A detailed guide on how to invest in stocks?

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Stock investing is an efficient way to double or triple your wealth over time. Through strong, fundamental knowledge about invest in stocks with patience can lead to massive returns in the long run. Thus, we will learn everything you require to know before getting started with stocks in this guide. 

What are stocks? 

Stocks refer to investment in equity. Equity is legal ownership in a firm. Through investing in shares, you receive a fixed part or ownership in those particular firms. Corporations issue shares to raise capital, and it is based on two types of preferred stocks and common stocks. Let us find out the difference between these two:

  1. The major difference between common stock and prefered stock is that common stock provides the voting right to stockholders, whereas preferred stock does not.
  2. Common shareholders stand lowest in the list when it comes to firm assets. It means that they will pay after bondholders, creditors and preferred stockholders. 
  3. Preferred stockholders have priority over the firm’s income. It means that they are kept above when it comes to paying dividends.

What is stock market capitalisation, and how to determine it? 

A stock’s market cap or capitalisation is the aggregate of all stocks outstanding multiplied by the stock price. For instance, if a firm has outstanding shares of $50 (the price of each share), then its total market cap will be $50 million. 

Market cap is more important than the stock price as it enables you to estimate a firm in terms of similar-sized firms in its sector. It is not right to compare a small-cap firm with a market cap of around $500 million with a larger-cap firm worth around $10 billion. You can categorised companies into three different groups based on market cap: 

  1. Large-cap: Around 10 billion dollars or more than this 
  2. Mid-cap: It is between 2 billion dollars and 10 billion dollar
  3. Small-cap: It is between 300 billion dollars and 2 billion dollar

Steps required to follow before deciding to invest in stocks 

Here are some important steps which should be taken into account before deciding to invest in stocks.

1) Determine your investing strategy 

It is the first and foremost step towards investing. You need to determine the investment strategy and approach by considering your trading conditions, objectives and profit goals. Along with this, you also need to examine the total time you can provide to trading in a day. If you are doing a full-time job, it is better to opt for those strategies that do not require regular monitoring of price trends and shifts. In contrast to this, if you have sufficient time to sit back and monitor each shift, you can go with a strategy like a day trading. 

2) Choose the type of stocks you wish to invest in  

a) Speculative stocks 

Startup firms that have limited financial history generally issue speculative shares. These firms usually create untested and new goods, or they put their hands in untapped financial markets. 

b) Blue Chip stocks 

Blue-chip shares are stocks in stable and large firms that offer consistent profit. The earrings of these stocks are extremely dependable and grow slowly. 

c) Income stocks 

Generally, income stocks are blue-chip stocks. These are from well-established firms. They usually pay high dividends. Moreover, at some points, this may incorporate the majority of earrings. 

d) Growth stocks 

Those companies which are expected to have higher earnings issues grow stocks. However, the firm reinvests these earrings into the business for fund development. 

e) Cyclical Stocks

Cyclical stocks are those which have a direct relation with the economy. They show a surge in case the health of the economy incles. During hard economic conditions, they lose a large amount of value. The issuing companies of these stocks can be the electronic industry, airline sector or car manufacturing sector.

f) Penny stocks 

Penny stocks carry high risk and are low-priced shares. They do not trade at more than $5 per share. Moreover, sometimes they go as low as two cents a share. Such types of stocks are usually issued by new companies or startups which require to make money. 

3) Make a plan before starting 

It is better to build a robust plan before starting. Making a plan is a relatively easy task but abiding by it is difficult, and this is the major thing that mitigates the potential to harvest profit. So, pay heed to this serious step. It guides you and also helps to keep the emotions out of trading. The plan should contain:

  1. The precise price and time to enter a trade
  2. Accurate time and price to exit the trade
  3. The risk involved in the trade
  4. Factors affecting the prices of your chosen stocks
  5. Actions you require to take at the time of sudden market changes
  6. Risk management techniques 

4) Build strong fundamentals 

Knowledge is the only key to success in financial market trading. Better the knowledge, greater are the chances to harvest the maximum amount also greater is the confidence to deal with market fluctuations. Many service providers focus on raising their clients’ trading standards by offering top-class educational resources, including articles, tutorials, videos on demand, full-fledged courses and several others. One such reliable and top-broker offering exceptional and affordable service is PrimeFin. Visit the website to know more. 

How to invest in stocks? 

To invest in stocks, you need an online trading account which the broker offers. The process of account opening is instant and straightforward. It requires you to follow these three simple steps:

  1. Visit the website and register yourself by providing your name, country and email id. 
  2. Upload the required documents, including address proof (bills containing permanent address and photo), identity proof (national id card or passport), financial and banking statements.
  3. Select the stock you wish to trade and deposit the amount for the same. 
  4. You can now start trading. If you are a neophyte, you can go with a demo trading account. 

The Bottom Line 

You cannot proceed with stock trading without the intervention of a stockbroker. Choosing a broker plays a crucial role. Hence, it would help if you make this decision vigilantly. PrimeFin is a top brokerage firm registered with the Labuan Financial Services and Authority. So, it is entirely safe to invest with. Moreover, this platform is affordable as it charges just $250 to open a trade and provides commission-free trading on assets. Also, you will get advanced platforms like MetaTrader 4 and web trader. 

Frequently asked questions 

A) What things should you consider before investing in stocks?

1) Determine your investing strategy: day trading, swing trading and scalping  

2) Time you can dedicate to investing 

3) Choose the type of stocks you wish to invest in Blue Chip stocks, Speculative stocks, Growth stocks, Income stocks, Penny stocks, Cyclic stocks 

4) Make a plan before starting

5) Build strong fundamentals

B) Where I can trade stocks? 

PrimeFin is a top brokerage firm registered with the Labuan Financial Services and Authority. So, it is entirely safe to invest in stocks with the broker.

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