When it comes to trading the stock market, one of the most important questions asked is obviously, how to buy shares. Or more importantly, how to know which shares to buy.
What is it that seperates a good share from another, and what do we look for when we are staring at the computer screen, looking for the next perfect trading opportunity?
Obviously the market is made up of thousands of shares, and millions of traders. Traders are people, and trade using their own emotions. Each trader has a different expectation from the market, and so the question of how to buy shares then becomes one of the old "how long is a piece of string".
Some of the questions that you need to ask yourself before taking any trade is, what do I want from this trade?, how much time and money am I prepared to commit to it?, what is realistic, and what is pie in the sky?
How many of these particular shares can I afford to buy?, and is that amount going to be enough for me to make any money from?
For example:
If you have $1,000 to trade with, and you are looking at BHP shares, which are trading at say $30 per share. $1,000 / $30 = 33, therefore, you can only afford to buy 33 BHP shares, (less brokerage costs). Let's say that BHP rose in price by 10%, which is quite a big movement for such a big stock.
This would mean that BHP shares are now worth $33 each, and hence, your 33 shares are now worth a total of $1,089. This is a profit of just $89, even though BHP rose in value by 10%. In other words, big percentage gain, but only small monetry gain. In fact, after brokerage costs, you would probably take a small loss!
Consider the same trade using say $100,000. $100,000 / $30 = 3,333 shares. 3,333 shares sold later when BHP is trading at $33 per share, and you now have a total of $109,989, for a profit of almost $10,000.
Same trade, same time frame, except one you walk away with 10 grand, and one you walk away with a loss becasue you don't have enough to even pay the brokerage costs.
This is the most important issues you need to take into account when you are first learning how to buy shares. Make sure that you don't trade under capitalised.
does this mean that you can only trade if you have $100,000 or more? - Absolutly not. I first started trading with less that $1,000 10 years ago. You need to trade the right instrument, and trade the right strategies. With only a small amount of money to trade with, rather than buying BHP sahres outright, you may rather trade the options, the CFD's, or consider using margin lending to increase the size of your trading account, as well as your leverage.
Have a look at my
Stock Option Trading video example to see the power of trading options over shares.
I also explain all of these strategies in my home study course.
If you haven't already done so, grab a copy of my free info pack, which explains more in step-by-step detail
