Share Market Investment for Beginners: A Basic Guide

Investing in the share market is one of the best ways to grow your finances in a comparatively short period. Whether you’re an apprentice or a regular trader, the share market can be the best trading platform, provided you're consistent and patient.

And, this might be the right time to make your first share market investment as a beginner. It’s because the stock market reportedly indicated considerable growth in 2022 on the back of rising liquidity. report

Besides, stock market investment has a history of being a defiant tool to fight monetary breakdowns and inflation in the long run. However, there are some significant aspects you must know before investing in the share market as a beginner.

This article thus focuses on introducing you to the fundamentals of the share market investment, including other related things.

The basics of share market investment for beginners

To learn the basics of how to invest in the share market as a rookie, you must first know a few essential things. 

Starting with…

What is a share market and how does it work?

In the simplest terms, a share market is where buyers and sellers gather to trade shares and stocks issued by companies. The buying and selling of shares are regulated by a stock exchange that usually conducts the trading throughout the daytime till noon.

Meanwhile, as an aspiring share market investor, you can also make Over-the-Counter (OTC) dealings. During OTC stock trading, you can simply make transactions of unlisted stocks with market makers. Market makers are legitimate financial institutions or individuals that can fast-track trade and maintain or boost liquidity in the share market. 

Being new to the share market investment business, it's beneficial for you to know how a share market operates.

The principal job of a share market is to offer a secure trading platform for potential investors and companies to raise capital. Any company willing to go public (IPO) requires going through a mandatory procedure before listing its shares for sale on stock exchanges like the NYSE or NASDAQ. Thereafter, the exchange charges fees for every share traded between relevant participants.

Types of share trading markets

There are two types of share markets denoted as primary and secondary. These markets oversee the process of listing company stocks and selling them to prospective buyers. Hence, you should be familiar with these two significant segments of the stock market. It certainly adds to your comprehension of trading until you make the first share market investment as a beginner.

1. Primary stock market- Normally when a company intends to sell its shares to gather funds, it has to run through an IPO process. This operation, also known as the Initial Public Offering, takes place in a particular stock listing platform known as the Primary market. The market helps new companies to get their stocks, bonds, securities, assets, or shares to be publicly listed on stock markets for trading.

2. Secondary stock market- This is where the real action happens. The shares of the newly registered companies are made ready to be sold here. The place serves as the ultimate trading station, where buyers and sellers hustle to make profits out of their stock investments and trading efforts. Other than that, the market also facilitates mediators like share brokers to ensure efficient trading of shares.

Popular stock trading methods

There are many ways you can trade in the share market, out of which we’ve listed the two common ones.

Day trading

This strategy allows you to trade shares or securities within a single day. You can frequently make shares transactions leveraging on daily price fluctuations of an asset. Moreover, as a day trader, you can buy and sell a single security multiple times a day for better gains. However, to benefit from day trading, you need to have good expertise and an understanding of the stock market movements.

Active trading

If you want to wait until the stock price gets to a convenient mark that you think can garner better returns, then active trading is your recipe. When you're active trading, you can take advantage of the short-term fluctuations in the market price of shares. In this trading technique, you may have to wait until a week or fortnight to conclude your deal meaningfully.

What are shares and stocks?

As a beginner in the share market investment business, you’re likely to get bamboozled by the interpretation of the two key terms; ‘stock’ and ‘shares.’ Although many tend to take both terminologies as the same, they are, in fact, more than slightly different.

Shares- A share is a financial token that signifies a small part of the equity of a listed company. It represents a financial instrument of a business organization. You're entitled to earn dividends on share purchases if the relevant company makes profits. However, you are not allowed to vote during the company's general meeting of shareholders. Meanwhile, compared to stocks, shares can be one of the tradable items in a single stock.

Stocks- In contrast to shares, buying a stock means you own a proportion of financial securities, assets, and earnings in one or more companies. More importantly, you can enjoy a good return when any of the companies reports growth in revenues. Again, as a stockholder, you can rightfully participate in voting during the assembly of shareholders. In addition, a stock you own can include a collection of shares and liquid assets.

How to invest in the share market as a beginner?

Endeavoring for a share market investment as a beginner isn’t any more a tough nut to crack. You can even start trading with 25 USD, however, it’s best to set aside at least 500-1000 USD. But how to get involved in the share market investment with a beginner's tag on you?

Just when you needed it! 

Here’s a catalog of some vital things you must consider prior to investing in the share market for the first time.

Investment objectives

Before you decide to become a stock investor, make a thoughtful list of your objectives. Because it's one of the pivotal factors to make you a successful share investor. Also, these are the things your stockbroker will discuss while launching your new brokerage account. Investment objectives basically revolve around four purposes. 

1. To earn dividends to help pay your bills.

2. You might be yearning to buy an automobile or a property.

3. If you're nearing your 60s, it’s good to invest in stocks for a pleasant retirement life.

4. Maybe you got too lucky, so you want to expand your investment volume with a motive to double or triple your profits.

Risk evaluation

As an amateur share market investor, this is the first thing you should be aware of. Let's say you lose your money while trading on the first attempt. As a result, you end up fighting a crushing psychological crisis? But, did you already have a plan all set for this? Possibly not! Therefore, to avoid such events, assess your financial condition. As simply put, don't be an aggressive investor rather, be realistic with your personal balance sheet. Make sure that your monthly savings and expenditures are properly covered. Then see if you can manage some extra dimes which, even if they are gone — you're totally fine with that.

Selecting a broker

The share market can put you in all perplexities, especially when you’re just starting out as a novice investor. And that’s why you should hire a share broker. Someone who has ample knowledge of share market investment and can efficiently accomplish your objectives. Nonetheless, there are some crucial factors you must pay attention to while appointing a good stock market broker.

• Inquire about the broker commission rate and ascertain whether it’s in line with the investment market regulations.

• Investigate your broker’s reliability and profile by checking his career history.

• The most important part — your probable broker should bear a professional license recognized by FINRA or the Financial Industry Regulatory Authority.

• Make sure the broker is poised and transparent in terms of handling your investment portfolio and financial statements. 

Picking the right operations route

The fourth step is to decide how you want to handle your investment operations. Whether you wish to do it all by yourself or hand over the reins to your trustworthy stockbroker. Both options are fruitful and can help you get good dividends in your first shot. However, your investment approach may vary depending on the level of your share market expertise. Whatsoever, we're here to learn about share market investment for a beginner. And that makes it clear; you should go for the second option, as it's safe and convenient. Further moving along, consider overseeing your investment operations together with the broker. It’s an excellent step to offer you a great opportunity to master the inside out of the share market.

Brokerage account types

Although your share broker will guide you with opening a suitable brokerage account, it's beneficial to have a basic idea of the subject in advance. Generally, you can pick one of the two account types or even have them together simultaneously — a standard taxable brokerage account or an IRA, Individual Retirement Account. Both of them are good and carry specific and meaningful investment portfolios. But which one’s the best for you? For that, you need to have a holistic perspective on your investment objectives. If you are ready to actively participate in trading and wish to have steady access to your investment profits, then go with the first one. Or, you can choose to look beyond and have a secured future with the IRA investment scheme. Moreover, it also allows you to enjoy tax exemptions and become a passive investor. 

Secure investment strategy

This step is the determinant of your success in the stock investment business. At times, the teetering behavior of the stock graph can be overwhelming for you, so it's imperative to realize a liberating strategy. Share market investment for a beginner can be challenging initially. But if you know the Dos and Don'ts of trading, you're soon to hoist your victory banner in the nearest future. Thus the simple strategy is to broaden your investment spectrum rather than clinging to a single or few assets. As an investor, take the liberty to invest in multiple financial resources like stocks, shares, bonds, mutual funds, and Exchange-Traded Funds (ETFs). This way, you need not worry about your investment even if one of the items fails to take you to the pit of hidden treasure.

Conclusion

"Never depend on single income. Make investment to create a second source." - Warren Buffett.

Simple Life Savings won't let you embrace your wealthy life fantasies. So pondering over an alternative income source like the stock investment market is the pressing priority. Initially, share market investment for a beginner can be tricky, but that's until you're unaware of the basics. Once you are, be ready to roll like a snowball despite the seasonal calls. Along with that, keep doing the basic things right and be consistently patient with your expectations and emotions.