to make trades. This can be Apple, Coca Cola, Facebook, JPMorgan, IBM, Netflix and others. It is important to follow what is happening in the world: it allows you to understand the main global trends. Also track indicator data for the country in which the selected firm operates (head office and production facilities). This will allow you to learn how to anticipate trends such as rising unemployment rates, decreasing productivity, etc.
In addition, pay attention to news from the industry to which the company belongs. To do this, track the major stock indices: some of them combine shares of corporations from the same sector (for example, industry or IT). The higher the quotations of such indices, the better things are going for this type of companies in general.
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Tips for successful stock trading:
Choose your strategy carefully
The basis for choosing a strategy is the investment objective, investment horizon, and risk tolerance level specified in the personal investment plan. It is on the basis of these data that passive, conservative or aggressive investment strategies are selected.
The result of strategy selection should be a limited list of assets - meaning not specific stocks, but groups of stocks, e.g. blue chips, growth stocks, value stocks, dividend aristocrats, etc.
Only based on the results of such selection it is possible to preliminarily assess the potential profitability of investments, the possibility of achieving the set goal and the possible level of drawdowns.
Don't forget to diversify
Buying several assets from different issuers in several industries and, if possible, countries is always better than investing in a single instrument. The condition for selection is a low correlation coefficient: the lower, the better (it does not cancel other factors of selecting the most suitable stocks, but it may well significantly adjust the result). It is precisely due to such correlation that drawdowns in the price of some stocks will be compensated by the growth of others.
It should be remembered that those who say that everything falls in a crisis are only partly right. Even in moments of the greatest panic on the stock market, there will always be those securities that remain stable or show moderate growth. They should be in the portfolio at that moment - this is the task of diversification.
No matter what methods are used to calculate the portfolio theory position, diversification should be as deep as possible. Of course, one of the main limitations will be the size of the capital. But, in any case, the maximum number of types of securities should be bought.
Make sure your capital is enough to get started
Buying a couple or three shares is not an investment; rather, such investments can be called an experiment. In order to get an estimated profit to achieve the investment goal, you need to have an appropriate amount of funds. They should be sufficient for such purposes:
diversification when creating a high-quality earning portfolio; preservation of open positions in case of drawdowns; a solid reserve when using margin trading; buying at the best prices when markets are down, etc.
For successful work, you should consider starting investing with amounts of at least 500-1000 dollars. This account size will give you a certain freedom in choosing strategies and assets.
Follow the rules of the trading system
A strategy is only an indication of how to succeed. Its concrete realization is a trading system. Develop its provisions for yourself, take into account the requirements of risk and capital management. After these rules are ready, strictly observe them. To achieve success in stock trading, it is not necessary to spend all your free time at the terminal. Another important thing is to know exactly what you need to do in this or that situation, and constantly apply this knowledge. It is a systematic approach to the market, assets and transactions will certainly bring success.
Learn how to pick the right stocks
Blue chips are in well-deserved demand among investors, but they are not always the best choice for inclusion in a portfolio. There are plenty of instruments on the stock market which, at a comparable risk level, exceed the leaders in terms of profitability. To find such assets, study:
fundamental analysis; variants of financial statements presentation by issuers and methods of working with them; information on multiples, their calculation and value; news calendar and the impact of events, including corporate events, on the behavior of stock quotes; technical analysis tools.
All this set will help to determine the best assets to buy at a particular moment or to solve the inverse problem - to choose the optimal time to enter the market for a particular instrument.
