The stock market is an excellent way of investing your money and making some passive income. Of course, we always recommend that you first have your emergency saving savings fund in place before you start to invest. Also, being aware of the potential for a downside of your investment is essential before you get going.
Generally, people who invest do so through third-party managers or funds. These third parties can be a bank, investment company, or share broker, whose experts trade the investments for you. Having an ‘expert’ in charge of your investment funds is fine. It is undoubtedly the recommended approach for beginners to take, the risk-averse, or investors with too little time to manage their own investments.
However, some people want to control their investment management and deal shares for themselves. Many of these people are new to investing in the stock market, so this article aims to provide some tips on getting started trading shares.
A Word of Advice Before You Start
Starting an investment of any kind is not recommended until you have paid off your debts, including all credit card balances, overdrafts, and other financial obligations. Establishing an emergency savings pot is also recommended. This pot should be enough to cover your essential spendings such as rent, food, and utilities for at least three months. Also, don’t invest money already earmarked for another purpose, such as a deposit on your first property. Investing is best done over the long term, so commit to leaving your money in the investment vehicle for at least five years.
Steps To Start Dealing Shares
1. Setting Up An Account
Purchasing stock market shares needs to be carried out through a stockbroker, a professional who will handle the shares. Most major banks offer stockbroker services, including Halifax, who set up a ‘nominee’ trading account through which your trades are conducted.
You may not think that your choice of the trading account is as important as choosing the shares to invest in. However, there are certain things that you must consider, including fees for each trade, platform fee, and a fee for investing. You should avoid compromising the service level to get the lowest prices, but the costs should also be considered in your decision.
2. Research Your Potential Investments
Having set up your account, you may find it tempting to dive straight in and buy some shares. However, your chances of success in doing this are low. What you need to do before you start trading is plenty of research into the companies in which you might invest. This can be a time-consuming process, and it is another reason why many people prefer to have someone else manage their investments. Experts will advise you that you should not invest unless you have sufficient time and dedication to do plenty of research beforehand.
If you are sure you will put the time and effort into research, you should understand the companies’ finances before buying their shares. Look at aspects such as their sector outlook in the short, medium, and long terms. Financial data, the key of which is their profitability, is also essential information to know. Look back as far as you want to look forward – a company’s past performance is a good indication of its future outlook.
3. Buying and Selling Shares
Buying and selling your shares may be the quickest part of the process, but it can also be the most daunting part. There is usually a 15-minute delay on the prices you see on your platform, so the actual price may be different. When you want to buy, you inform your broker of your intention to make a purchase, and they will send you a quote. This quote is only valid for a short period, so it will be cancelled if you do not confirm your order. If you do confirm it, the shares will be bought and added to your portfolio. The process is similar for selling shares.
The process of trading shares is actually relatively straightforward. However, there is considerable risk to your capital, as share values can go down as well as up. There is also time and effort required to ensure that you are not making a rash choice of shares. Hopefully, this article will give you the information you need to get started dealing with your own shares or leaving it to a professional.