Stock Market Trading
Stock trading on the exchange
Traders are divided into aggressive and conservative. While the former choose assets with dynamic changes in value, the latter tend to work with the least risky instruments. So, for the majority, trading in shares seems to be an opportunity to earn money with a minimal chance of losing a deposit. Securities of this type are usually owned by large enterprises that rarely go bankrupt and are more likely to make a profit.
How to make money trading stocks
The choice in favor of trading stocks on the exchange is due to several reasons. They are partly psychological since they provide the investor with tangible guarantees of return on investment. But there are also objective factors. For example, all securities have liquidity due to material goods: the real estate of the enterprise, its raw materials, and commodity reserves.
The following is also attractive:
- The share price does not directly depend on the value of currencies, commodity reserves (trading due to the lack of correlation is less dependent on interventions on currency pairs).
- A crisis in a country or in the world market may not affect individual companies (unlike national currencies).
- Investments in the assets of large companies are easier to predict than changes in the cryptocurrency and precious metals market.
You can learn how to trade stocks on the stock exchange from scratch using a demo account. The approach allows you to study the main trends, select an effective method of earning money. And this is without the risk of losing real money, all the loss or profit remains virtual.
Testing trading strategies
Novice traders are more likely to seek conservative ways of making a profit. Creating and using a ready-made strategy are two different things. Therefore, they say that it is easy to start trading stocks on the stock market. But this does not mean that you can get down to business without training. In order to easily increase your deposit funds, it is recommended to first test on demo accounts.
Moreover, virtual exchange trading in shares should be conducted in the same conditions that the trader plans to create for a real account. The choice of assets, the volume of purchase/sale – all activities of the investor are emulated based on the subsequent transition to real money. This approach drastically reduces the risk of errors.
How to reduce the risks of stock trading
The stock market carries the same risks as Forex or crypto exchange. In addition to the wrong actions of the trader himself, trading in the stock market can bring losses due to external factors such as refusal to pay a profit. There are a number of rules, the observance of which reduces the risk of encountering such phenomena.
- It makes no sense to carry out transactions without market analysis – it is recommended to make it a rule to read forecasts, try to figure it out yourself.
- Before creating a large deposit, you should make sure that the broker is reliable: from reviews or from your own experience, working with a small amount.
- Even at the stage of working with a demo account, you need to practice using indicators, scripts, and automated advisors.
Sometimes traders try to study price tables and develop skills in calculating the profitability and risk for certain trades. If you listen to these tips, trading stocks or company assets can be a reliable source of income. All that remains is to collect a profitable investment portfolio and optimize it regularly.
Investment portfolio compilation
The key criterion for successful trading is the ability to diversify risks. Traders distribute investments between various assets. Moreover, they try to select such that there is no direct correlation between them. But if this condition is not met, then reciprocal transactions are made, allowing you to make money on any movement (even up, even down).
Recommended structure: 70-80% of capital is allocated to stocks with low volatility, and the remaining 20-30% is invested in high-risk assets. The list of firms whose securities will be purchased depends on the size of the deposit and the value of the shares.
Ideally, the overall portfolio index should follow upward trends across all assets. In the event of a decrease in the price of any shares, the trader replaces them with others. If the total profit allows, the composition can be left unchanged, compensating for the losses of some with the profit of others. On the first day of each month, it is desirable to have an estimated level of profitability.
Stock portfolio management techniques
When trading stocks of a world-renowned company, it is often known in advance under which events its liquidity increases and when it can decrease. This is more difficult to predict with small businesses. To simplify the management of portfolio investments, rebalancing is used (a mathematical method of regulating profitability).
The technique assumes compliance with the rules:
- At the time of creating an investment portfolio, each type of shares is allocated a share of the package (in percent).
- The check is carried out strictly according to the schedule (every month, quarter, six months).
- The calculations compare the number of investments in each asset taking into account the current quotes (in the investment currency).
- Any deviations from the original value must be corrected.
Shares that have fallen in price are bought up to the required amount, and those that have risen in price are sold. In quantitative terms, the balance of assets is constantly changing, calculations are carried out only in the currency of the deposit. With this approach, trading stocks on stock exchanges can become a tool of earning with a constant level of profit. Upon reaching the planned profit, the portfolio can be realized and formed anew (partially or completely).
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