Trading for Beginners: A 2021 Guide

man looking at stock trading app on phone

The best way to build wealth isn’t to trade your time for money. Working forty hours a week, while it does build that initial seed capital that forms the foundation of your wealth, should ultimately pale in comparison to the alternative strategy of building wealth.

What is that alternative strategy, you ask?

It’s simple: getting your money to work for you.

Simply put, the best way to build real wealth is to invest your money and leverage the power of compound returns. If you want to start building wealth and are looking for a guide to trading for beginners, then look no further than this article. Read on.

Types of Trading

The first thing for you to understand as you embark on this journey of learning how to trade is understanding the different types of trading that you can do. There are many different things that you can purchase and invest your money in. In this article, we’ll focus on three of the primary ones: stocks, options, and forex.

Stocks are the typical tradable equity that most people are familiar with. Publicly traded companies make up the stock market.

Investing in a particular stock means that you are buying equity in that company. As the company’s value goes up, so does yours in direct proportion.

Stocks from different companies be rolled into larger packages, called index funds. These funds are a safer bet, as they track the general movement of the stock market and thus cannot be overly weighted by the movement of any specific company.

Options are derivatives of stocks. An option contract is the right to purchase or sell 100 shares of a specific stock at a certain price. Purchase options when you want to make outsized returns on a specific stock’s movement and are extremely confident in predicting the movement.

Lastly, you can trade forex. The forex market is where you make money off of the appreciation and depreciation of various currencies.

Start Small

The most important thing to remember when you’re a beginner trader is that you need to start small. Don’t just throw all of your money into online stock trading the first chance that you get. Instead, take the time to identify what trades you want to make and how you want to make them.

Then, invest small amounts of money and keep track of the movements of your portfolio. Only when you are more confident in your trading ability and have a solid grasp of the fundamentals should you start investing significant portions of your wealth.

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Trading for Beginners, Made Simple

The basic principle of the stock market is buying low and selling high. You should always seek to invest your money when the market is bottoming out so that you can exit your position at significant profits.

With that principle and this simple guide to trading for beginners, you’ll now be able to grow and compound your wealth in no time.

Are you looking for more financial advice to build wealth and improve your retirement standing? If so, then be sure to check out the rest of the articles available on our blog!