2 min read
It’s super easy!
(This will not tell you where it’s best to invest, just the how part!)
First, there are many types of investments in the financial markets but the main and most common are stock, bonds and forex (foreign exchange – the value of a one countries currency compare to other countries, Since it’s a 10 minutes article, I will not discuss rather we want a currency to be higher or lower (each side has its own pros and cons).
Let’s talk about stocks, they are the simplest to understand, and once you understand them – you basically understand the rest.
Stock (or shares) are a way for us – the public – to buy and invest in companies we believe in. Cause of it, the companies’ agenda is to always show like they will hit their projections.
Every quarter, a public company issues a report where they explain how things went until now (so we can see if they met early projections or not, and they will write new projections to the future. The combination between the two – will reflect on the stock price.
So, you want to buy a stock when it’s low and sell it when it’s high and become a trader?
Right? Every six years old knows that. But how you PHYSICALLY do it?
First, you must have a broker’s account. You can find some brokers in our wall of fame and ones you want to avoid on the wall of shame, or you can just simply search Google and you’ll find many of them.
Once you find a broker – you deposit an amount of money, every broker will demand differently – then, you can buy stocks with this money. You can either buy real ones (this means the broker is giving you a real stock) or you can buy it with CFD. CFD is just like trading actual assets but without really holding them. By the way, it’s completely legal of course, and it’s mandatory for the market to keep healthy and not get into deflation. Without CFDs, we’d have bubbles in the market.
How to become a trader fast
So you found a broker, and decided on a portfolio (here’s how to create a portfolio), choose your stocks – now you want to start trading.
You get in the stock details and you’ll see a graph (All about how to read graphs and technical indicators, in the next article) and you also see 2 numbers that refer to the Ask Price and Bid Price (Or in our example- Buy and Sell)
You ALWAYS buy at ask price (the lowest price someone is willing to sell) and you sell at the bid price (the highest price someone is willing the buy). This is called being in a position. The difference between the ask to the bid is called Spread (+link). The spread is the way for the broker to make money!
The first rule of trading – The spreads are the hardest ones to beat.
- Symbols – The stock or asset we search. Apple’s stock is AAPL, Amazon stock is AMZN and Bitcoin is BTC
- We see both prices Buy (11517.52) and Sell (11257.78), the difference between them is the spread. The buy will ALWAYS be lower than the sell. They will never be equal!
- Then you choose amount and exit strategy (if got any, it’s not mandatory) and click “Buy”
- Now you own stock at the exact price you bought
Now, it’s time for you to decide: Are you a trader or an investor?
A trader wants to get out of a position ASAP, according to a strategy he decided ahead. In the example above, we used a Stop/Profit strategy. We decide on the lines where we want to exit a position in profit (or loss) and the broker will follow the numbers. Once it hit one of them – the broker will AUTOMATICALLY exit the position for you. A good trader knows some positions will end in a loss, so he tries just to win a bit more than he loses. That’s the trick. No way, never ever, you could get a 100% win rate. Don’t try it, don’t believe anyone who says he can. Just don’t. It’s not possible, for a reason.
An investor is more in the long run. He can also have a strategy, but his strategies are way wider than the trader. Like in years or major differences in price, like one strategy can be:
Get out of the position in two situations:
- After ten years
- If the price reaches 200% from its current value
And then just wait and see what happens first.
Since the market, in general, is always going higher and higher, this strategy seems quite good. The only downside – it takes a lot of time.
Many don’t have the patience.
- Registering to a broker’s service
- Choose assets you want to invest (diverse the portfolio)
- Choose what you are – a trader or investor?
- Find a strategy you feel comfortable with
- Buy at Ask price and get into positions
- Sell at the Bid price and exit positions
- Some brokers will try to scam you and take your money
- Assets can betray you the second you buy them
- You can be both an investor and a trader – a hybrid kind
- Finding the strategy is THE MOST difficult thing there is
Here, at Traders Paradise, we talk about those 4 major issues, and how to solve them
We strongly recommend learning and practicing the rules above before doing any investment, and we partnered up with eToro (brokerage) just for that. You can practice those rules for free with a $100 000 practice account.