How to Invest in Stocks for Beginners with Little Money

Stock Market For Beginner

Investing in the stock market can be very easy or very difficult.

Many people who are interested in the world of investing end up giving up believing that they need large amounts of money to buy stocks.

It is a myth to think that investing in the stock market requires huge amounts of capital. The truth is another. The stock market is open to everyone, both professional investors and small investors. You too can save and invest in the stocks, like millions of people around the world do.

There are more and more people who are interested in this fascinating world, however, it is not always easy to find information that really helps you understand the stock market and how to operate in it.

That is why in this article we teach you everything you need to know to invest in the stock market if you are a beginner. We will explain what the stock market is, and how to invest in the stocks.

How to start investing in the stock market?

In Google and other search engines the phrase “how to make money in the stock market” is highly sought after. This shows that there are many people who want to invest in the stock market. If you want to start investing in stocks you must know 3 things:

  • The stock market is a risk market and you can make money, or lose money.
  • There is no miracle method of investing in the stock market.
  • It is very important to know the hours of the markets.

By the way, beware of any guaranteed advice on the stock market, as this does not exist: trading signal providers, automatic trading, reference traders: be careful not to fall for a possible scam.

A step-by-step guide to investing in the stock market

Where to start? What is the ideal sum to invest in stocks or funds? There are different measurement criteria. The answer is not so simple and therefore we must start somewhere else:

Step 1: Assess your personal situation

And this is where you must take full responsibility for your decisions. It is something that no one, no adviser, no “guru of the stock market” and no bank can do for you. You must rationally analyze how much money you have available to save on a monthly plan and what part of your savings you can invest.

It is recommended to save at least 10% of the money we earn per month. Once we have enough savings to face any unexpected expense, we can start investing with a part of the capital that we have saved.

Having a saving mindset is essential to make your money work for you.

Remember: you don’t need to start with a large sum. It’s okay to start saving a certain percentage of what you earn per month (the more, the better) and keep this strategy for 30 or 40 years. As you accumulate capital, you will be able to decide which investment system is the most suitable for you. Investing in stocks requires discipline and time. But don’t be discouraged.

Step 2: Learn the basics

People who promise you quick wealth just want to profit. There are no automatic investment systems or magic algorithms that multiply your money for you. Never buy a financial product that you don’t understand.

The world of investment in the stock market has its own language. And it is a language that you must learn to master in order to be successful in it. In this stock market for beginner’s guide, we have made understanding stocks simple with terms you need to be able to invest in the stock market from scratch.

Step 3: Learn about the different investment strategies

Once you have mastered the most basic concepts, you can start immersing yourself in stock market investment systems. Don’t worry, you don’t need to be a genius to do it. Francisco Gárcía Paramés, one of the most successful investors in Spain, stated in an interview that ” from a technical point of view ” to invest in the stock market you only need a calculator. In other words, you don’t need advanced mathematics or being able to handle complex computer programs.

What you do need to learn is to evaluate business models. Remember that when you buy stocks, you buy parts of a company. You must understand how the market works, how companies work, and value the companies you want to buy using different tools.

The legendary Warren Buffett, for example, made his first stock purchases when he was just 10 years old. And it is never too late to start.

How to invest in the stocks – What is the Stock Market?

The first step to learning to invest in the stock market is to know what the Stock Market is. The stock market is a market in which financial instruments are traded: stocks, currencies, bonds, etc. This market, like any other market, is based on the law of supply and demand: if a stock is in high demand, its price increases because there are many buyers in the market. If the stock falls, there are more sellers on the market than buyers.

The stock market allows companies to finance themselves by selling shares of their capital. On the other hand, it also allows investors to own part of the capital of a company. The shares grant the right to:

  • Receive the dividend in case the company pays one.
  • Participate and vote in the General Meetings.

There are many more stock markets than we can imagine: the traditional stock market, but also the commodity markets, such as oil and gold, the index markets, such as the CAC 40 and DAX 30, the currency market with the Euro, dollar or the Swiss franc, without forgetting the derivatives market (Contract for Difference (CFDs), Futures, Options …) that arouse more pronounced interest among individuals.

Now that we know what the stock market is, let’s go to the second step, who are the market participants?

Investing in the Stock Market for Beginners – Market Participants

The stock market allows people to invest, hoping to earn money by increasing the values ​​they buy.

In addition to individuals, the most important participants in the stock market are investment funds, investment banks, guarantee funds, insurers, and state and pension funds.

In the stock market we can distinguish 2 types of participants:

Buyers in the stock market

The objective of trading on the stock market is to buy stock in the hope of selling it at a higher price, that is, more expensive. For example: if the price of an Iberdrola share on the stock market is 6 euros, I want to buy it only if I think the price can go higher.

Stock market sellers

At the same time, a seller is a person or entity that sells security because he believes that its price will decrease. For example: if the price of an Iberdrola share on the stock exchange is 6 euros, I will sell it only if I think the share price will fall. In another type of classification of the participants of the stock and financial market, we can find:

Institutional investors on the stock exchange

Institutional investors are the main players in the financial markets. They are responsible for most of the volumes of the different classes of financial assets. Among them, you will find insurance companies, asset management companies, hedge funds, investment banks or even retirement pension funds.

Individuals in the stock market

People invest in the stock market with the objective of generating financial wealth and earning part of their savings, more often in a long-term investment horizon (several years). Since the Stock Market can be accessed online, there is a growing fad for trading to attract short-term gains. Starting in the stock market with speculative trading can be risky, even if it is potentially more lucrative.

Investing in the stock market (learn)

If you are a beginner in the stock market, a simple way to start investing in the stock market is to test the stock market using an online stock market simulator. Online brokers offer dummy trading simulators. These allow you to test real market conditions with real-time stock prices.

A demo account can help you understand the online stock market, give you an idea of ​​how to invest in the forex stock market for beginners, how the stock market works, and, at the same time, an explanation of the stock market for beginners.

You can download a demo account and try to apply what you learn in these courses. In investing in the stock market, practice is as important as theory.

On the Internet, there is a wealth of information on how to invest in the stock market, online trading, and trading training.

How much money to invest in the stock market if you are a beginner?

You should start trading and investing small amounts perhaps even starting with a small purchase to have the feeling of owning shares of publicly traded companies, and this will help you understand whether or not you have the patience to absorb minor losses to get long-term gains.

Without stress and lack of sleep. You can always increase the size of the positions as you feel more comfortable with such investments.

Now, in learning how to invest in stocks, you have to know the types of orders that exist! Types of orders to invest in the Stock Market:

Market orders

By entering a market order, you are buying or selling the shares at the next best available market price. As a market order does not establish price parameters, your order will be executed immediately. With market orders, the price you pay or receive, if you are selling, may not be the exact price that was quoted just seconds before; This is because the supply and demand prices fluctuate constantly throughout the day.

Market orders are best used when buying or selling stocks that do not experience large price swings during the day. For example, buying large stocks at the beginning, rather than smaller, more volatile companies.

Tips for investing in the stock market:

  • A market order is best for investors who buy and hold, where they don’t care about small price differences, but rather make sure that the trade is fully executed.
  • Place a market order at the end of the day. Your order will be activated at the market price when the bags are opened the next day.
  • Verifying your broker’s order execution disclaimer is a good idea, some low-cost brokers bundle all customer market orders at a current price, either at the end of the trading day or a specific time or a day of the week.

Pending orders

If you prefer more control over the trading price, then it is better to use limited orders.

Buy limit- Suppose Apple is trading at $ 100 a share, but you think $ 95 a share is more in line with its valuation. Pending orders tell your broker to wait and execute when the price is at that level.

Sell ​​limit – Informs the broker to trade the shares once the offer increases to its set price level.

Pending orders can be great for first-time investors who buy and sell stocks of smaller companies as they can have wider spreads depending on investor activity.

It is also useful during short-term stock market volatility, or when the stock price is more important than compliance.

Additional conditions affecting limit orders are:

AON: An ‘AON’ order (all or none) will be executed only if all the shares you want to trade are available at their predetermined price limit.

GFD: A ‘GFD’ order (valid for one day) will generally expire at the end of the trading day, even if the order has not been fulfilled.

GTC: A ‘GTC’ (Good Till Canceled) order will remain in play until the trader cancels it, or the order expires.

The pending order ensures that a beginning trader will get the price you want, however, the order itself may not complete. Pending orders are generally placed in an FC-FS (on a first-come, first-served basis), and only after market orders are filled.

Also, the action must remain within the default parameters that you have set long enough for your broker to execute that particular operation. Limited orders may carry commissions.

The importance of diversification when you start investing in the stock market

Whether you are a beginner in the stock market or an expert, be clear that you cannot avoid the downside phases of the markets. However, what you can avoid is a significant risk that an undiversified investment portfolio presents.

Diversification helps protect a global investment from the inevitable setbacks of specific markets. If you invest all your money in a single stock in the stock market, you are betting on a success that the specific problems of that company (regulation, poor leadership or a scandal, for example) can quickly jeopardize.

To mitigate this risk specific to a particular company or asset, investors diversify by placing their money in various types of stocks and markets. Any loss in a specific market will be offset by gains in other markets.

However, building a diversified financial investment requires a lot of time, patience, and research. Exchange-traded funds, or ETFs, offer an alternative that contains an investment basket, thereby automatically diversifying.

Trading account to start investing in the stock market

Quick Steps:

  • Open a Trade MT4 Trading Account
  • For MetaTrader 4 (MT4): select Trade.MT4
  • For MetaTrader 5 (MT5): select Trade.MT5 or Invest.MT5
  • Select your actions
  • Look for companies with strong long-term growth prospects.
  • Decide how many shares to buy. Base this on your budget and desired allocation
  • Choose the type of order. Use “to market” or “pending”.

Invest in Stocks for Beginners – Conclusion

Investing is a great option for young people looking to save with the future in mind. Investing even a small amount today represents the first step toward a down payment on a home or retirement pension. If both events seem like a lifetime away, ask the older people around you how quickly time passed for them.

See Also
A Guide to ETFs
A Guide to IPO