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Stock Trading For Beginners

by Tanya June 26, 2024

If you are in your 30s and find yourself thinking about money more than ever before?

You are not alone.

Millennials are known to be very conservative investors. They fear the stock market and prefer to keep their money in cash.

But the truth is investing is the best way to build wealth.

Either through the stock market, rental property, or business (by starting or investing in other people’s businesses) – investing almost always beats saving money.

This is because the value of cash decreases over time due to inflation. The number of goods or services you could buy for £100 ten years ago will not be the same as what you can buy with £100 today.

For beginners, entering the world of trading only takes some essential knowledge and a strategic, quietly confident approach.

Making a strong start requires an understanding of basic trading principles, the different types of stocks, and the pros and cons of trading them.

We’ve covered everything beginners need to know in this guide.

What is a stock?

A stock represents a share in the ownership of a company and constitutes a claim on part of the company’s assets and earnings.

When you buy a stock, you are buying a small piece of the company. This piece is called a share. As a shareholder, you own a part of the company proportional to the number of shares you own.

What is stock trading?

Trading stocks means buying and selling shares of publicly traded companies through stock exchanges.

Stocks are bought and sold on stock exchanges (e.g., NYSE, NASDAQ).

The price of a stock is determined by supply and demand in the market, influenced by factors like the company’s performance, economic conditions, and market sentiment.

The goal of stock trading is to make a profit by selling these shares on for a higher price at a later date.

Traders take to the market in various timeframes, with some trades lasting only minutes and other investments being held for years.

Online trading platforms like Tradu make it easy to monitor and evaluate stocks in real time.

Types of stocks

Stocks can be categorised into various types based on different criteria.

Ownership rights

* Common stock: Most stocks are common stocks. They entitle the shareholder to vote at shareholders’ meetings and receive dividends.

* Preferred stock: These stocks generally do not offer voting rights, but they provide a higher claim on assets and earnings than the common stock. Preferred shareholders receive dividends before common shareholders.

Investment style

* Growth stocks: Shares of companies that are expected to grow at an accelerated rate compared to other, similar firms in the same market. Because these companies often reinvest their profits into research and development, investors are attracted to the potential of growth stocks. However, they can be higher risk.

* New issues: Also known as initial public offerings, these refer to stocks sold to the public by a company for the first time. When a company goes public, it sells shares to investors. New issues can be an attractive opportunity due to the potential for quick price increases once the stock becomes more widely discovered.

* Dividend stocks: these are shares of companies that pay out a portion of their earnings to shareholders on a regular basis. Known as dividends, these stocks typically come from established firms with high earnings, so they appeal most to those looking for low-risk investments and a steady income stream.

Advantages of trading stocks

There are some strong advantages to trading stocks. Potentially higher returns, especially compared to other assets like bonds or savings accounts, are a key benefit.

And with the heightened accessibility of online trading platforms, it’s easier than ever for beginners to enter the market.

Stocks also provide liquidity, which means that investors can buy and sell stocks within a short space of time.

With such a wide variety of stocks to choose from, traders can easily diversify their portfolios and reduce risk.

Disadvantages of trading stocks

There are a few drawbacks too. One major risk is financial loss, especially for those new to the market or lacking in experience. Since the market is highly volatile, prices may also fluctuate in short periods of time.

The research required to succeed may also deter beginners. The learning curve is steep, and mistakes leave traders out of pocket. Above all, emotional decision-making may lead to disadvantageous investment choices.

In conclusion

Stock trading brings new and vibrant opportunities for anyone willing to understand the market. This takes time and effort, but by reading some books or doing research online, it’s possible to start making informed decisions and see returns too.

As with any form of investment, it’s always worth approaching stock trading with caution. A well-thought-out strategy must come with patience and discipline.

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Tanya

The first Millennial blogger in the UK. Twitter @_luckyattitude

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