If investing in the stock market came to your attention, you might have been looking the answers on some question such as:
Should I invest in the stock market? Why invest in the stock market? How to invest in the stock market? Where to invest in the stock market right now?
If you want to learn how to invest in the stock market, these questions are necessarily at the heart of your thinking. Since more and more beginners want to get started, we have created this article which will allow you to take your first steps and invest well in the stock market.
Advantages of investing in the stock market
It is worth dwelling on an important point: whether stock exchange trading will be a suitable activity for you. To do this, let’s look at the benefits of investing in the stock market.
- Prepare for the future by putting your savings to work
- Obtain an attractive return on investment
- Take advantage of the best way to stay ahead of inflation
- Benefit from the power of compound interest
- Low management, or account management fees
- Dividends received when you invest in companies
- Easily accessible financial markets around the world
Choose a reliable broker to invest in the stock market
The first step to start investing in stocks is to choose a site to invest in the stock market or a broker that will allow you to place your buy and sell orders safely. This is a crucial choice that will allow you to avoid scams, trade with a serious broker, and use the tools that match your trading strategy.
How to choose your broker?
- First determine your trading style and your stock market analysis strategy: short term vs long term, trading analysis vs fundamental analysis.
- Establish your trading plan to determine your trading needs: technical indicators, fundamental analysis tools, level of leverage, fixed spreads vs variable spreads
- Select a regulated broker in Europe offering guarantees to retail traders: negative balance protections, participation in an investor compensation fund (ICF), use of segregated accounts
- Analyze the trading conditions of the selected broker: fees, commissions, spreads, available account currencies, deposit/withdrawal fees, minimum funding, CFDs, margin
- Ensure the availability and knowledge of customer service: means of contact, opening hours, languages, level of professionalism
- Test the trading platforms offered. A demo account can allow you to be sure that the platform is easy to use and that it offers all the tools you need.
How much should you invest in the stock market?
Trading can be risky for newbies, so it is important not to invest the money you need to live and not borrow to invest in the stock market. Also, one must understand how stock market works. Here is a concrete example of investment.
There is not a minimum to invest in the stock market. Finally, it all depends on your situation, your strategy and your financial goals.
To determine what stock returns you could profit from, let’s take the following example:
You bought Amazon shares in January 2016 for $ 100 a share. Let’s say you bought $ 2,000 worth of shares, i.e. 20 shares (2,000 / 100). In early 2020, Amazon shares hit $ 300. If you had decided to close your position at this point, your profit would have been $ 200 per share ($ 300 – $ 100)By selling all of your shares, your capital gain would have been $ 4,000 ($ 200 * 20 shares)
Thus, for four years, your return on investment would have been 100%, which is a great investment. Moreover, one of the best things about investing in global companies like Amazon is that you can invest from anywhere in the world provided that you have done your research. For example, German investors can read this useful guide titled ‘Amazon Aktien kaufen ja oder nein‘ (Buying Amazon Shares: Yes or No?) that explains the process of investing in Amazon stocks in more detail.
The right time to invest in stocks
Determining the right time to invest is based on analysing market trends and performing technical and fundamental analysis. In general, you can start investing in stocks any time and take advantage of market volatility if you have the right approach to the market and include some common sense in terms of the impact of global economic events on specific stocks. Thus, taking enough time to do the research would therefore be the best starting point in determining when to enter the market.
