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Home / Features / Playing the market – a beginner’s guide

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Playing the market – a beginner’s guide

The internet has given everyone with a bit of spare cash the chance to buy and sell on the stock market – something that once was only open to the rich and meant a trip to see a stockbroker in an expensive suit paid for by commission on your trading. Today’s online brokerage sites and easy access to financial facts and figures mean that access to a computer and a few pounds can grant you entry to this previously exclusive club.

Stocks and shares offer higher rates of return on investment than simply putting your money in a bank, even a high-interest account. However, they also mean much greater risk.

Stock market traders provide investment for ‘listed’ companies by buying shares in the business. If you buy shares in a company, your stock rises when the company makes a profit and falls when it makes a loss. You become a shareholder in the company, giving you a nominal say in its affairs – voting at its annual general meeting, for example.

The best place to buy shares in today’s internet-driven market is via an online stockbroker such as IG. There is a huge choice available and a lot to consider before you make this important decision. If you’re a novice trader you may want to consider a full-service broker, for example.

‘Playing’ is a term often used to describe stock market trading, but this is a game that you can lose as well as win – so a few pointers should help.

Firstly, a word of warning: don’t think short-term. Many rookie stock-market investors get seduced by the idea of piling money in and taking a huge profit at the end of the day. This can happen but in general, you might as well invest in lottery tickets if you’re thinking like this.

Stocks and shares go up and down with the company’s fortunes and that of the market they operate in as well as the global economic situation. The way to invest smartly in stocks is to take a five-year view, choosing wisely at the start but then riding out any temporary fluctuations in price, rather than cutting and running. Any buying and selling you do will also incur charges, reducing any profits you do make.

Invest in a portfolio of shares. Putting all your financial eggs in one company’s basket is leaving yourself foolishly exposed – if the company crashes, you’ll lose the lot with no compensation. It’s also best to spread your investments across sectors. If you put all your money into one sector (for example, oil), you’ll lose heavily if there’s a dip in that market.

Be honest, you probably aren’t going to discover the next Facebook. Investing heavily in a small start-up is a very high-risk strategy for a small trader – look how cagey the Dragons in the Den are about putting money on the table!

Stock-market trading is not a way of getting rich quick. However, shares do offer a much greater reward than putting money in a bank, particularly over the long term. By doing your homework and spreading your risk, your gains could be substantial over a longer period of time.

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