Top tips for beginner traders in shares

The world of shares and stocks can seem very intimidating to newcomers. The complicated terminology and frequent talk of risk is enough to put many people off. However, if you know what you’re doing, it is also a great way of making money for quite little effort. If you have managed to identify the amount of spending money you have using PocketGuard and are looking for a smart way of investing it, then share trading is a good option. This guide will give you an understanding of how you can get into share trading, as well as providing the confidence you will need to begin investing.

Set your parameters of success

Before doing anything else, you have to think about why you are looking to trade shares. It could be for any number of reasons, from saving money for your retirement to paying off your student loan, or for your kids’ college expenses. You then have to think about your overall objectives. How much money are you aiming to make from share trading and how quickly do you need it? Once you have identified your parameters for success, then you can venture into share trading with a clear idea of what you want to achieve.

Ensure you have the spare capital for investment

You have to set aside money for investment that you do not need for anything else. It is a very bad idea to use money that you need to pay your rent or to settle your utility bills on share trading because it is not a guaranteed way to make a profit — you could lose some or all of your investment. The market is always volatile, and no one knows what will happen to prices. Make sure that you can afford to withstand any losses. History proves that after a crash the stock markets do recover, however, it can take months or even years.

It’s all about emotions

For something that only seems to concern numbers, indexes and valuations, shares really do have a lot to do with emotions. The value of a company is entirely based on the emotions of share traders. When lots of traders are worried about a company they will often sell, and its value will decrease. ‘Bears’ are the share traders who feel negatively about the market at a particular time, while ‘bulls’ are positive, and are what bi-weekly market outlook newsletter TheBull is named after. The balance between those market sentiments can affect the value of a company.

Understand the basics

Once you have established your parameters and you have the capital to go ahead, then you can think about the basics of shares trading. You are going to be dealing with a variety of different metrics so it’s important to understand what they are. Return on equity (ROE) is the amount of profit generated by each dollar of a shareholder’s equity. The price-to-earnings (P/E) ratio is a widely used valuation metric. It is used to compare different investments to see which ones are more likely to earn in the future. Earnings per shares (EPS) is an allocation of a portion of a company’s profit to each share. You do need to know how each of these is calculated.