If you have not yet traded in the Stock Market and you are willing to do so then this article is for you.
The world of the Stock Market catches your attention. You want to learn and you are eager to get into the world, but you don’t even know where to start.
Your questions are probably these: How to buy shares? How much money do I need? What shares do I buy? How many shares do I buy? How much do you usually earn? How to earn money on the stock market? What else do I need to consider?
Before we start, we are going to point out that the first questions you should ask yourself are not those, but others like these: What do I intend to achieve? How much am I willing to lose? However, I think the best way to learn something is by doing it; even if you have no idea what the rules are like. What you need is to start.
For this reason, and without it serving as a rule, we are going to start the house with the roof. We will answer your questions.
How do you buy shares?
To buy shares (or sell them) you need a broker to do it for you. A broker is a person (or a company) who is authorized to buy and sell shares on the market. You tell him what and how much you want to buy or sell and he does it to you, in exchange for a small commission.
The usual thing is not that you pick up your mobile and shout “Buy! Sell !! ” The normal thing is that you connect to the internet and register on the website of a broker, open an account with them (as if you opened it in a bank, the paperwork goes and returns by ordinary mail) and, from that website, you choose what you want to buy or sell and execute it all based on mouse clicks.
Examples of this type of broker are Interactive Brokers, IG, Saxo Bank, Thinkforex, Plus500, GKFX, etc. If you still don’t know which one is the best for you, let me advise you on the best broker for you.
Most likely, your bank has a broker service. That is, you can open a securities account with them and operate in the Stock Market from your bank. Although it is somewhat more expensive, it is not a bad option for your first steps in the Stock Market, because it saves you some initial difficulties.
For example, in a normal broker you will have to open an account and put money in it, on the other hand, in the securities account that you open with your bank, the money can be taken directly from your checking account. In addition, most brokers do not have offices, or at least they do not have as much physical presence as your bank may have; And being able to talk to a real live person can help you a lot in the beginning.
To buy shares, you can do it at any time of the day if you do it via the web. However, your order will only be executed if the market is open (during business hours). If you place the order after hours, or even on a Sunday, it is stored and will be executed in the first minutes of the next trading day.
How much money do I need to buy shares?
This is a question that most would answer otherwise. Anyway, whenever you ask the experts about a topic what it takes to get started, they will tell you that you need a number of things and details to take into account that are infinitely greater than what they had in the beginning. And there they are. So you don’t have to pay much attention to those opinions either, because if you don’t, you will never start at all.
I think that, under the condition that what you want is to operate for the first time on the Stock Market, non-profit and simply for exploratory and educational purposes , it is enough to start operating the fact of having € 600, of which I do not know. You do not need or will need a penny for other purposes, and of which there is no reason to lose more than € 100. Understood? If it was not absolutely clear, please reread the previous paragraph as many times as necessary to make it so.
Know that the more money you have to dedicate to learning on the stock market, the better. The ideal to start learning at full speed is to have a minimum of € 15,000, however, most mortals have to settle for learning while saving. Having little money does not prevent learning and, as long as you do not have knowledge, no matter the money available, you cannot win. So first learn (practice small) and then win. The other way around never works.
¿ What actions buy?
Any of those that make up the IBEX35 is a good choice for your first tests.
Repsol, Banco Santander, Endesa, OHL, Ferrovial, Telefónica, Mapfre. Those are always good values. That does not mean that they will go up. To some extent, this item is timeless. I am writing this without knowing how the market will be when you read it. Surely if you buy any of the aforementioned, you will not get great scares (and not taking great scares is what you need most now). Whether they are going to go up or not is up to the market.
Assuming you intend to hold your shares for a few days or weeks, it is best to look at whether or not the market is generally rising or not, and that’s it. Without going into details, if the blue line on the chart that appears when you click on this link points up at its extreme right, in general, you can buy some shares of any of the securities mentioned above without great worries about losing a lot of money. Most likely, you will not lose money or even get something (separate commissions). If the blue line (a 100-day moving average) is pointing downward or flat, better wait for it to turn higher.
Another noteworthy detail regarding which stocks to buy is choosing any company that is not making the news. Television, press, internet and others are heavily manipulated so that the unwary put the money where others can steal it. Do not sting.
How many shares to buy ?
This question is not easily answered but, for a first operation, I recommend the number of shares equivalent to € 600.
Let’s take a simple example: Supposing you want to buy Inditex, whose shares were today at € 44, supposing that the commissions go together for € 25, you could buy 13 shares (600-25) / 44 = 13. If you have more money, I do not recommend that you spend more on your first operation. This is for testing.
How much is usually earned by buying shares ?
It goes without saying that how much you earn is solely up to you. You can win, make money when the stock market goes down. If someone loses, someone else wins, because for every buyer there has been a seller, and vice versa. There are no complete securities or impossible scenarios. There is nothing written and no one can predict the future.
However, I can give you a couple of guidelines:
- The first, and most important, is that if you are completely new to the stock market, you will not earn a penny during the first six months. Obviously, there will be trades where you win and others where you lose, but overall you won’t win. This is nothing serious, as long as you are careful and do not lose even your shirt while you learn, but keep that in mind.
- The second profit orientation is that professionals have a hard time beating the market. This means that if the IBEX35 rises 14% between January 1 and December 31, they sweat to exceed that 14%. Be content to start earning 8% per year in a sustained way and never expect to get more than 20% year after year, unless you become one of the best traders in the world.
What makes lack I consider?
Launch my first order
When you want to place your first order on the market, they will not only ask you which company you want to buy and how many shares. Also, at a minimum, they will ask you for the type of order. There are roughly two types of orders:
- In which you set when you buy.
- In which you set how much you buy.
The first are the so-called market orders and the second are the limit orders.
When you buy at market price, you buy now, at the price at which the company is trading at that moment. Before placing the purchase order, you can check the price and, in the seconds between the order entering and being executed, the price may have varied a bit.
In limit orders, you say how much you want to buy, but you have to wait for the price to pass through that point.
For example, OHL is now at € 19.1 and you want to buy at € 19. If you give the order now, it is possible that it will enter you sometime in the morning. It is also possible that OHL will not be worth € 19 again in the next 20 months.
In any case, especially if you buy IBEX35 securities, as I recommend, you should not be overly concerned with buying and selling with market orders (instantaneous). When you refine a little more, you will decide yourself what type of order suits you best.
The importance of Stop Loss
One thing you should know is that, even if you put € 600, you don’t have to risk € 600. If you enter Inditex at € 44 (with 10 shares, for example) you are putting € 440 on the table.
But, if you decide that, if Inditex goes down to € 43, you are going to withdraw your money, whatever happens, then, really, you are only risking € 1 of each of your shares, that is, you put € 440, but you only risk € 10. Therefore, when you give the purchase order, you must also give a sell order, to be executed only if things get ugly. This type of order is called a stop loss.
These stop losses are nothing more than conditional orders that undo your position if the price goes in the opposite direction to the desired one.
If you are going to invest € 600, I recommend that you put a stop, approximately, € 50 away. That is, going back to the Inditex example: If you buy 13 shares of ITX at € 44 and you do not want to lose more than € 50, you must put a stop loss at € 40.15 (so, 50/13 = 3.85 and 44-3.85 = 40.15 ).
Orders that are placed on the Stock Exchange and are not executed are free. So, don’t skimp and always put a stop loss. In this way, you will control your risk at all times.
Some tips before buying stocks
- If you hear the word “futures”, “options”, “warrants” or “leverage” run away. Just run away, because no matter what they tell you or what they may seem to you, they are not for you. Derivatives and leverage power are risk multipliers. The learner has to practice with minimal risk. Everything else is fantasy and, in the market, fantasy pays very (very) dearly.
- No matter how safe you are in your operations, always accompany your entries in the Stock Market with an emergency exit stop loss order. If in the end it is not necessary, congratulations. Doing so will save you a lot of trouble and a lot of money.
- Don’t follow anyone’s advice when choosing which securities to buy and sell. You have to learn to think for yourself and nobody is going to pay you the money you lose after having been misguided. Since you are solely responsible for your results, make sure you have full control over your decisions and operations.
- Do not trade intraday. In case you do not know what it means, it means that you do not open operations with the intention of closing them after a few minutes. This high-speed game is the realm of the most expert. Wait to be one of them to enter it.
Typical mistakes when buying stocks
Buying stocks is the least important step in the entire process of making money on the stock market, yet the vast majority of people ignore this fact. Therefore, the normal thing is to lose money.
Let’s see which are the most typical errors and how we can avoid them with some simple rules:
Have a basic plan
The truth is that many people buy shares without knowing in advance how long they will keep those shares with them, how much they intend to earn and, above all, how much they are willing to lose.
Before doing anything, it is essential to have a clear idea of these three points.
How long will you keep those shares?
For the novice investor it will be fine between a few days and a few weeks, but you have to know that there is no point in holding them indefinitely if they are not increasing in value.
How much do you intend to earn by buying shares?
Think single-digit returns, 8% would be great to start with. Don’t expect to double your money.
How much are you willing to lose?
This question is key and will help you answer other questions. Will you take a 10% loss? 1%? € 1000? € 50?
Whatever it is, it must be clear before entering , because otherwise you will lose more than that.
In no case, should you allow losses that exceed 5% of your trading account. Moreover, it would be highly recommended that never superases the barrier of the 2%.
Wait for the right moment
Just as one does not try to get on a moving train, nor can one pretend to jump into the Stock Market without the right moment, since it is most likely that he will be run over.
Since you are going to buy stocks, it makes sense to do so when the stock market is rising. To confirm that it is rising these days, make sure the blue line on the chart is pointing up at its far right.
Buy the right value
It is very common to want to go public because someone who knows something tells us that such shares are going to rise.
If your coworker recommends that you buy shares in a certain company, if you think that a certain company is going to rise after seeing a news item on TV or in the newspaper, if everyone is making money by buying certain shares, you will be wrong in 95 % of the cases (Does the case of Terra sound familiar to you, for example?)
The manipulation (voluntary and involuntary) is enormous and, surely, there are interests behind that make people think the opposite of what is right for their pockets.
Don’t fall for it and think for yourself.
Buy the right amount
Another common mistake is to invest those euros that you have left without first finding out if it is little, a lot, or simply adequate.
Therefore, in the absence of a more precise plan, when you go to buy shares do not invest a block of less than € 600 (preferably € 1000 ). You will avoid having automatic losses by not being able to neutralize the commissions, even if you are correct with the sense of price.
Have a way to escape if things get ugly
It costs you nothing to give your broker/bank the order to undo the position if the price of your shares falls below a certain threshold. This is what is called a stop loss order.
To figure out where to put it, consider recent price swings.
For example, if we are going to buy Inditex shares, we look at its historical chart and look at the fluctuations in price in recent weeks. Just search for “inditex quote” on the internet to find it easily.
Imagine that we observe that Inditex has not dropped below € 22 for four months; so it would make sense to put our stop loss order at € 22.
As soon as you buy your shares, launch your stop loss order. It will save you a lot of trouble and it will cost you nothing.