Are you interested in the idea of purchasing stocks?
This is a great way to shore up your savings against inflation if you’re able to safely navigate the market fluctuations. However, several myths surround stock trading and put off potential traders.
We debunk the biggest myths below and offer tips for first-time traders.
“Trading is gambling”
The belief that trading is just a form of gambling is a misconception that deters many from investing in the stock market.
While it’s true that this type of investment is less stable than a bank account, the stock market exists to increase wealth and share this between interested parties. It’s a ‘you scratch my back and I’ll scratch yours’ concept: your financial support for the company gives you part ownership, and you are rewarded with a share of the profits if the business grows.
In contrast, gambling involves the collection of funds by one impartial company to create a jackpot. This money is distributed back to one winner at the expense of other parties, minus a cut kept by the company.
Additionally, gambling wins are random and rely purely on chance whereas there are strategies you can employ when playing the stock market. You can use platforms dedicated to stock trading to analyse the market, track trends and identify companies likely to increase in value. Safety features such as stop-loss orders allow you to limit losses on stocks as well.
“You need a large capital to invest in stocks”
Substantial funds are not a necessity for successful stock trading. While it’s true that some brokerages have account minimums, these are often fairly low. Most brokerages also offer the option of margin trading so you can save through shared investments.
Furthermore, stocks and shares vastly vary in value so if you have limited funds you can stick to micro-investments in low-risk options that are resistant to big losses.
Trading best practices for beginners
Developing the skills to successfully trade in the stock market is a case of walking before you can run. There’s much reward available in this endeavour but you should be aware of the risks involved with trading too and take steps to protect yourself against losses.
Always keep substantial savings to cover you for essential expenses and follow these tips when you dive in.
- Practice makes perfect – well, not quite perfect, but it’s a financially safe way to get familiar with trading space that can be unexpectedly volatile.
- Start low and slow – begin with one or two stock investments of a relatively low value.
- Think long-term – go for low-risk stocks with a view to your asset appreciating over time.
- Prepare for downturns – everything from company decisions to global events can affect the value of stocks, so prepare for unpredictable downturns with features like stop-loss orders.
- Diversify your portfolio – purchase stocks in companies of all shapes and sizes across a range of different industries to protect you from sector-specific downturns.
