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How to invest in stocks – strategies that work and all the trading practices you need to know in 2019

If you are new to the world of the stock market, investing in it can seem like a daunting task.  Familiarising yourself with the most basic terms and knowing the strategies that work in your favour can seem overwhelming. If carried out in a good fashion, however, you can obtain more profitable returns than with the best savings accounts. To do this, you need to understand the nuances that go into how to invest in stocks.

  • The basics of investing in stocks
  • How to invest in stocks for beginners
  • Which factors affect share prices?
  • The risks involved in stock investment
Stocks Highlights

The basics – How to invest in stocks online

In the UK, the primary stock market is the London Stock Exchange. It is a place where financial instruments and public limited companies (including derivatives and bonds) can be sold and bought. When you choose to invest in the market, you can choose from four main types.

  • Cash, which encompasses the savings you put in a bank or building society account
  • Shares, which revolve around you buying a stake in the company
  • Bonds, which are fixed interest securities wherein you loan your money to the government or company
  • Property, where you make an investment in a physical commercial or residential building

Besides these four main types, there are also other kinds of investments. These include collectables such as antiques and art, foreign currency contracts for difference, and commodities such as oil, rubber, gold, coffee and corn. The multiple assets owned by an investor are collectively known as a portfolio. It is a rule that spreading your money between various kinds of asset classes works to reduce the risk of your portfolio underperforming. Returns are the profit you gain after making an investment. It all depends on where you put your money. Based on this, you can be paid in a variety of ways. This is in the form of the difference between the price you pay and the price you sell for (capital gains or losses), dividends (from shares), interest (from fixed-interest securities and cash deposits) or rent (from properties).

Top 3 Stock Broker Comparison

1
of 9 Stock Broker IG Stock
National fees £ 8,00
Custody fee £ 8,00
Intl. fees 10 EUR
Dep. Protection 50,000 GBP
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Risk warning: Capital can be lost. Terms and conditions apply.
2
of 9 Stock Broker Interactive Investor
National fees £7.99
Custody fee £9.99 monthly
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Risk warning: Capital can be lost. Terms and conditions apply.
3
of 9 Stock Broker Calamatta Cuschieri
National fees £ 7.50
Custody fee £ 0.00
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Dep. Protection 100.000€
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Risk warning: Capital can be lost. Terms and conditions apply.

How to invest in stocks for beginners

There are various trading strategies you can make use of when wondering how to invest in stocks online. Generally, there are two ways to participate in the stock market: investing directly and investing indirectly.

  • Direct investment refers to purchasing shares in a single company and so becoming a shareholder
  • An indirect investment divides the risk by investing in several companies

Online platforms are another way to make a direct investment. Here, clients can sell and buy shares independently (without being presented with any advice). This is done with the help of a share dealing account. Many individuals opt for an indirect investment when it comes to accessing shares. You can invest indirectly through an open-end fund. An investment trust is structured in a similar fashion as a limited company but is another pooled investment. In this case, an investor buys shares in the closed-end company. It is listed on an index in the same way as a company.

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If you are a beginner, here is a how to invest in stocks guide with both these approaches. In case of direct investment, buy blue-chip company shares on the LSE and hold them for many months. Read the financial press and internal forums as it can give you a detailed account of which shares to buy. In the case of indirect investment, use collective investment funds to access the stock market. Pick a suitable platform to buy shares or funds from, and determine what investments to buy.

Which factors affect share prices?

When it comes to how to invest in stocks, market fluctuations must be taken into account. Even as a beginner, you will know that share prices constantly move, either in your favour or against it. There are various factors that come into play that can accordingly impact the demand for a share. These include the following:

  • Industry-specific events
  • The global or national economy
  • Factors that are company specific
  • Overall competition

When it comes to industry-specific events, share prices may move depending upon certain industries. Take, for instance, a mining company. It welcomes change with regard to the price of the commodity it mines. Various factors determine how the global or national company affects the demand of shares. An increase in the confidence of consumers can result in added spending. This enhances the future prospects of profitability.

Company-specific elements can encompass changes in strategy, management and assumptions. When it comes to how overall competition can affect share prices, it depends on the company and where it stands among its competitors. Whether a particular company is doing better or worse than its competitors determines whether the share is supported or depressed. If you are confused about how to stay above these share price fluctuations, it is vital to stay abreast with the current happenings on the companies in which you have bought shares.

stocks 2

The risks involved in stock investment

When you’re dealing with the stock market, risks are part and parcel of the game. You must be extra careful when putting your savings on the line. Although you are taking some degree of risk when you make an investment in the stock market, you need to be prepared for the uncertain yet eventual pitfalls that come with the territory. To do this, you need to ask yourself how to invest in stocks. This refers to the manner in which you make an investment. You also need to understand the risks associated with making such as investment.

  • With index-linked investments, if inflation falls, you may earn less in interest than what you initially expected.
  • The money you keep in secure deposits as savings accounts can, after a certain period, lose power in real terms.
  • There is also the risk of prices being at an all-time low when you decide to sell.

Index-linked investments that stand true to the rate of inflation may not necessarily follow the interest rates of the market. This is why you may obtain unexpectedly less interest during the time when inflation strikes. When you look at the money you keep in secure deposits, it can lose its buying power after a long period because the interest rate that comes with it may not always match with the rise in prices.

When it comes to tackling risks, the trick lies in spreading your risks by investing your money in various products.

Main indices and how to form a market index

When the market is described as up or down, it refers to the stock market indices rising and falling. Company shares are usually grouped together when it comes to forming a market index. Its value is then blended as a weighted coverage, which eventually results in a figure. Generally speaking, companies that possess a similar value and size are teamed up together. It is safe to presume that the bigger the company, the bigger its influence on the value of an index.

Contentgrafiken Vergleich Spread Betting

The main indices encompass:

  • FTSE 100, which is an index of UK’s 100 biggest companies
  • FTSE 250, which is an index of the next 250 largest UK companies
  • FTSE All-Share, which is an index of shares listed on the LSE’s market

The companies that fall under the FTSE 250 are smaller than those that in the FTSE 100. This index is in a better position to showcase the fortunes of the UK’s economy. Most of the companies in the FTSE 100 are multinationals and possess international interests. The FTSE All-share contains all shares in the FTSE 100, FTSE 250 and FTSE Small-Cap indices.

A market index value is a good indication of movement within markets. This is because it is dependent on what company or industry size an index represents. Economists and investors use it as a vital tool to describe the market. It is also utilised to compare and contrast the value of similar shares.

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2
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of 9 Stock Broker IG Stock
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Risk warning: Capital can be lost. Terms and conditions apply.
2
of 9 Stock Broker Interactive Investor
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of 9 Stock Broker Calamatta Cuschieri
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Mistakes that first-time investors tend to make

Any broker comparison guide will tell you about the mistakes that you as a first-time investor can make. These usually include the following:

  • Taking part in the guessing game
  • Taking the risks associated with stocks lightly
  • Not coming up with a plan, or coming up with one and not adhering to it
  • Thinking about the consequences in a short-term manner

Guesswork does not take you anywhere in the world of shares and wondering how to invest in stocks online. You need to make a calculated guess after understanding all possible factors that can affect your investment and final outcome. Besides this, investment almost always comes with a specific amount of risk. Newcomers need to pay extra attention when examining the risks that come with an investment or at least understand their tolerance level to that risk.

It is prudent to remember that having a plan in mind works to stay true to your objectives and goals. This also helps you understand your entry and exit points, the possible risks involved, your future plans to expand your portfolio, and how much you are comfortable losing. You cannot think about making a rapid profit in a quick manner in a stock market investment. Short-term thinking does not benefit you at all. On the contrary, it will result in your prompt exit from the marketplace. You also need to avoid selling out your position in a panic, and you should attempt to diversify your investments.

Conclusion:

Conclusion

How to invest in stocks is a challenging question to tackle for the beginner. Ultimately, you need to come up with a well-planned strategy. You need to pick from the different ways you can invest in shares and come up with the ideal share dealing plan. Too many people believe that you need a lot of money to invest in the stock market. In reality, you should never invest more than you can afford to lose. If you do invest more than you can afford to lose, it can cost you a great deal if and when the stock market crashes.

Also, refrain from meddling with your portfolio too frequently. You need to understand that investing in the stock market is a long-term project. Obtaining the best returns involves coming up with a strategy and sticking to it. It is safe to invest in the market for at least five years as it gives you good experience and knowledge to even out bumps in the market that can result in a loss. If you possess a limited amount of savings and are in great debt, then taking your chance in the stock market can be detrimental to your finances as well as your health.

If you want to see your money grow in the long term and possess money in your cash savings account that is adequate enough to cover you for at least six months, then you can go ahead and begin investing.

Stocks Highlights