It is surprising the number of people who want to learn to invest, but who for various reasons are not encouraged to do so. It is also very common to meet people who are encouraged to take the first step, but in the end they leave it without achieving their goal. It is a road that takes time, it can be hard, but it is profitable and worth it. With these 5 tips to learn how to invest in the stock market, I want to help newbies to start this journey successfully without just trying.
It is important to know how to separate the grain from the chaff. The media, especially the internet, is full of bogus investment gurus who sell foolproof ways to invest in the stock market and make big bucks in no time. Most, if not all of them, are charlatans who make a living by selling books and courses that are useless at exorbitant prices.
To find out who are the best, we must resort to the historical profitability of their investments. Warren Buffett, Peter Lynch, David Einhorn, Phillip Fisher, the managers of Bestinver … All of them have obtained a great return on their investments, making many shareholders and participants in their funds rich who have trusted them in the long term. You can earn a lot in a year if you are lucky, but the worth of an investor is proven in the long term .
What do most of the best investors have in common? They invest in long-term stocks following the philosophy of value investing . They do not trade intraday, analyze charts, or invest in highly leveraged derivatives. Do not sell the bike with false promises, if you want to learn how to invest as the best you should focus on value investing .
Once we are clear that we are going to learn from the best, that is, that we are going to learn to invest according to the fundamentals of value investing, we must get down to work. For this, the best way is to read a lot. But that is not enough, we must seek quality content. There are three main sources of content that we should not rule out:
Books : The Basic Source of Wisdom. I always recommend starting with Benjamin Graham's “ The Smart Investor, ” where the foundations of value investing are laid, teaching us to think like an entrepreneurial investor . As the number of investment books is enormous, I recommend that you go through my section of " recommended books to learn how to invest in the stock market ", which will surely be very useful for you.
Blogs : Today we are lucky to have at our disposal this great free resource. In my links section you can see some investment blogs in Spanish that are more than recommended.
Social networks for investors : This is a source of information that we cannot rule out either. To know what social networks to use, I recommend you take a look at my article on the 3 social networks for investors that are worth being .Before starting you have to know that learning to invest takes time, a long time. What's more, investing is an art that requires lifelong learning.The art of inversion has a learning curve very similar to that of a martial art . In a short time you can learn the basics, but it takes a lifetime to be a true teacher and the learning process never ends.
Having a solid theoretical base is essential to learn how to invest. However, practice cannot be neglected . It is necessary to compensate the theoretical learning with the practical one. For example, you can start by looking at the results presentations and annual accounts of some listed companies to get used to it over time and that it will not be difficult to analyze the companies in depth in the future.
In learning to invest in the stock market, as with diets, physical exercise or studies, consistency is essential. As the Roman poet Ovid said :
"The drop of water pierces the rock not for its strength, but for its constancy"
My recommendation is to establish a roadmap with specific objectives . For example, analyzing a company every month or reading a book every 2 months. The important thing is that these objectives are precise, assumable and adapted to our time and knowledge.
In this answer I will be blunt. It is essential to follow all these tips to learn how to invest in the stock market . Just skipping one of these tips can prevent our great objective, that of learning to invest in the stock market.
There are more and more people who are interested in this fascinating world, but it is not always easy to find information that really helps you understand the stock market and how to operate in it.
That is why in this article we teach you everything you need to know to invest in the stock market, if you are a beginner. We will explain what the stock market is, how to learn to trade, and where to learn how to invest in the stock market.
In Google and other search engines the phrase "how to make money in the stock market" is highly sought after. This shows that there are many people who want to invest in the stock market. If you want to start investing in stocks you must know 3 things:
the stock market is a risk market and you can make money, or lose money.
There is no miracle method of investing in the stock market.
It is very important to know the hours of the markets .
Be careful of any guaranteed advice on the stock market, as this does not exist: trading signal providers, automatic trading, reference traders: be careful not to fall for a possible scam.
The first step in learning to invest in the stock market is to know what the Stock Market is. The stock market is a market in which financial instruments are traded: stocks, currencies, bonds, etc. This market, like any other market, is based on the law of supply and demand: if a stock is in high demand, its price increases because there are many buyers in the market. If the stock falls, there are more sellers on the market than buyers.
The stock market allows companies to finance themselves by selling shares of their capital. On the other hand, it also allows investors to own part of the capital of a company. The shares grant the right to:
Receive the dividend in case the company pays one.
Participate and vote in the General Meetings.
There are many more stock markets than we can imagine: the traditional stock market, but also the commodity markets, such as oil and gold, the index markets, such as the CAC 40 and DAX 30, the currency market with the Euro dollar or the Swiss franc, without forgetting the derivatives market (Contract for Difference (CFDs), Futures, Options ...) that arouse more pronounced interest among individuals.
Now that we know what the stock market is, let's go to the second step, who are the market participants.
The stock market allows people to invest, hoping to earn money by increasing the values they buy.
In addition to individuals, the most important participants in the stock market are investment funds, investment banks, guarantee funds, insurers and state and pension funds.
In the stock market we can distinguish 2 types of participants:
Buyers in the stock market
The objective of trading on the stock market is to buy a stock in the hope of selling it at a higher price, that is, more expensive. For example: if the price of an Iberdrola share on the stock market is 6 euros, I want to buy it only if I think the price can go higher.
Stock market sellers
At the same time, a seller is a person or entity that sells a security because he believes that its price will decrease. For example: if the price of one Iberdrola share on the stock market is 6 euros, I will sell it only if I think the share price will fall.
In another type of classification of the participants of the stock and financial market.
Institutional investors on the stock exchange
Institutional investors are the main players in the financial markets. They are responsible for most of the volumes of the different classes of financial assets. Among them, you will find insurance companies, asset management companies, hedge funds, investment banks or even retirement pension funds.
Individuals in the stock market
People invest in the stock market with the objective of generating financial wealth and earning part of their savings, more often in a long-term investment horizon (several years).
Since the Stock Market can be accessed online, there is a growing fad for trading to attract short-term profit. Starting in the stock market with speculative trading can be risky, even if it is potentially more lucrative.
If we buy a Iberdrola share at a price of 6 euros today and the price rises to 10 euros tomorrow, we can earn 4 euros. The seller, meanwhile, who sold the shares for € 6 will not be able to take advantage of the price increase and has a potential loss of € 4.
Let's take the opposite example: if you buy a Iberdrola share at a price of 10 euros today and tomorrow's price is 4 euros, the buyer will have a loss of 6 euros and the seller will earn 6 euros.
Attention: to short sell stocks, we need to invest in a derivative of the stock. With equity CFDs, we can make a profit even if the underlying trend, in this case Iberdrola, is down.
In this case we will proceed to sell for later when the price is even lower, and we are satisfied with the results obtained, proceed to buy and yes obtain benefits.
If you are a beginner in the stock market, a simple way to start investing in the stock market is to test the stock market using an online stock market simulator . Online brokers offer dummy trading simulators. These allow you to test real market conditions with real-time stock prices.
A demo account can help you understand the online stock market, give you an idea of how to invest in the forex stock market for beginners , how the stock market works and, at the same time, an explanation of the stock market for beginners.
You can download a demo account and try to apply what you learn in these courses. In investing in the stock market, practice is as important as theory.
Investors turn to the financial markets to place their money and increase their savings. In the stock market, this can be done in the following ways:
Capital Gains: The investor buys a stock that has potential and holds it in the hope that its price will rise over time. By reselling it more expensive than you bought it, you earn the difference.
Income gains: the investor buys income units, that is, they regularly pay dividends. It is a periodic compensation (generally quarterly) that the company offers to all its shareholders.
A combination of the two: To maximize stock market gains, market novices and experts seek to buy dividend-paying stocks to earn dividends and capital by selling them later.
Short selling: You are selling a stock that you do not have to bet on the fall in the price of your stock. The investor earns income from falling prices, but does not receive dividends. It is a technique not recommended for beginners in the financial markets.
Derivative speculation: Traders who start in the stock market sometimes turn to derivatives to speculate in the stock market. These are instruments (CFDs, futures, options ...) that allow you to bet on the rise or fall of a security in a short period and with leverage.
Starting to operate on the stock market requires a little thought to choose which investment method to choose. It mainly depends on the investment horizon and the risk assumed.
The online exchange facilitates investment and speculation in the stock markets. The novice trader chooses to take more risks by trying to earn more, while the long-term investor takes fewer risks, but also limits his potential gains.
In any case, learning to invest in the stock market and taking the time to understand the stock market is an absolute must.
Once you have registered and your approved trading account, the stock selection process begins. The amount of data and real-time stock movements can overwhelm you at first. At first we advise you to focus on a small number of actions, those with which you are most familiar.
One of the best investors of all time, Warren Buffett , once said, " Buy shares in a company because you want it to be yours, not because you want the shares to go up ."
In addition to the company's annual report, management's annual letter to shareholders can provide a decent overview of how the company is performing and what its future plans are.
The analytical tools you need to evaluate will be available on your broker's website, such as recent news, conferences, quarterly earnings updates, and any regulations imposed by regulators.
Many brokers also provide articles and tutorials or seminars on how to use their tools and how to select actions.
You should start trading and investing small amounts perhaps even starting with a small purchase to have the feeling of owning shares of publicly traded companies, and this will help you understand whether or not you have the patience to absorb minor losses to get long-term gains.
Without stress and lack of sleep. You can always increase the size of the positions as you feel more comfortable with such investments.
Now ... how to learn to invest in the stock market? You have to know the types of orders that exist!
By entering a market order, you are buying or selling the shares at the next best available market price. As a market order does not establish price parameters, your order will be executed immediately.
With market orders, the price you pay or receive, if you are selling, may not be the exact price that was quoted just seconds before; This is because the supply and demand prices fluctuate constantly throughout the day.
Market orders are best used when buying or selling stocks that do not experience large price swings during the day. For example, buying large stocks at the beginning, rather than smaller, more volatile companies.
Tips for investing in the stock market:
A market order is best for investors who buy and hold, where they don't mind the small price differences, but rather make sure that the trade is fully executed.
Place a market order at the end of the day. Your order will be activated at the market price when the bags are opened the next day.
Verifying your broker's order execution disclaimer is a good idea, some low-cost brokers bundle all customer market orders at a current price, either at the end of the trading day, or a specific time or a day of the week.
Pending orders
If you prefer more control over the trading price, then it is better to use limited orders.
Buy limit: Suppose Apple is trading at $ 100 a share, but you think $ 95 a share is more in line with its valuation. Pending orders tell your broker to wait and execute when the price is at that level.
Sell limit - Informs the broker to trade the shares once the offer increases to its set price level.
Pending orders can be great for first-time investors who buy and sell shares of smaller companies, as they can have wider spreads depending on investor activity.
It is also useful during short-term stock market volatility, or when the stock price is more important than compliance.
Additional conditions affecting limit orders are:
AON: An 'AON' order (all or none) will be executed only if all the shares you want to trade are available at their predetermined price limit.
GFD: A 'GFD' order (valid for one day) will generally expire at the end of the trading day, even if the order has not been fulfilled.
GTC: A 'GTC' (Good Till Canceled) order will remain in play until the trader cancels it, or the order expires.
The pending order ensures that a beginning trader will get the price you want, however, the order itself may not complete. Pending orders are generally placed in a FC-FS (on a first come, first served basis), and only after market orders are filled.
Also, the action must remain within the default parameters that you have set long enough for your broker to execute that particular operation. Limited orders may carry commissions.
Whether you are a beginner in the stock market or an expert, be clear that you cannot avoid the downside phases of the markets. However, what you can avoid is the significant risk presented by a non-diversified investment portfolio.
Diversification helps protect a global investment from the inevitable setbacks of specific markets. If you invest all your money in a single share in the stock market, you are betting on a success that the specific problems of that company (regulation, poor leadership or a scandal, for example) can quickly jeopardize.
To mitigate this specific risk for a particular company or asset, investors diversify by placing their money in various types of stocks and markets. Any loss in a specific market will be offset by gains in other markets.
However, building a diversified financial investment requires a lot of time, patience, and research. Exchange-traded funds, or ETFs, offer an alternative that contains an investment basket, thereby automatically diversifying.
When you are a beginner in the stock market, you may not know all the important criteria to choose your online broker. Admiral Markets is an FCA regulated broker.
Here are some criteria to consider when choosing a broker to invest online:
Regulated Forex broker: it is better to open an account with a regulated agent
Trading platform: choose the intermediary with the platform that best suits your needs. Check out our MetaTrader 4, Webtrader MT4 and MetaTrader 5 pages
Spreads : Find the broker with the lowest spreads and best order execution.
Different types of accounts: A good broker can offer you several types of accounts. See our section: Types of accounts and currency offers.
Opportunity to trade with leverage . Be careful, this carries risk.
The proposed markets: it is always interesting to be able to invest in several markets at the same time. A good option is to trade with a broker that offers multiple markets on its trading platform.
Customer service: having a broker with customer service in Spanish is much more convenient
Are you a beginner and want to invest in the stock market?
We always recommend that you do it after an intense period of training and experimentation in safe conditions, that is, in a virtual stock market, where you can test your strategies and knowledge acquired without risking your money.
Once trained and experienced in the virtual stock market, we recommend that you prepare a trading plan and stick to it.
A good trading plan includes:
your investor profile, that is: moderate, risky, or conservative.
include the assets or instruments in which you want to invest
consider the time frame of your investment and
details risk management (i.e.,% of capital invested per operation, Stop Loss and Take Profit levels, etc.)
If you want to trade in spot stocks, they are available at Admiral Markets through the Admiral account of MT5. The other Admiral Markets Trading accounts only offer operations with CFDs.