Investing is a great way to look after your future but with everything sounding so complicated, it can be hard to know where to start as a beginner. For example, would you know what the best trading app was? Or what to invest in and why, and for how long? Hopefully this article will help things become a little more clear when it comes to investing and trading. From the best trading apps to use as a beginner, to knowing whether investing or trading is the better option for you.
Investing & Trading – What’s the Difference?
First things first, what is the difference between investing and trading?
The only real similarity is that both investors and traders seek to gain a profit through the financial market. Investors will generally seek larger returns over an extended period of time. For example, you might invest in stocks and shares where you put money in and leave it for as long as you can. Or, perhaps you might invest in buying a property. Many people also like to invest in things like Premium Bonds where they will leave their money for years in the hope for a profit.
Whereas Traders will try to take advantage of the rising and falling markets. To buy and sell over a much shorter time frame. Often taking smaller profits, on a much more frequent basis. This is generally also seen as being a lot more risky as you need to know exactly when to buy and sell.
What Are Shares?
Above we mentioned that one possible way to invest is through buying shares, but what are shares exactly?
Shares are units of a company that you can buy and own. When you buy these shares, you’re actually buying a small stake in that specific company. Companies will often sell some of their shares to raise money for the business. These people, otherwise known as Investors, are also known as shareholders in the company. Once you’ve bought your shares in the company, you are able to then sell some or all of these shares on the stock market as and when you like.
If the company you’ve bought these shares from performs well, demand for your shares will generally increase, pushing the price up. This would be a great time to sell if it means you get a return on your investment (profit).
However, if the company does badly, the share price will decrease meaning the value of you shares will also drop. This would be the worst time to sell your shares as it’s likely you wouldn’t get your money back.
This is something to bare in mind as you could end up losing it all if something bad happens to the company while you’re a shareholder. Never invest more than you can afford to lose!
How To Know If Investing Is Right For You?
Before you start to invest in anything, you need to figure out if investing is the right move for you to make. This often has a great deal to do with your current financial situation. For example, if you have mortgage left to pay off, or credit card debts, you should get these paid off first before you even consider investing in anything else.
However, if you don’t have any outstanding debt to pay off, before you start investing, make sure you have at least 3-6 months worth of emergency funds saved up. This is just to make sure you give yourself a buffer should anything go wrong with your investment.
You then need to think about what your goal is for investing. If it’s so you can go on a lavish holiday, or buy a fancy new car, investing probably isn’t for you as it’s more of a longterm commitment.
However, if you’re looking to save up to buy a house in the next 10 years, or you’re saving up for your child’s education, then investing could well be for you. An investment should be a longterm goal, at least 5 years away.
Quick Investment Tips
- Be willing to go without this money for at least 5 years.
- The higher the reward, the higher the risk it will be for your investment.
- Leave your money alone for as long as you can to get the best return.
- If you can, invest smaller amount across a few different avenues incase one goes badly and you lose your money.
What Is Day Trading?
Day trading means that you are buying and selling on the same day. This can be a very risky thing to do, especially for beginners who don’t really know what they’re doing. As the markets rise and fall throughout the day – this can be due to many things, including politics, so can be very volatile.
Ideally, traders will try to buy when the price is at it’s lowest, then sell at it’s highest to get the best return on their investment. Kind of like riding a wave, you want to be off the wave just before it breaks, and jump on it just as it starts to form. Many people will continue to ride this wave throughout the day, buying and selling as it peaks and troughs.
How To Start Trading?
Since the start of 2020, the number of beginners starting to trade is rapidly increased here in the UK. However, before you start trading real money, you should start trading with a demo account. This will give you real time feedback on your progress so you can see how you might do in the real world. For example, if you choose badly, you’ll learn the lesson of what not to do, without loosing any money in the process. Then when you’re confident you know what you’re doing, you can create a proper account. There are also many trading apps you can use to help guide you when starting out. The best way to find them is to search trading app comparison to find the best ones for you.
As with the investments, if you have other outstanding debts, you should clear these off first before you begin. However, as trading can be a lot more risky than investing, it’s good practise to make sure you have at least 6 – 12 months of emergency funds saved up first.
You should also be aware that day trading especially is very time consuming and is’t something you’ll be able to do on the side. This would have to be your main focus throughout the day. Dipping in and out won’t cut it as the markets change so quickly throughout the day.
The best thing you can do before you start trading or investing is to research as much as you can and ask people in the know questions.
What would recommend as the best trading app for beginners?
Collaborative Post
Leave a Reply