Should we invest in the stock market ? Why invest in the stock market? How to invest in the stock market? Where to invest in the stock market at the moment? If you want to learn how to invest in the stock market , these questions are necessarily at the heart of your thinking. Since more and more beginners want to get started, we have created this article that will allow you to take your first steps and invest well in the stock market.
How to invest in the stock market? Investing in the stock market in 3 quick steps
If you want to start investing in the stock market now, follow the next 3 steps.
67% of retail investor accounts lose money when trading CFDs with this provider. You should ask yourself if you can afford to take the high risk of losing your money.
How to invest in the stock market online - a beginner's guide
But how does investing in the stock market work ? To be sure you know how to invest your money in the stock market, we suggest you follow 5 super easy steps for beginners.
Step 1: Choose a broker to invest in the stock market
The first step is to choose a site to invest in the stock market or a broker that will allow you to place your buy and sell orders safely. It is a crucial choice that will allow you to avoid scams, to trade with a serious broker and to use the tools that match your trading strategy.
Which stock brokers are the best in 2021?
Here are the best stock brokers in 2020:
Find out below the best brokers to trade on the stock market, and which one will best suit your needs.
How to choose your broker?
First, determine your trading style and your stock market analysis strategy : short-term vs long-term, trading analysis vs fundamental analysis
Establish your trading plan to determine your trading needs : technical indicators, fundamental analysis tools, level of leverage, fixed vs variable spreads
Select a regulated broker in Europe offering guarantees to retail traders : negative balance protections, participation in an investor compensation fund (ICF), use of segregated accounts
Analyze the trading conditions of the selected broker : fees, commissions, spreads, available account currencies, deposit / withdrawal fees, minimum funding, CFDs, margin
Ensure the availability and knowledge of customer service : means of contact, opening hours, languages, level of professionalism
Test the trading platforms offered : a demo account can allow you to be sure that the platform is easy to use and that it offers all the tools you need
eToro - Best Stock Broker
Payment methods :
Since 2007, the international and regulated broker eToro has offered a powerful trading platform ideal for all users who wish to invest in the stock market via a classic portfolio but also via CFDs.
With eToro you can invest in 800 stocks and indices such as the CAC 40 with 0% commission. This includes industries like basic materials, conglomerates, consumer goods, finance, health care, industrial goods and technology.
Facebook, Microsoft, and Yandex are some of the most popular stocks to trade on eToro with thousands of users trading them every day on their interactive platform.
The innovative and unique feature of eToro is its copy trading technology which is ideal no matter what your experience with the stock markets is. This tool allows users to copy the portfolio of successful investors with one click and exchange trading tips and strategies.
While eToro does not charge trading and financial products fees, deposit or clearing fees, the withdrawal fee is $ 5 or the equivalent for any withdrawal over $ 30 or the equivalent. If you do not log in for a year, eToro will take a monthly inactivity fee of $ 10 or the equivalent from the available balance.
Advantages :
- Excellent reputation
- Possibility of investing in the stock market in a traditional way and in CFDs
- Copy-trading
- Social trading
- Easy to use
- Quick registration
- Regulated broker
- Customer service available and responsive
Disadvantages :
- Not suitable for advanced traders
- See our review and tutorial for eToro for more information.
67% of retail investor accounts lose money when trading CFDs with this provider. You should ask yourself if you understand how CFDs work and if you can afford to take the significant risk of losing your money.
Libertex - Invest in the stock market with CFDs without spreads
Founded in 1997, Libertex has made a name for itself by offering CFD trading on 213 assets with their 'Market Maker' model which does not charge any spread to clients.
At Libertex, you will find more than 50 stock exchange stocks with the highest volatility in the financial markets. Libertex provides access to American, European and Asian stock exchanges by offering the best performing stock market indices.
You'll be able to choose from a variety of financial products and indices to invest in: from the US S&P 500 to the Israeli TA35 and trade CFDs on stocks, metals, agricultural and energy commodities, blue chips and more. The leverage is up to 30: 1 for retail clients and up to 600: 1 for professional clients with no spread.
When you trade with Libertex, there are two types of fees and commissions which vary depending on the instrument: transaction fees (charged after the position is opened) and rollover (charged at the end of the day).
You can get a percentage discount on trading fees based on your total deposit. For example, if you make a total deposit of $ 1,500, you may qualify for a 20% cashback percentage.
Advantages :
- Possibility of investing in the stock market with 10 euros
- Trading commission reductions available according to certain criteria
- Regulated broker
- Disadvantages :
- One type of trading account
- Market-maker broker
- Limited educational resources
- AvaTrade - For advanced investors
Payment methods :
AvaTrade is a global broker dedicated to CFDs and FX. Founded in 2006, it offers several trading platforms and many advanced tools for experienced traders.
Avatrade is a secure broker for trading hundreds of financial products and stocks via CFDs with leverage of up to 5: 1 and low spreads starting at 0.13%. You can also trade the biggest indices like the S&P 500, CAC 40 and NASDAQ 100 with a leverage of 20: 1 and spreads from 0.25 pips.
Additionally, this broker offers a variety of learning materials ranging from free courses and market analysis to video tutorials and how-to articles.
After 3 consecutive months of not using the AvaTrade platform, you will have to pay an inactivity fee of € 50. For each new period of inactivity, this amount will be deducted from your balance. After 12 consecutive months of non-use, you will be subject to an annual administration fee of € 100.
Advantages :
- Highly regulated broker
- Invest in hundreds of stocks and indices
- Advanced trading tools
- Learning resources
- MT4 and MT5 platform available
Disadvantages :
- Limited deposit methods
- Slow withdrawal time
- Investment in CFDs only
Step 2: Open a trading account
Click on this link to take your first step on the stock market, open your account with eToro and invest in more than 800 stocks.
67% of retail investor accounts lose money when trading CFDs with this provider. You should ask yourself if you can afford to take the high risk of losing your money.
Once you have completed the registration form with your personal information, chosen a username and password, and accepted the terms and conditions, click on 'Start trading' to access your personal eToro space.
Step 3: Verify your account
It is necessary to verify your account by answering a series of questions regarding your situation and your investing habits to determine how eToro will be able to protect you as a private investor. Click on 'Complete profile' below your name on the left.
Once you have answered the various questions, you will need to send proof of identity issued by the government (identity card, passport, driving license) and proof of address dated less than 6 months (bank statement, water / electricity / gas bill, letter from a municipality) to be able to benefit from all the advantages of eToro.
Verifying your account is a mandatory step that allows the company to meet regulatory requirements and ensure the security of the platform.
Step 4: Deposit funds
Once you have created your eToro account, click on the blue button at the bottom left of your 'Deposit Funds' screen to fund your account to place your first order.
Choose your payment method (PayPal, credit card, wire transfer or other) and enter the amount you want to transfer. Also indicate the currency in which you want to pay (USD, EUR, GBP or AUD).
Then click on 'Submit'.
Step 5: Buy your first share on the stock market
Once you have deposited your funds, you can start investing in the stock market and buying financial products. To buy your first share, click on the 'Markets' tab in the menu on the left of your screen.
You then arrive at the general eToro marketplace. There, click on the 'Actions' tab at the top.
You will thus obtain all the available actions. You can filter them by industry or by stock exchange.
Let's click on the New York Stock Exchange to take an example and buy Apple's CFD by clicking on 'Buy' (see image above).
You must now choose the amount you want to invest (depending on the funds available in the account) and the rate at which you want to buy Apple (unless you want to buy the stock on the market i.e. at the first available price) .
Then, it is important to choose your leverage as well as the location of your stop-loss (maximum loss) and take-profit (maximum gain) to protect your capital according to your trading plan.
Finally, validate the operation by clicking on 'Place an order'.
67% of retail investor accounts lose money when trading CFDs with this provider. You should ask yourself if you can afford to take the high risk of losing your money.
Investing in the stock market: advantages and disadvantages
We therefore know more about how to start investing in the market and how to open an account through a broker. But it is worth dwelling on an important point which is whether stock market trading will be an activity that is going to be suitable for you.
To do this, we will now look at the pros and cons of investing in the stock market.
Advantages
- Prepare for the future by putting your savings to work
- Obtain an attractive return on investment
- Take advantage of the best way to stay ahead of inflation
- Benefit from the power of compound interest
- Low management, custody or account management fees
- Dividends received when you invest in companies
- Easily accessible financial markets around the world
Disadvantages
- Knowing how to deal with certain risks and scams
- Finding the right asset to invest in on the internet can take time
What types of stocks can you invest in?
One wonders in which sector to invest in the stock market, and in truth there are a multitude of sectors in which to invest in the stock market. The sector classification for these financial products is based on several standards.
Among the most popular for investing in the stock market, we will find:
- classification methods based on financial products or market-based
- Industry Classification Benchmark (ICB)
- the Thomson Reuters Business Classification (TRBC)
- the Global Industry Classification Standard (GICS)
According to the Global Industry Classification Standard, there are 11 sectors, 24 industry groups and 68 industries. On the basis of their main business activity, we can separate stocks as follows:
- Energy
- Health
- Raw materials
- Financial actions
- Industrial values
- Information technology
- Consumer discretionary
- Consumer staples
- Immovable
- Telecommunications
- Public services
There are also promising new alternative industries such as shares of related companies:
- To crypto-currencies
- To the blockchain
- To the cannabis and marijuana industry
- To start-ups
What stocks to invest in?
As you begin your stock market journey, one of the most important questions you'll need to answer is 'what to invest in'. To determine where to invest in the stock market, you have to take into account the state of the global economy.
Indeed, any economy must face successive periods of expansion and contraction which will penalize or support the performance of given sectors.
It is therefore essential to know which phase of the economic cycle you are in to understand the relationship between economic cycles, business cycles and market cycles, which will give you an advantage over other investors.
For the moment, it is difficult to see clearly the situation of companies. This is even more true in the face of so many uncertainties about the restart of activity and the amounts of total aid adopted by central banks and governments.
Indeed, the rapid spread of the COVID-19 health crisis has strongly impacted the stock markets because of the restrictions, quarantines and containment measures that have been adopted to protect the population.
However, after the recent sharp decline in financial markets, investor sentiment has shifted which has allowed the equity market and some stocks to rebound significantly. We can therefore ask ourselves, should we invest in the stock market today, and if so on which group?
Here are 10 stocks that seem attractive to us in view of the recent declines but especially the upside potential to come:
Apple (communication) Apple is a very popular company with very strong finances. This is because the company has a huge amount of free cash that should help it weather the economic downturn caused by the coronavirus. In addition, its products are still appreciated by its community.
LVMH (luxury) LVMH is a luxury goods company with 75 brands within 6 activities: Wines & Spirits, Fashion & Leather Goods, Perfumes & Cosmetics, Watches & Jewelry, Selective Retailing and other activities. In addition, LVMH only faces a handful of high-end competitors, which gives it a significant advantage.
Dollar Tree (discount) Focusing on urban and suburban markets, Dollar Tree is an American discount chain store that sells its products for a dollar. During an economic downturn, customers with tight budgets should support the company's sales. Therefore, the title can be a solid option with these uncertain times in the United States.
BNP Paribas (bank) The banking sector is particularly interesting for investors looking for value or yield stocks, ie stocks that trade at a price lower than their intrinsic value. With concerns related to the consequences of the coronavirus and the monetary and budgetary policies adopted, the BNP Paribas share price fell sharply, offering good opportunities to enter the market.
Bayer (pharmaceuticals) As a pharmaceutical company, Bayer is an attractive asset for those looking to invest for the long term. With the possibility of patenting new treatments and the race for vaccines against the coronavirus health crisis, the pharmaceutical industry may also offer interesting opportunities.
Amazon (Ecommerce) Amazon stocks are so strong that many consider them to be part of any investor's core portfolio. With expected EPS growth of nearly 56% per year over the next five years, Amazon should be a good investment.
Total (energy) Active in more than 130 countries, Total is a major player in the energy sector which produces and markets fuels, natural gas and electricity. With the sharp drop in oil prices, the share price fell sharply offering an attractive valuation in view of the size of the company.
Ingenico (payment solution) Ingenico is a leading payment service provider with strong free cash flow. The company should benefit from this growing sector thanks to two main business dynamics: payment terminals (sustainable growth rate) and online payments (strong growth).
Orpea (nursing homes) The nursing home sector and the elderly care industry offer good returns on investment, especially in western countries with rapidly aging populations. Investors are thus able to obtain attractive regular returns in a growing industry.
Verizon (telecommunications) Much like companies in the electricity sector, Verizon's income is secure since no one is going to give up using their phone - especially not during a lockdown. In addition, Verizon has several large customers who are bound by large contracts. It should not be forgotten that the company pays an attractive dividend which continues to grow.
How do you find the right time to invest?
How to invest at the right time? Finding the right time to trade or invest in the stock market is not always easy. To analyze the stock markets and get buy signals, there are two main methods: technical analysis and fundamental analysis.
Technical analysis or chart analysis of the price of an asset
Short term traders especially appreciate technical analysis to determine when to enter and exit the market. This type of financial market analysis is based on three assumptions:
the prices displayed include all the information available
assets always evolve in trend
history tends to repeat itself
Technical analysis is therefore based on the analysis of price action. We often add to the latter technical indicators, support and resistance levels, trend lines and much more. The goal is to determine the future direction an asset will take and obtain buy and sell signals.
Among the most popular technical strategies for spotting good times to invest in the stock market, we will find range, pullback, gap or even breakout trading. The most popular technical indicators are Moving Averages, Bollinger Bands, RSI, and MACD.
To go further, see this article on The best French books on technical analysis
Fundamental analysis or analysis of the intrinsic value of an asset
Fundamental analysis is more oriented towards long-term investment to capture large movements. Indeed, this type of financial market analysis takes into account the evolution of economic, social, political and monetary forces that affect the price of an asset.
The basic principle of fundamental analysis is that the current price of an asset does not necessarily reflect its true value. Fundamental analysts therefore seek to determine the intrinsic value of an asset. Then they compare it to the current price. The aim is to determine whether the asset in question is overvalued (potential sell signal) or undervalued (potential buy signal).
Among the fundamental factors to follow for a financial and accounting analysis of a company before investing in the stock market, we will find the announcements of results, the yield, the distribution rate, the prospects for growth, the performance of the company by in relation to its sector of activity, earnings per share (EPS), price-to-earnings ratio (PER), etc.
How much money should you invest in the stock market?
Since for those with a beginner's level of investing in the stock market, trading can be risky, it is important not to invest the money you need to live and not to borrow to invest in the stock market.
There is no real minimum to invest in the stock market. In the end, it all depends on your personal situation, your age, your strategy and your financial goals.
To determine what stock returns you could profit from, let's take an example:
You bought Apple shares in January 2016 at $ 100 a share
Let's say you bought $ 2,000 worth of shares, i.e. 20 shares (2,000 / 100)
In early 2020, Apple stock reached $ 300
If you had decided to close your position at this point, your profit would have been $ 200 per share ($ 300 - $ 100)
By selling all of your shares, your capital gain would have been $ 4,000 ($ 200 * 20 shares)
So, over a period of 4 years, your ROI (return on investment) would have been 100%, which is a great investment. With this example, you had to start investing 2,000 euros in the stock market (or the equivalent) and go further thereafter.
Imagine if you could have invested 10,000 euros in the stock market (or the equivalent):
You bought Apple shares in January 2016 at $ 100 a share
Let's say you bought $ 10,000 worth of shares or 100 shares (10,000 / 100)
In early 2020, Apple stock reached $ 300
If you had decided to close your position at this point, your profit would have been $ 200 per share ($ 300 - $ 100)
By selling all of your shares, your capital gain would have been $ 20,000 ($ 200 * 100 shares)
Let us not forget that we must also add dividends which also increase the return on these stock market transactions.
Also be aware that you can use margin trading and CFDs to increase your exposure to the financial markets. You can start investing in the stock market with 100 euros or 200 euros.
This is what eToro offers you via CFDs. Thus, it can also allow you to start investing in the stock market with relatively low initial capital and to control your level of risk.