If you are starting from scratch, this stocks beginners guide will explain what stocks are and how they work. Before trading with CFDs on shares, it is good to know the main characteristics of this type of asset. If you already know what they are, this guide to trading stocks reveals platforms with which to trade shares online.
What are stocks?
In the world of finance, a share is a stock that represents a share of ownership in a public limited company. A public limited company is a company whose shareholdings of members are represented by shares.
The shares have the characteristic of transferability. They are "transferable" securities as they can be sold and bought.
The owner of a share is called a shareholder, while the set of all shares in a company is called the share capital. Not to be confused with equity capital is the equity portfolio, i.e. the set of shares owned by a particular investor.
Shares are financial instruments suitable for investment.
Stock Trading Guide for Beginners: Tips for New Traders!
Stock trading can be a profitable investment if done correctly. However, it can also be risky. This guide to stock trading will help you get started in the stock market and avoid common mistakes made by novice traders.
First, you need to decide what type of trader you are. There are three types: day traders, swing traders, and long-term investors. Day traders buy and sell stocks within the same day, swing traders buy and sell over a few days or weeks, and long-term investors hold stocks for months or years.
Next, you need to decide how much money you want to invest. Stock prices can go up or down, so it's important to only invest money that you afford to lose. You should also set clear goals for your investment and know when to sell.
Once you've done those things, it's time to find a broker. There are many factors to consider such as cost per transaction, customer service, and the trading tools offered. Do some research and choose a broker that satisfies your needs.
Remember: Stock trading should be viewed as a long-term commitment, not as a get-rich-quick scheme. If you do your research and plan before investing then you can trade with confidence and experience success.
Let's take this Stock Trading Guide apart piece by piece...
First, Stock Trading Guide for beginners is probably one of the most searched terms on Google especially if we're thinking Stock Market in general. As you can see, Stock Trading Guide is more competitive than Stock Market while Stock Market is more popular.
While Stock Trading Guide for beginners has around 4,390 monthly searches according to Keyword Planner, the Stock Market keyword has around 638,000 monthly searches. As per the searches, ETFs is trending these days, thus stocks traders could check our ETF trading guide to get a holistic overview of the financial market.
As you can see, the number of searches for the best trading guide for stocks is significantly smaller than our second related keyword Stock Market. Knowing this information will help you understand that the competition for that keyword is high and there are many people searching for it.
So if you're someone who's just starting out in stock trading or even seasoned investors looking to improve their game then knowing these numbers before diving in will help give insight on how much work needs to be done what might need to be improved upon.
Now that we understand Stock Trading Guide for beginners and Stock Market in general, let's move on to what this guide will entail.
The first part of this guide is for those who are unaware of the different types of traders there are.
This is a basic overview that gives an idea of what each type of trader does. It might be important to do more research into what each of these entails if you're thinking about becoming one because it can be very different depending on the person.
The second part is for those who want to start trading but don't know how much money they should invest. Stock prices can go up or down, so it's important to only invest money that you afford to lose.
This is a good rule of thumb because, as we stated before, stock prices can go up and down at any given time. And if you invest money that you can't afford to lose, then you'll be in for a world of hurt if the stock price dips and your investment goes south.
Another thing to remember is that you should have clear goals when trading stocks. Know what you're aiming for and when to sell so you don't end up losing more money.
This is especially important for those who are just starting out since you don't want to be overwhelmed with the idea of being in debt or losing money.
The third part is where you should do some research on your broker. There are many factors to consider such as cost per transaction, customer service, and the trading tools offered. Do some research and choose a broker that satisfies your needs.
This part is very important since you'll need to find a stockbroker before actually entering any transactions. Stockbrokers make money every time they trade stocks for their clients so it's essential that they're reliable and have competitive fees associated with them because if fees are too high then this cuts into your profits the more frequently you transact.
The fourth part is understanding what you're buying. When you buy stocks, you become a part-owner of the company. This means that you have a say in how it's run and can vote on important issues.
This is an important thing to remember because, as we stated earlier, when you buy stocks you become a part-owner of the company. So if something happens that you don't agree with or the company isn't doing well, then you have a say in how it's run.
The final part is how to trade stocks. Stock trading can be very stressful, especially if you're new to it, so don't rush into anything and always do your research!
This is the most essential part because everything else will fall apart without this. Stock trading is a high-risk activity that requires not only money but also time and energy. If you lose sight of why you're doing it then it's likely that you'll end up with negative results in the end or worse—no results at all—which makes all the previous steps pointless.
So make sure to avoid looking at the market with rose-tinted glasses since they can cause people to lose their money quickly depending on their situation. Other than this, if you are interested in forex and cryptos do check our forex guide for beginners and how to day trade crypto for beginners.
Stocks Beginners Guide: How do the shares work?
Shares allow companies to raise capital for their business and shareholders the opportunity to see the value of their shares increase in proportion to the company's performance.
This mechanism has proved to be fundamental in the evolution of the economy and constitutes the founding basis of capitalism.
Since our goal is to trade stocks online, we just say succinctly that the "life" of a stock begins when a company or company decides to go public on the market, then issue shares and get the widest number of possible buyers, at the best possible price. It is for this reason that before going public, a company must provide all its data relating to financial statements, in order to allow analysts and customers to evaluate, in order to obtain an initial "fair price" of the share, at the Initial Public Offer (IPO).
When buying shares during an IPO, the jargon is that the shares are bought from the primary financial market. When, on the other hand, they are purchased at a later time, by other shareholders, we speak of a secondary market. A share can be held by an individual or a company (in this case it is referred to as a "shareholding").
The shares can be of various types, including:
- savings: they do not give the right to vote but the right to a higher dividend;
- privileged: they give the right to vote only in extraordinary assemblies but they give a privilege as regards the right to profits and liquidation shares.
As regards ordinary shareholders, they have the right to:
- Selling your own shares
- Right to participate and vote at shareholders' meetings
- Collect dividends, if detached
- Purchase new shares issued by the same company
- Right to assets remaining after the liquidation of the company
How to start investing in stocks
One of the reasons for writing this stocks trading guide is to show you how to start investing in stocks. The classic method of investment is to directly buy shares of a stock in which you are interested.
This is the most expensive method for the amount of capital needed to make tangible profits.
By buying shares you can earn profits both through the distribution of any dividends released annually, and with an increase in the price of the share held. If the stock undergoes a decline then you would lose your capital.
An alternative to direct purchase is to invest in shares through derivative instruments that guarantee greater versatility: CFDs.
By using this type of financial instrument it will not be possible to participate in shareholders' meetings, but the advantages are various and convenient.
Trading in stocks with CFDs
Contract for difference (CFDs) are derivative financial instruments. They are derivative contracts whose functioning and characteristics are easy to understand: CFDs, in fact, replicate the price of the underlying asset/share to the letter.
When you use these derivative instruments, you do not buy a share directly but a derivative thereof and this opens you up to the possibility of obtaining any profits both when a stock rises and when it falls in value.
The advantages that CFDs guarantee are:
- Greater operational versatility;
- Lower costs than the classic investment;
Using CFDs you will find yourself speculating on the performance of a stock's shares and you can choose to open a position both downwards and upwards. These contracts are traded in over-the-counter markets, and the position you open has a duration of 24 hours.
If you wish to extend your trade you will have to pay a commission to the broker used for the trade.
To use derivative contracts, we recommend that you only use certified and reliable platforms.
How to invest in safe stocks
When novice traders decide to invest in stocks they often say they want to bet on the safer ones. However, you must keep in mind that when trading on the stock exchange there are no safe stocks but only less risky ones.
Markets are inherently unstable and also no type of stock can grow indefinitely and in a stable manner. A practical example is the recently experienced Coronavirus pandemic, which led to a general market crisis.
However, it is possible to define a type of share that is less subject to sudden market changes.
These are shares belonging to companies operating in key and/or fundamental sectors such as drinking water, medicine, food. These are securities with low volatility and tend to be countercyclical.
They are particularly good stocks to keep in your portfolio in times of crisis due to their intrinsic characteristics. Other safe assets are for example government bonds and ETFs.
Investing in blue chip stocks
In this stocks trading guide, we discussed a type of particularly interesting stock which you should always keep an eye on, the so-called Blue Chips.
The term is used to refer to all companies with the highest share capitalization. Hence the name Bluechip, because the blue chip is the highest value in poker.
All companies whose stocks fall into this category can be found in the most popular and populated indices such as the S&P500. The most popular Blue Chips index in the US is the Dow Jones Industrial Average, which includes the 30 leading Bluechips in their industry.
Investing in Bluechips could prove to be an excellent decision because thanks to their importance they are able to obtain profits both in positive moments and in the grayest periods.
The reason derives from the fact that these are companies capable of compensating for a market in a moment of fragility with the help of another market. They are actions resistant to economic downturns thanks to international differentiation.
5 best stocks to invest in 2022
The next few paragraphs of this stocks trading guide will briefly describe the 5 best stocks you can invest in for 2022. They are all big companies and most are part of the blue chips, probably the best sector to reduce risk and start investing in stocks.
These are stocks of stable securities and present a low risk. Therefore, financial institutions prefer them over many others.
The giant of online shipments and purchases has satisfied investors in the last two years, guaranteeing excellent economic results also thanks to the strong differentiation within the company. The company is currently in excellent health.
Buying Amazon shares, either by using CFDs in a speculative way, or by buying directly, turns out to be a convenient choice.
With the recent Coronavirus pandemic that took place in 2020 and part of 2021, the pharmaceutical sector was one of the few capable of growing and not suffering negative downturns. In large part this is due to the research and commercialization of effective vaccines against Covid-19.
Among the pharmaceutical companies that have stood out is Pfizer. The American giant was among the first to develop a vaccine for the virus and this strongly influenced its share value.
Furthermore, it is one of the largest companies in the sector and has dedicated a large part of its resources to research.
Buying Pfizer shares is not only convenient because of the Covid-19 pandemic, but also and above all for the huge amount of products and patents in the possession of the company.
Another technological title is that of Google. It is the main search engine used by computers all over the world. The company has been experiencing growth that has lasted for several years with a recent sharp surge in the trend, thanks also to the 2020 Coronavirus pandemic.
Currently, the sectors in which Google operates are very varied and have allowed it to excel in various fields such as that relating to organizational apps and operating systems for devices such as smartphones and tablets.
Furthermore, Google is one of the leading companies in the field of technological research. In particular, the company is at the forefront of the development of quantum computers and artificial intelligence. For investors, therefore, the brand is synonymous with quality and innovation.
This has allowed it to attract more investors and to develop positive economic results in a constant manner. Buying Google shares is suitable for both long-term and short-term speculative operations.
The Cupertino company has for some time become the one with the highest market capitalization. It could not be otherwise for a company that has experienced continuous growth for several years.
Apple does not have large market shares on a practical level compared to its competitors (especially in the computer field), but despite this, every release of one of its products turns out to be a commercial success.
Due to its characteristics, Apple has been able to win the trust of investors. The company is a point of reference for the technology market because thanks to its leading products it always manages to move technology forward.
Buying Apple stock is effectively a safe investment. It is not only a bluechip but also one of the leading technology companies in the world.
Streaming has become an increasingly fundamental service in everyday life and this affects companies that offer this type of service such as Netflix, the industry leader.
The company has the highest number of subscribers among the various streaming platforms. Most of his film products have become cult in a short time and watching his TV series has become an indispensable pastime during the various lockdowns that have taken place around the world.
All this has been reflected in the value of the company which since its first listing has seen its share value rise despite relatively low profits in the first years. Buying Netflix stock is an excellent, more volatile, and less expensive alternative to Amazon stock.
Penny stocks: Investing in Risky Stocks
The term Penny Stock indicates all common shares that are traded on the markets for less than $1 per single stock.
Over the years the term has evolved and is now also used to indicate those securities traded for less than $5 on the US stock exchange or 5 euros on European stock exchanges.
Why might a trader be interested in investing in penny stocks? The main reason is that traders are often looking for the hidden value of a stock and that it will only reveal itself in the future, leading to a subsequent capital gain.
Another reason is that when there is an economic crisis, or at least the markets are going through a period of uncertainty, the penny stocks are subject to daily swings downward and upward, particularly impressive.
Therefore, professional investors usually go in search of valid penny stocks to be able to carry out highly speculative operations at low cost.
The important thing for traders is to find cheap securities that are able to guarantee high trading volumes and can be bought and sold quickly.
The penny stocks, therefore, contain so much the potential of titles that could explode in the future as the risks associated with small companies that could not bear the economic burden of the international markets.
This is a risky but potentially very profitable sector, in which we require maximum caution and excellent knowledge of analysis tools and techniques.
Best Platforms for Investing in Stocks
We have selected the best investment platforms, safe and reliable, also suitable for beginners. These stock brokers charge no fees and can be used to invest in stocks by buying or selling short.
Some of these platforms often offer training services, which are particularly valuable for those new to equity markets. The advantage of all of these platforms is that they offer a CFD service.
eToro is truly the preferred choice of many of those who start investing in stocks. Among the fundamental characteristics of this platform is the possibility of operating in a simple and safe way.
eToro is famous above all because it is the only platform that allows you to copy the operations of other investors registered on the platform, thanks to the patented Copy Trading software. This eToro's software will take care of replicating, instant by instant, all their operations.
Those who start investing in shares can thus obtain from the very first day the same results as the best investors in the world and, if they wish, have the opportunity to learn the art of investing well by observing what they do live.
XTB is the other great alternative for those who want to start investing in stocks without errors and without particular problems.
The platform is characterized by its great simplicity: it is truly intuitive, even for those starting from scratch. Those who sign up are then followed on the phone by a real investment expert who provides information and advice.
With XTB, it is even possible to use a demo platform to simulate investing in shares. Basically, you buy or sell shares using virtual money. This way you can quickly improve your experience, without any kind of risk.
Iq Option is a platform particularly appreciated by those who want to invest in shares or other financial securities and do not have a large amount of capital available (or who in any case want to invest very little).
The platform, in fact, allows you to start with a capital of just $10. The other investment platforms usually have a minimum investment of $250 (which however is not high).
It is possible to access the demo for free, unlimited for all subscribers.
Guide to Trading Stocks: Conclusions!
At the end of this guide to trading stocks, you will have understood how investing in stocks can be both a great opportunity for profits, but absolutely not without risks.
It is a practice that requires a great desire to learn and question oneself, as well as control of emotions in stressful situations.
Currently, online trading and the use of CFDs allow you to invest even in traditionally unfavorable situations such as a decline, as well as having a lower operational cost. With contracts for difference, you will be able to conduct many low cost operations in the short to medium term.
To obtain the best results, we recommend that you only use brokers that have been authorized by the appropriate authorities. These platforms are able to offer the right security, reliability and often do not have additional costs.