Before I became involved in making stock market investments, I had a picture in my head of a typical trader. However, this vision was completely wrong and the sector is no longer limited to young men in sharp suits working in the City.
In fact, more and more people are harnessing the power of the internet to become traders and while this has allowed many to achieve significant profits, there are some who fail to prepare adequately and can end up making significant losses.
Do your research
In my opinion, this is a general rule you should follow in all aspects of your life and it is something I bear in mind before making any decision – don’t part with your money until you’ve fully investigated all relevant areas. I don’t know about you, but I wouldn’t buy a new computer or television until I’d read reviews and made sure I was getting a good deal. The same should be true of any stock market investments.
There are a multitude of trading resources available that can help you to make informed decisions. For example, the Financial Times will help you to keep abreast of any world events that will have an impact on your investments, while publications such as MoneyWeek contain detailed analysis on the stocks that are performing well and those that are not.
Set a budget
The stock market can go up as well as down. You can make losses as well as profits. It is important to be aware of this before you begin trading and it is essential you do not allow yourself to fall into the trap of chasing losses. Before starting out, decide on a budget. This should be an amount that you are comfortable with losing, as though this is unlikely to happen, there are always such risks.
You must stick to this budget. If you are doing well, you might wish to review this budget after a certain period of time – six months perhaps – but until then you should stick rigidly to this amount and make sure you do not start spending more and more to recover any losses. If you make a bad trade, cut your losses and save up again, don’t let yourself be tempted to use money you otherwise need to make riskier trades as you look to turn things around.
Assess the options
Purchasing stocks and shares is not the only way to make a profit on the stock market. If you want to become a trader, you may also wish to consider spread betting.
This option allows you to take advantage of stock market movements and can be a good starting point for budding traders as it does not require the same level of initial capital. Instead of buying shares, you simply place bets on their movements, meaning the rewards can be significant from small stakes.
Spread betting also allows you to mitigate the risk of losses by placing bets on markets and indices, as well as individual shares. For example, you will be able to bet that the FTSE 100 as a whole will rise, rather than buying shares in a select few companies. This means you can still make a profit if other companies on the index see their stocks go up, even if those you expect to do so actually perform poorly.
In addition, you can bet that the market or share will fall, which allows you to take advantage of negative trends.