How to trade in share market
The share market attracts investors and traders all around the globe. Beginners who have watched “The Wolf of Wall Street” dream about the share market, as it seems the most prestigious. Most newbies believe that only professional portfolio managers can enter the market. But it’s not true. Let’s consider how to trade in the share market for beginners.
Let’s clarify what the share market is. The share market, equity market, or stock market (the most common term) is a venue where buyers and sellers exchange stocks of public companies. The market is a crucial part of a free-market economy. It provides democratized access to trading and capital exchange for various investors. Keep in mind that the stock market is volatile. According to Guggenheim Investments, usually, it takes four months for the market to recover from a decline of 10-20% and around 15 months from a larger drop of 20-40%.
A stock exchange is a highly important term for those who deal with shares. Through stock exchanges, companies list their shares to raise funds. This gives investors the opportunity to buy those shares, get ownership rights in the company, and receive dividends if available. When buying companies’ shares, investors believe their value will increase in the future. This approach is called investing.
Share trading is a more simple way to deal with equities. Buyers and sellers don’t own real assets. They deal with the difference in a price between the opening and closing of a trading position — the main goal is to predict the price direction correctly. Trading allows you to benefit from increases and declines in the stock price, raising the number of trading opportunities. Moreover, trading analysis is easier than investing.
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Key ways to deal with share trading
There are two major ways to trade on the share market:
- A CFD or contract for difference enables trading of a company’s stock without owning it. The idea is to analyze the market and determine the price direction as well as certain levels the price may reach. It’s vital to place stop-loss orders to limit potential losses. Otherwise, there is a risk you can lose all your funds. CFD trading is available on a wide range of timeframes, including 1-minute and 1-year.
- An FTT or Fixed Time Trade implies that you also predict the price direction of an equity price — you need to define whether it will reach a certain level within a predetermined period. However, you don’t need to place stop-loss ordersIf your prediction is correct, you will receive the amount of your deposit and a bonus. If your prediction is wrong, you will lose only the deposited funds. Moreover, the period of trades is much shorter. A short-term trade occurs within five minutes, while a long-term one lasts up to 60 minutes (or more, depending on the platform).
4 Recommendations on how to trade in share market
Now that you’ve learned the ways to deal with the share market via trading, it’s time to learn how to trade in the share market online.
1. Find a trustworthy broker or trading platform
You may think it’s a clear point. However, as it’s a step-by-step guide, it’s impossible to miss this step. Online trading is always done through brokers or trading platform, that are intermediaries between you and the share market.
The success of your trades depends on your skills and knowledge as well as the reliability of the broker or trading platform you choose. You should check whether it’s regulated by the state authority of your country.
2. Open demo and real accounts
After you are sure you can trust the company, you should open a demo (if available) and real accounts. A demo account will allow you to test your trading strategies and gain additional experience, as the stock market is volatile and requires certain skills to succeed. The real account will provide access to the real share market. To start trading, you will need to deposit funds.
3. Learn to read the market
Before you enter the real market, you should know how it behaves in certain conditions, as well as what its usual volume, size of price fluctuations, and direction are. You should be able to analyze the market and read its signals. The basics of fundamental and technical analysis will help you to do that. The stock price depends on many fundamental factors, including global economic and political events, a company’s financial data, and internal company events.
4. Find a strategy
After you are equipped with the knowledge about the share market, you should develop your own trading strategy.
A trading strategy is a set of certain parameters that allow you to define the perfect conditions to enter and exit the market. The trading strategy should consider present market conditions, signals of technical indicators, and your money management rules.
It’s vital to know how much you can risk. Risk shouldn’t scare you as any investment implies it. It’s more important whether you can deal with it. Always use a risk/reward ratio. The basic rule says your potential rewards should be at least twice as big as a potential loss. The less experience you have, the bigger the reward-to-risk ratio should be.
Share market trading provides many opportunities. However, traders should always remember that it’s highly volatile. Movements in the share price depend on numerous fundamental factors that must be analyzed before you open a position. Constant practicing and learning will increase your chances of succeeding in the share market even if you are a newbie trader.