Share Dealing for Beginners - How to Start Trading Shares
How to Start Trading Shares
Dealing in shares can be an exciting and profitable pursuit, and it's unusual to find a trader who is anything other than fanatical about their investing. For those just getting started, share dealing can seem like a daunting process, with a vast jargon to get a hold of and seemingly endless ticks and price movements flashing consistently across the trading board – for the uninitiated, getting over this first hurdle can seem impossible.
Luckily, we've put together this basic introduction to share dealing, so you can quickly come to terms with everything you&'ll need to know to get started, on your way to consistent, profitable trading.
Why Trade Shares?
Shares are assets, traded to the value of billions every single day on organized stock exchanges across the world. When most of us imagine the day-to-day life of a trader, we picture a high-pressured environment where shares can rapidly rise and fall in the blink of an eye, making and losing fortunes depending on the positions of the individual trader. If this is really the case, why do traders bother with shares in the first place, and how does speculating on share price differ from other forms of speculation or even gambling?
Shares are distinct from gambling in a number of key ways, and their price volatility is in fact a strength, rather than a weakness. While, of course, wildly sliding prices don't do share buyers any favours, it nevertheless allows traders to make vast sums of money on the downside as well as the upside, depending on their positions, and makes shorter term trading viable. Shares, unlike any other tradable asset, allow the investor to make gains over the space of years, months, days and even hours, and the volatile movements they bring exaggerate this effect to make trading potentially highly lucrative.
Shares in themselves have a residual value, unlike a bet or wager (and even in some respects unlike other traded products), which means they will always retain some value. They are a proportion of ownership of the company to which they relate, and while one share will usually be worth very little in terms of profit-share and influence, it is nevertheless a right which someone will usually always be interested in maintaining should you choose to sell.
Publicly traded shares can be sold at any time for their market value, even where there is no directly corresponding buyer waiting in the wings. This function is performed by the market maker, who is usually a large investment institution with the capital resources to pick up on shares smaller investors don't immediately want to buy - because price movements are often cyclical, the market makers are often able to hold shares for a limited period of time and negotiate separately with the exchange for the services they provide, allowing traders to seamlessly buy and sell their shares (in stark contrast to most other types of investment, where a corresponding party may be necessary to complete a trade).
How to Begin Trading Shares
Getting started with share trading is easier than it might at first appear. From a technical perspective, all you really need to get to begin is an account with an online broker (learn what you need to know to choose the right stockbroker) and some capital to make your first tentative steps into the fast-paced world of investing.
It's also highly recommended that you begin trading shares with a demo, or virtual account. This will allow you to get a better feel for the broker platform on which you'll spend much of your trading time, and give you the chance to put your theory into practice before risking any of your real-life capital. While it's hard to judge the best point at which to leave the virtual and enter the real trading environment, a good rule of thumb is to try and make your initial mistakes when playing with virtual money, and only to make the switch when you feel comfortable with both the interface and your trading logic.
Ahead of your first few trades, choose markets and sectors within which you can get to know the major players and how their share prices interact with each other and wider economic factors. Narrow down your trading portfolio in the first instance to allow you to become more comfortable with the way the markets move, to increase the chances of landing successful positions sooner rather than later.
First getting started as a trader marks the successful passing of your first major hurdle, but nevertheless remains some distance away from your end goals. As a trader you are consistently learning from your mistakes, and hopefully mitigating the inevitable losing positions when they arise. But with a cautious approach to maintaining your capital and an applied reason and logic behind your trading decisions, you should ultimately start to get into the swing of things and trade on a more consistent and ideally profitable footing.