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Gone are the days when investment opportunities were limited to fixed deposit interest in banks. Today’s young generation is investing heavily in the stock market and Forex trading and pursuing any opportunity that can provide them with significantly higher returns than the nominal interest rates on bank deposits. But it is necessary to understand the pros and cons of the stock market before investing in it. This blog gives clarity on what the stock market means and some tips that can be followed to derive the maximum returns out of your investment in the stock market. 

What is the stock market?

Stock is the stake in a company that gives ownership to people who purchase the company’s equities. These equities can be brought in multiples or under relevant caps by the public, which is regulated by different stock exchanges. The stocks are issued by companies with the primary objective of raising funds for the channeling of their businesses. This becomes an excellent investment option when the business flourishes and the price of the shares increases, which eventually might be brought back by the company and earn the investors huge profits. If the business runs out of money, then it can also lead to huge losses for the investors. This means that the investment cannot be random and has to be done on the basis of some proper tips.

10 Tips for Beginners Investing in Stocks

The tips mentioned below will help you be mindful the first time you plan to invest. It also ensures that you make minimal mistakes and will be able to derive maximum returns from the stock investments that you make:

• Get hands-on right opportunities

Buying the right stocks or investments is easier said than done. Anticipating how the stock will function in the future is something that cannot be deliberately ascertained for sure by contemplating how it worked in the past. The only option to be sure of how to get it right from the beginning is to do a deep analysis on the company and then how they manage their business in its entirety. The evaluation of the company’s management objectives, its financial performance, probably their balance sheet and financial statements , competitive advantages, etc. Randomly going for a company just because you feel that they are good is not the right way to choose the securities for investing.

• Avoid individual stocks if you’re a beginner

Most of the time people, especially beginners, think investing in the stock market or stock trading is more luck than skill. This is where the naiveness of the beginners shows up. Just because someone says that they are getting great returns out of a stock doesn’t mean that the stock they have invested in has always been good. Putting down unrealistic expectations and acquiring the skill to go above and beyond in the share market is the first step to doing it right. So, ideally, in the initial stages it is right to go for a previously curated basket of funds or ETFs or mutual funds or also known as index funds. They will charge you an annual fee for maintaining the index. 

• Broader Portfolio

Having a diversified portfolio of invested stocks helps you make sure that you don’t fall out of the wagon in the long run. 

Having stocks in different industries and indexes will help you be backed up even if there is a crisis in one particular industry. Diversification reduces the risk of limiting the overall performance of a single stock, whether profits or losses result. When you have all your money invested only in a particular type of stock, then there is very limited room for growth and returns. The best way to introduce diversification is to invest in a mutual fund or even in an ETF. Experts curate the basket of securities, relieving you of the burden of conducting business analyses of the companies in which you intend to invest. Starting with mutual funds may not be as exciting, but it is definitely a good place to start and to understand how the market works. Make an effort to select stocks and invest in equities that span across multiple industries.

• Be prepared for downfalls.

Share market investments do not provide protection against losses. It is very common to face losses from time to time because market fluctuations are not precisely predictable. It is necessary to be prepared for such shortcomings when you decide on investing in the stock market or stock trading. Also, one has to have a fair amount of knowledge on when to sell and buy stocks during the different phases of stock market crashes. If you have a very elaborate portfolio, you can limit your losses. This means that even if a particular stock fails, you will not have to bear the loss of it completely as you have other stocks functioning well. Short term fluctuations have to be dealt with carefully to derive the benefits of long term appreciation.  

• Try out a demo account or a stock market simulator

As a beginner, it takes time to understand the functioning of the share market and the terms associated with it. Going ahead and creating an account with a stock market simulator or demo account  is a good place to start with self study and analysis of the stock market. This also gives you a taste of the bitter side of the stock market and how to react or pursue once you have come across a loss, even when there is no real money involved. It will also give the beginner the ability to watch closely and have an understanding of the securities of industries th at perform well, the securities that have the highest fluctuations, and so on. 

• Be committed long term

If you are someone who is focused on getting huge returns in a short period of time, it might not be that easy, especially when you are a beginner. Make sure to tune your mind while making investment decisions for the long run. According to a well-known stock broker in Dubai, it is critical for beginners to disconnect from the market and stop being obsessed with financial trends.

• Start as early as possible

When you have made up your mind to invest in the stock mark

et, just go ahead and start with it, as there is no right time to invest in the stock trading. Starting earlier will help you compound, and that will definitely have a greater impact on your results.   

• Short term trading, not advisable

Everyone wants to earn high returns in the shortest time possible. Short-term trading gives ample scope for unrealistic expectations and may even result in terrible losses that can be hard to revive for someone who has just started out in the stock market. Experts always make sure to convey to investors that they should only put their money in if they are ready to keep it for at least three to five years. 

• Invest regularly

Investing in the stock market on a regular basis is preferable to investing a large sum all at once. Investing bit by bit will help you not be majorly affected if there is a big market fall. Timing the stock market is next to impossible, and therefore, being mindful of your investments is the best way to avoid losses. 

• Opt for the right values

It is necessary to understand what you expect from the investments. The values can revolve around either growth or value, or even both combined. Identifying what you expect and sticking to it will help you get the maximum possible benefits from your investments. 

7 Capitals is one of the leading online trading platform in Dubai, helping both beginners and experts in dealing and providing viable solutions and a diversified portfolio of shares to deal with. We provide attractive leverage and competitive spreads, which makes us the one stop solution for your investment needs.