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Individual stocks are shares of stock issued by a single company, and investing in them has a unique set of advantages and disadvantages. The potential growth rate is higher than if you are investing in all the market. It allows investors to target investments more effectively.
However, investing in stocks can have its downsides. There is a lot of risk when you invest in one company. You also risk missing opportunities on the other side of the market.
We wouldn’t recommend putting all of your portfolio into one stock. It is important to have a diverse portfolio, regardless of whether you are participating in stock trading plans at work.
A small portion of your portfolio can still be invested in high-performing individual stocks to increase your returns. This is what you should be doing if it interests you.
Stock Trading vs. Stock Investing
The stock market is a complicated place, and there are many different strategies people use. There are many options, from day trading where you buy and sell stock within a day to long-term investment where stocks can be held for several years. If you are investing for retirement, you likely err more toward the latter.
What you want to gain from trading is the easiest way to distinguish between investing and trading. Traders, on the other hand, are more involved and can trade for part-time income or even a full-time job. You might be surprised to learn that active trading can take up more of your time. If you’re a day trader you need to be able trade when the market is open.
Investors have a separate job. These investors tend to make passive investments in stocks, helping to build a retirement fund.
1. Determine Your Trading (or Investing) Strategy
If you want to buy individual stocks, you must first decide whether your primary strategy will be more active or more passive. These decisions will impact where you end up purchasing your shares. You must also be able trade during open market hours if you wish to become a day trader. You will likely be less active if you aren’t leaving your day job.
But even if you are passively investing in stocks, there is potential for greater returns than you could get with mutual funds, ETFs, and index funds. Day traders need more sophisticated features and faster execution times so it is important to decide what style you will choose.
2. Choose Your Platform
Once you have mapped out what your trading or investing style will be, it’s time to pick your trading platform. You must determine your strategy first because there is a wide variety of different trading platforms, and some are more robust than others. Even at this step, you have a few different possible approaches:
3. Determine Your Trading/Investing Budget
Once you know where you will buy your shares, the next step is to determine how much money you will actually put toward your trading endeavors. It’s not necessary to have a large amount of capital in order for you to begin trading.
While full-service brokers might require $10,000 to $100,000 in order to start, this isn’t the case for discount brokers. Today, you can invest as little or as much as $1 with many trading apps and discount brokers.
Trading is more rewarding if you have more capital. For day trading, there is a minimum equity requirement of $25,000, per FINRA rules. If you have less than that, you can start with a more passive strategy and perhaps move to swing trading later if you want to be more active.
4. Research Your Investments
Researching your investments is of course key to success, whether you are trading or investing in individual stocks. If you’re new to trading, it can seem overwhelming to find the right place to begin. However, here are a few points to get you started:
When in Doubt, Try a Stock-Picking Service
We all lead busy lives, and that can make it tough to find the time to do in-depth stock research. Even more, it is possible to not be familiar with the best stocks to buy if your first time. That’s okay.
If you don’t have the time and/or know how to do your own research, consider a service like The Motley Fool. Their bread and butter is picking stocks, so they take care of all the research. The company’s best-known service, stock advisor will cost $99 your first year.
5. Start With Paper Trading
Paper trading, or simulated trading, is a great way to start if you are new. You can trade the same way a real trader, but with fake money. However, all other activity in the market is genuine. It’s not possible to make money from it but you won’t be disappointed. This allows you to test your trading skills and get familiar with the market before diving in on your own.
Since paper trading can be a good way to get new customers, more and more brokers add it. One good place to give it a try is TDAmeritrade with its paperMoney feature.
6. Start trading!
You’ve already practiced your trading skills on the bunny hill; it’s now time to get into the big leagues. Your trading budget may still be small. You may end up with more money if you do good trades.
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