If you’re unfamiliar with it, the stock market can be really intimidating, but it provides excellent opportunities to grow your wealth.
Regardless of whether you’re hoping to immerse yourself in the world of trading full-time or you’re just wanting to make a little extra money, it’s important that you familiarize yourself with the process and evaluate your own objectives before you start trading.
Keep reading to learn about four things you can do to build a strong foundation and get started trading.
Learn More About the Stock Market
Image via Flickr by Arch_Sam
As with anything, the more you know about trading, the more successful you can be at it.
Spend some time learning the terminology, understanding how the stock market works, and following tips to start trading successfully.
Additionally, you should familiarize yourself with the Bid/Ask spread, which is how stock prices move, and how to read stock quotes and a stock chart.
Consider Your Trading Needs and Goals
Everyone starts trading for different reasons, and those incentives are what drive how you trade and how often. Depending on what you hope to accomplish, you may be interested in:
- Day Trading: Day trades last less than 24 hours; many of them only last a few minutes.
- Swing Trading: This is when investors take trades that last anywhere from a day to a few weeks.
- Investing: When you invest in a company, you take trades that last for an extended amount of time that can last months or years.
- Options Trading: Options are contracts that allow you to buy or sell a portion of an underlying asset such as securities before the contract’s expiration. Trading options is a great way to diversify your portfolio, generate additional income, and limit your losses.
Evaluate Your Finances
Assessing your financial situation is important for two reasons:
- It determines what kind of trading you’re able to do.
- It allows you to set an informed budget, ensuring that you don’t risk more money than you can afford.
For those looking to start day trading, you are going to need at least $25,000 in the bank to trade in the United States. Swing trading, on the other hand, has no minimum requirement for capital. With that being said, having at least $10,000 available and dedicated to trading allows you to freely trade as opportunities present themselves. Similarly, between $5,000 and $10,000 is generally considered the minimum amount needed to start trading options. Investing requires significantly less capital since the trades are held for so long.
Decide On a Broker and Trading Platform
Your broker is who facilitates your trades and communicates with other market participants. You may need to determine a broker’s specialty to ensure they are appropriately experienced in the kind of trading you plan to do. Your broker gives you the trading platform where you’ll be able to place orders, conduct research, view charts, and see stock quotes. Before deciding on a broker, you can test out a few different platforms by starting demo accounts.
It’s important to do some research and self-reflection before you start trading. This will ensure that your introduction to stock trading is both smooth and successful.