Trading in the stock markets for dummies

Just about everyone has heard of the stock exchange or the financial markets without necessarily understanding anything about the seemingly complicated terms such as the FTSE 100 or CAC 40, ‘fixed’ rates or ‘bonds’. So if you are a ‘dummy’ when it comes to the stock markets then this article was written for you. We are going to summarise as simply as possible the use and functions of the stock market and thereby enable you to start investing and generate some profits.

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Trading in the stock markets for dummies
CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 65% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work, and whether you can afford to take the high risk of losing your money.
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The definition of a stock exchange for dummies:

A stock exchange is basically a type of market where sellers can sell parts of their business in exchange for sums of money that serve to finance the company. It can therefore be used by sellers as a way to recover finance capital. 

The buyers that purchase parts, or shares, of companies therefore become shareholders of the company. In return for their investment they may receive what are called ‘dividends’. These dividends are in fact part of the profits made by the company that correspond to the investor’s quantity of parts purchased.

It should be noted that these ‘parts’ we talk of are called ‘shares’ or ’stock market assets’ in this sector.

Let us now look at the shares in stock market indices. But what exactly do stock market indices correspond to? The stock market indices indicate the economic health of companies listed on stock markets.  For the CAC 40 for example, this represents the overall performance of the Paris stock exchange. For the calculation of this index the overall performance of the 40 biggest companies on this stock exchange are taken into account.

 

The price fluctuations in the stock market assets for dummies:

It now remains for us to look at the most important question relating to the stock markets, the reasons for the fluctuations in the price of stock market assets.

We already know that these assets are purchased by suppliers in exchange for parts of an issuing business and may receive dividends in return. But these suppliers can also resell these assets in order to make an immediate profit. In the case whereby a company makes a lot of profit, these assets can bring in a lot of money to their holder. The suppliers can therefore resell their assets at a much higher price. In this case the rate or price of this share will rise.

If, on the contrary, the business that issues shares is in a recessionary phase, the suppliers will resell their shares at a lower price. We can then see a fall in the share rate or price.

Important note: The movement of the stock market prices also takes into account other factors such as the market situation, the currencies level quotation and the psychological effects. Nevertheless, the above explanations will already enable you to understand the overall operation of the stock exchange.

 

How to trade on the stock markets when you are a dummy on finance:

Over recent years the stock market world has become far more democratic and accessible to all, whatever your level of knowledge and experience concerning finance and the stock markets. In fact, the simpler tools such as CFDs (Contracts on the Difference) were specifically created for beginner traders to invest in stock market assets and be able to make profits while doing so.

Another thing, the brokers that provide online trading platforms for their clients equally provide them with various tools and features that enable totally novice traders with absolutely no stock market experience and knowledge to start trading confidently. Among the most popular of these tools and features are the following:

  • Trading signals: These signals which are calculated by algorithms or experienced traders indicate clearly the assets that are most likely to rise or fall in price. Each Buy or Sell signal is associated with a reliability index thus providing additional security to assist you in completing profitable transactions. 
  • Social trading: Social trading is available nowadays through a number of online brokers. It offers beginner traders the opportunity to follow the positions taken by other, more experienced traders on the platform in real time. It is also possible to select the best traders and automatically copy their trading positions.   
  • Automatic trading: Automatic trading is actually conducted through software that takes positions and passes orders for you. Based on automatic and technical analyses of the market this type of software detects the best opportunities and strategically places your capital.
  • Account managers: Generally in return for a fee you could also trust your trading account to a financial investment specialist who will personally manage your placements and orders.  

 

How to easily learn about stock markets?

Apart from the tools we have already described that enable you to make profits on the stock markets without any prior knowledge, it is important that you know you can easily acquire the knowledge necessary for your independence. Here are the various solutions available to you:

  • Social trading: As previously explained, this enables you to learn by following the strategies of other traders. You can also communicate with other traders and ask them questions.
  • Online training: General or personalised training courses that assist you in acquiring the knowledge necessary for trading successfully online. They are based on different support tools such as videos, webinars, seminars and real time coaching sessions.  
  • Demonstration accounts: The demonstration accounts are unlimited free accounts that require no cash deposit and enable you to learn how to implement effective strategies before launching into the markets with your capital.

 

How to choose your online broker and trading platform?

Of course, even before starting to speculate on the stock markets through the internet you will need to choose your online broker from the many available online. To do so you should bear in mind certain major criteria.

The first point to take into consideration is related to broker fees. Whereas certain brokers invoice fees in the form of a percentage of the order amount (from 0.10 to 0.70%) others apply a forfeit that varies from 1 to 12 Euros per order. Your choice therefore depends on the average amount you intend to invest in each order.

But the price of your transactions should not be the sole element to compare when making your choice. Do not forget to check all the services and tools that are offered by the different platforms such as, for example, the possibility of obtaining signals in real time or making short sales, and of course the leverage effect that enables you to achieve higher profits.

A last element to take into account concerning the trading platform itself relates to the actual dashboard you use to pass your orders. This should be simple and ergonomic to use ensuring easy investment transactions and maximum reactivity.

 

The mistakes to avoid when beginning to trade

In the cruel world of speculation, the lessons you need to learn from your mistakes are many and frequent. This is certainly the case with the currency markets, or Foreign Exchange markets. The mistakes made by certain traders can be interesting to analyse in order to avoid making them yourself. Let us now look at the most common errors that can have terrible consequences on investments.

 

Trading against the trend

The most frequent error made is in fact the easiest. This consists of anticipating the rate of a currency without paying attention to the trend and the different indicators. In fact, one of the rules that should be respected when trading in currencies is the overall tendency to follow the general trend. Many traders will say that following a trend ensures that you can considerably limit the risks and multiply your chances of successful operations. Only extremely experienced and highly successful traders are actually capable of successfully anticipating the direction that a particular trend will take and even then only after substantial research and market analyses. You should therefore keep in mind that you are not safe from an unexpected event or outcome. Take care to closely monitor your trades and be ready to act fast if a sudden trend reversal occurs.

 

Using an over high leverage effect

Another major error committed by a number of traders is related to the leverage effect. In fact many investors, disappointed with previous financial operations that have led to them losing a large sum of money, tend to become a little overcautious and use high leverage effects to limit their initial monetary investment. This is actually the wrong way to proceed as, although the leverage effect enables the possibility of high profits, it can also incur high losses if the trade you have conducted results in a loss for you.

Whether or not you use a leverage effect you should ensure that you have sufficient available funds to cover any eventual loss. The higher your available capital the more chance you have of making profitable investments. It is actually recommended that you invest around 1,000 Euros minimum to obtain sufficient profitability.

 

Not stopping losses in time

Not covering risks is the last major frequent error when trading. The trading platforms do systematically offer a stop loss tool that enables you to considerably limit your possible losses without having to constantly follow the markets. These stop loss orders are actually limits that you set which lead to an automatic action to cut short any losses incurred due to a trend that occurs contrary to your prediction.

For truly effective trading, these stop orders should be fixed as soon as you take position and in accordance with your objectives. For this you need to understand the risks involved and be aware of any possible losses that you could incur.

 

How to pass stock market orders through the internet for dummies?

You will surely have understood that passing stock market orders through the Internet is very simple and accessible to all, on the condition of course that you have subscribed to a reputable trading platform. Online banks and brokers offer you the opportunity to pass stock market orders through the internet by the simple completion of online, or digital, forms giving the details of the order that you wish to make. In exchange you will receive an execution notice.

However, certain trading systems such as CFDs are even simpler to undertake as everything is completed online and in real time using the specific platforms that enable you to trade on the rise or on the fall of the asset prices you have chosen and thereby make a profit in only a few minutes.

Start investing in the stock market:

Do you have enough experience and knowledge to speculate in the stock market? Why not sign up now on an online trading platform to test your strategies?

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CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 65% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work, and whether you can afford to take the high risk of losing your money.