6 Things to Remember Before Buying a Share

6 Things to Remember Before Buying a Share. The number of private investors independently trading securities on the stock exchange keep increasing every year. How to take the first steps in the stock market? Forbes offers simple instructions that can be useful to both experienced investors and to newbies.

6 Things to Remember Before Buying a Share

1. Evaluate your resources

First of all, you need a brokerage account to trade stocks. Usually, a minimum amount of money should be paid to open an account, and that payment is not so big. This amount is different for different brokers. Usually, it ranges from several hundred to several thousands of dollars.

For the first step, this amount is quite enough. But to get any serious result you need to invest more. The investor should keep in mind that the amount on the brokerage account should start from 5 thousand dollars if you want to get more profit. With this money, it is easier to create a diversified portfolio. But at the same time, you can lose more money.

2. Choose a strategy

It will depend on the choice of broker, tariffs, and trading instruments. You can trade stocks, bonds, futures, or options. Investments can vary in terms of timing too. Two main types are long-term (usually more than a year) or speculative.

Among the speculators’ so-called scalpers can be distinguished (they can conduct several transactions per second, catching the smallest fluctuations in the rates of derivative instruments). There are also day traders who earn on short-term fluctuations in rates during the day. Swing traders can keep positions open for several days, waiting for a trend change. Usually, mixing styles will lead to losses.

At the first stage, it is better to conduct operations with shares, focusing on a medium-term strategy with a horizon of at least several months.

3. Choose a broker

Choosing a broker is a very important key. It’s no secret that a broker can go bankrupt, and with it, money and even securities will disappear. It happens every day all around the world. Therefore, the size of the commission that the broker takes for transactions should not be the decisive factor when choosing. And usually, it is around 0.05-0.1% of its volume.

Brokerage companies have ratings of the National Rating Agency, but it is hardly worth recklessly trusting them. Compare brokers’ commissions should take into account their future strategy. For investors who make several transactions a month, the difference between the tariffs of brokers will seem insignificant, for active players this indicator is more important.

4. Sign a contract

It is important to legally confirm your agreement with a broker. Thus, it is better to sign the contract. You will need a passport and about an hour of time. Occasionally, the procedure may be delayed. Within a couple of days, the bank’s employees could not complete the procedure. When concluding the contract, you will open a bank account through which you can deposit money, provide the details of the broker’s account to which the money will need to be credited, and open an account in the depository for storing securities.

An important point: the model contract usually states that the broker can use the money (and sometimes securities) of clients. To increase the safety of funds, you can try to exclude this clause from the contract, but in this case, the client usually loses the opportunity to use borrowed money and securities for trading.

5. Set up your computer

After you sign the contract, you will be given access to the necessary software, which will need to be installed on the computer. Brokers most widely use the Quick trading system. The software should be discussed prior to signing the contract. Some banks have their own trading platforms. It takes about a day to install and independently study the program. Usually, you will need to create passwords and access keys that will be stored on a hard disk or USB drive, register them with a broker. You may have to create a digital signature file to sign orders to buy or sell securities.

Some brokers have courses for novice investors, which are worth going to in order to immediately understand the possibilities of the program. For example, how to place stop orders that are triggered when a security reaches a certain price. If you do not want to understand all this, you can agree with the broker on the possibility of giving orders for buying and selling by phone. In that case, the broker may ask for a higher commission fee.

6. Study the reports of brokers

Liquidity and diversification come first. At first, it is better to limit yourself to two or three of the most liquid shares, in the future their number can be increased to 10-15. Before the transaction, ideally, it is necessary to conduct a fundamental analysis of the companies whose shares are traded on the stock exchange. You need to determine their actual value and make a decision to buy if the current quotes are lower. But you can do it more simply. It is enough to read the reports of analysts, which the broker will share with you. It would be good to get reports from other brokerage companies to have a range of opinions about securities.

Focusing on prices that analysts call target prices, you can buy securities or sell them. Perhaps you will like technical analysis, predicting future quotes should be based on previous values.

Summary

The main thing is to have a strategy of action. The ability to follow the chosen strategy is a third of your future success. Working without a plan is like leading a ship without a compass, map, and location. However, keep in mind: most analysts are not able to predict global downturns in financial markets. You will have to be patient and hope that someday your investments will rise in value again.