How To Get Started In The Stock Market
Are you trying to figure out how to get started in the stock market?
There are a couple of options open to you if you want to begin investing in stocks, however before you start, you should take some time to understand the choices open to you.
Ask yourself why you want to invest in the stock market. Some long term investors believe that day trading is more like gambling and not a valid form of investing at all, while some day traders really donít like the idea of holding onto one particular stock for more than 5 years to wait for returns to compound.
Both types of investing have definite advantages and disadvantages. If youíre researching how to get started in the stock market, then itís important to choose the investing strategy that suits you before you begin.
Step One: Register an account with a stock broker. Itís important to find a stock broker that suits your particular trading style. You may also want to check what the minimum account deposit will be, as the amount will vary between brokers. Some brokers offer discounted fees for traders who trade regularly. The fees for investors who only buy and sell infrequently may see higher fees, but theyíre charged less often as theyíre willing to build a stable, diversified portfolio over time.
Step Two: Consider whether youíll be investing using gearing in the form of a margin loan or not. If you have the knowledge and experience to increase the value of your trades using a margin loan, then you may need to find a broker that will integrate a margin lending account with your trading platform. Gearing can help some investors to compound their profits, however in the wrong hands gearing can also magnify any losses.
Step Three: Decide whether a long term investing strategy or day trading activity suit your investing plans better. Long term stock market investors understand that dividends often make up a healthy portion of return on their investment dollars, while day traders know their profit comes from the pricing difference between what they paid and what they sold for.
Step Four: Research which stocks you want to add to your portfolio. Read books or financial magazines to get an idea of how to choose stocks that will make a good addition to your portfolio. Understand how the analytical data and pricing charts work and learn how to use them to your advantage.
Step Five: If youíve decided to invest in a diversified portfolio over the long term, then consider how you want your dividends paid. Some investors prefer to receive a check in the mail and spend their dividend income how they choose. Other investors choose to reinvest the dividend to compound their returns.
Most companies offer the option of dividend reinvestment in the form of stock allocation. This means that instead of receiving your dividend payment in cash, you receive stocks to the same value added to your account. Dividend reinvestment can help you grow a stock portfolio as youíre not paying brokerís fees on the transaction and youíre increasing the amount of stocks you own in that company each time a dividend payment is due.
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