According to most people, stock trading is the traditional way of trading, and it is the type of investment that most people associate with the word “trading.” When buying stocks you invest your money by either buying a share of a company or by speculating on the price of that share. The idea is to wait until the company does well and the stock increases in value before you sell the stock for a profit.
Since you found this page, you might be new to the world of stock trading. Maybe you have been reading up on different stocks to invest in, maybe you have started researching stock markets and exchanges, and maybe you have even tried a few investment tools and exchange graphs. Now you feel ready to take the last full leap and actually start investing in stocks. The only question is, how do you buy stocks? And how do you make money on stocks?
The purpose of this page is to answer those questions and give you insight into all the factors that play a part when you first get into stock trading. Note that this guide is written in order to answer questions that traders of all levels have about investing in shares. We also offer guides on other aspects of stock trading if you’re looking for that. Additionally, we provide links to in-depth guides throughout this page where we see fit.
So let’s get to it.
How Do You Invest in Stocks?
Let us begin by clarifying that there is no straight answer to this question. How you decide to invest in stocks is up to you and you have to base that on your personal preferences. There are several decisions you have to make related to trading styles, markets, accounts, etc. before you can get started.
One of the most important steps is to find a service to use for your investments, a so-called stockbroker. We’ll walk you through different brokers and trading methods further down on this page but here is a list of our top picks if that is what you’re looking for.
Day Trade Shares or Long-Term Invest in Stocks?
Before we start covering the best stockbrokers online there is one factor you’ll have to consider. What time frames are you looking to invest in? You can either day trade stocks or invest in the stock market long-term. This decision will influence what broker and strategies you’ll use and is an important step when learning how to invest in shares.
Day Trading – Most professional traders that live off stock trading do what’s referred to as day trading. It means they make several trades per day and focus on benefitting from small market movements. Day trading is considered to be more difficult than long-term stock investments since it requires a deeper understanding of the market and the aspects that affect it. As a day trader, you need to be able to know what stocks to buy today, several times a day, every day. That being said, becoming a day trader is far from impossible and if you remain dedicated and are willing to learn you too can become a professional stock trader.
Long-term Stock Investments – Most private stock traders invest in the share market with long-term goals, almost as a sort of savings plan. The idea behind this type of stock investment is to benefit from long-term price changes and companies that perform well over several years. Compared to day trading, it’s easier to learn how to buy stocks online this way.
Different Methods You Can Use To Buy Stocks
So now that you have figured out how to invest in stocks, it’s time to figure out what method you want to use to trade. The following methods can be used for both day trading and long-term investments. We suggest you study the different methods and their benefits to ensure that you feel comfortable with the investments you make.
How To Buy Shares Online with CFD
The most common way of speculative stock trading is so-called CFD (Contract for Difference) trading. A CFD is a contract that’s written between you (the buyer) and the broker (the seller) which contains information about the value of an underlying asset (in this case a company share) as well as trade terms. Your job is to predict how the stock’s value will develop – will the price of the stock increase or decrease? – and then buy a CFD that represents that prediction.
One of the main benefits of CFD stock trading is that it’s easy, although not so common, to “go short” and invest in downward price trends. CFDs are also more versatile because you can invest whatever amount you see fit and you don’t have to limit yourself to specific stock prices. For example, to invest in Apple you need to pay over $1,000 dollar for a single stock. But if you use CFDs instead, you can invest $20 or $2,000 dollars, that’s up to you.
Another perk with CFDs is that they are leveraged and traded with margin, which means you can easily increase your possible profits. Read more about leveraged trading further down.
So how do you invest in the share market using CFDs? It’s a very straightforward process but first, you need to find a CFD broker. A broker is a service that offers you the contract and it’s important that you only use the best ones.
We provide detailed reviews of the best stockbrokers for your convenience. Our reviews contain all the necessary information you need to make your decision. All the recommended stockbrokers are regulated with the necessary licenses, meaning they are 100% safe to use. Note that many CFD stockbrokers are not regulated and using them is not recommended if you want to buy shares online.
Recommended CFD Stockbrokers
Below is a list of the top four best stockbrokers online that offer CFDs with a small description of their services. Click the link to see the full review.
- IQ Option can be used to trade stocks as CFDs. They offer a world-class product and are a top pick for many of our investments.
- Markets.com is one of our oldest favorite brokers and they have one of the largest selection of assets on the market. Out of the 2,000+ assets Markets.com offers most are stocks.
- Plus500 is considered to be one of the best CFD stockbrokers in the industry. They’re innovative, driven, and offer a solid product for all investment needs.
- Trade.com is a great CFD broker that’s often overlooked. Their platform is simple but efficient and they offer a selection of assets that can compete with Markets.com.
- eToro let’s you copy other successful traders meaning you can do really well without having to study the market too much on your own. It’s both practical and effective!
- IG Markets is one of the most established brands in the industry and their focus has been stock trading for a very long time.
How to Invest in Stocks: The Traditional Way
As a beginner, you are probably most familiar with the traditional way of buying shares. In traditional stock trading, you buy shares from the stock market where the company is registered. But how do you get into the stock market?
This is typically done via a brokerage account or stockbroker that acts as the middleman between you and the exchange. A stockbroker is typically a broker or a bank. Sometimes shares can be purchased directly from a company.
When you trade stocks on the stock market, you can either buy the actual stock or invest in a collection of stocks called indices. Indices can also be traded as futures. Note that many stock exchanges offer other securities in addition to stocks, some even combine the stock market with forex trading, etc.
Back in the days, you had contact with your broker over the phone but today most brokers let you create a brokerage account online for a small percentage of all your investments. Setting up a stock trading account is easy and requires the same or less information as to when you set up a bank account.
Many stockbrokers offer trading advice and can help you figure out how to best buy stocks and even provide advice on stocks that are hot right now. In some cases, brokers offer portfolios which are their own collection of the best stocks today.
Best Stocks to Buy Today
Now that you know how to invest in the stock market, you’ve probably decided on what method to use to purchase stocks. The next step in the process is to figure out what stocks to buy today.
Obviously, the answer to that question changes and what’s right today might not be right in a week from now, which is why you need to start applying investment strategies. Stock trading strategies is a huge topic and we will not go into any details on this page. However, we encourage you to explore other pages on this website where we cover the subject in depth.
Generally speaking, it’s good to focus on an industry that you’re familiar with since it will help you figure out how to invest in stocks. If you’re into tech you can invest in Amazon, Netflix, Google, and Microsoft. If you’re a car fan you might prefer Tesla, Ford, and GM, and so on.
Finding an industry that you like is important and you’ll want to stay updated on the latest developments by reading the stock trading news.
In addition, the stock market is normally divided into two different types of stocks. One group is a little bit “safer” and more suitable for long-term investments, while the other group of stocks is riskier and better suited for intraday trading.
Blue-Chip Stocks – Blue-chips are predominately well-established companies with large market caps, a good reputation, and many years of experience. These stocks tend to be more stable and develop rather slowly. Some examples of blue-chip stocks are Berkshire Hathaway, AMD, and IBM.
Penny Stocks – Penny stocks belong to newer companies that have smaller market caps and fluctuate a lot in price. These stocks are known to be unpredictable and fast-paced which makes them perfect for day trading. A perk with penny stocks is that they are cheap stocks to buy so you can invest smaller amounts for bigger payouts.
Trade Shares using Index
An index is a collection of stocks that are created to showcase an average price across a stock exchange or an industry. Stock indices offer an alternative way of trading stocks and are often combined with regular stock trading or added to a stock portfolio.
Some of the most well-known indices in the world are the S&P 500 consisting of the 500 highest performing companies and best stocks to buy in the United States. The Dow Jones Industrial Average represents the top 30 stocks on the NYSE and Nasdaq. FTSE 100 is made up of the 100 best stocks in the United Kingdom, and the Euronext 100 is the European stock market’s own index.
We do recommend that you try investing in indices since they offer some unique possibilities and are easier to predict in certain situations. Additionally, indices are often traded as futures unlike regular stocks.
Learning How To Use Stockcharts and Live Exchanges
Arguably one of the most important skills to learn before investing in stocks is how to read stock charts and apply that data to your strategies. Price graphs come in many shapes and forms and they offer different features depending on what you’re looking for.
Together with one of our dedicated partners, we offer an innovative and very practical pricing tool for most of the world’s leading stocks. You can take a closer look at it under one of the stock pages we’ve written.
We’ve also put together a guide about live exchanges and price graphs that can be very useful when you’re learning how to invest in stocks.
How To Invest in Share Markets Using Leverage and How To Buy Stocks with Cash
On a last side note, we want to mention something that many guides fail to bring up. You see, there are two very different ways of investing in stocks and it is related to your money, which makes it extra important.
You can invest in stocks using money that you have set aside and are willing to spend or you can trade on margin with leveraged stocks.
When you cash trade you put your own money into the shares you buy – it’s safe and very straightforward as long as you only invest money you can afford to lose.
When investing in stocks using margin, on the other hand, you use borrowed money to increase your possible profits in exchange for higher risk. This means that you can end up losing money that you never invested or even had in the first place, which is why we recommend using margin trading with stop losses.
Today, many traditional stockbrokers want you to use margin because it enhances their profits, this is especially true if you’re using their specialized stock portfolios. CFDs are also always leveraged and traded with margin, although you can often decide how much margin you want yourself.
Summary: How to Trade Shares
To finish this guide off, we want to offer some advice on safety and strategies. It is of the utmost importance that you are careful when you’re learning how to invest in stocks. Moreover, you also need to be cautious when you start to purchase stocks more regularly. All types of trading are associated with high risk, otherwise, it wouldn’t be exciting. However, you don’t want to expose yourself to more risk than is necessary.
Generally speaking, there are two ways that you can avoid as much risk as possible when you buy shares online.
- Educate yourself about trading, the securities you’re interested in, the stocks you’ll invest in, and so forth. Knowledge is the key to both success and safety.
- Be aware of scammers and be careful if someone offers a solution that will guarantee you a profit or that offers cheap stocks to buy.
- Always use regulated and licensed services to trade shares. As soon as you sign up for an unregulated broker, you are on your own and your money and personal safety is at risk. Because of this, we recommend that you stick to the best regulated brokers.
Let us end this guide with wishing you good luck. Don’t forget that we provide answers and guides to everything related to trading, whether it be how to trade shares, the best cryptocurrencies to buy, or tips on forex and commodities trading.