How does a stock market trading operation work?
The common way traders make money on the stock market is to invest on the upside, that is, to make money if the asset they have bought sees its value rise in value. the weather.
Take the example of a stock listed on the stock exchange, like the one on the Amazon e- commerce site that everyone knows. The price evolution of this share can be represented by a graph where we can see the daily price history of this share (see below).
Source: CNBC
On this graph, we can see that the share price fluctuates over time, sometimes upwards, sometimes downwards, even if the general trend seems to be upward in recent years.
To earn money, it's very simple. If you think the price of Amazon stock is going to continue to rise, just buy it and wait for the price to move higher. If your profit target was achieved in the following weeks or months, all you need to do is sell your stock and pocket your profit.
At this stage, without using any technique, there is a 1 in 2 chance of winning a nice sum of money because of course the share price that the trader has just bought in our example can also go down. It should be borne in mind that a gain is never guaranteed on the stock market, it is the risk to be taken to make money.
As you can see, the operation is relatively simple and accessible to everyone. The history of Amazon stock prices being available on the internet, it is possible to try to anticipate future movements and invest effectively to make money on the stock market.
Good to know : it is also possible to earn money by betting on a drop in a stock market price, in this case, we are talking about a short sale transaction.
How to trade on the stock market: Tutorial
There are many online brokers that make it easy for you to invest in the stock market. One of them is the eToro broker . It is with this broker that we recommend that you take your first steps in stock market trading and we will explain why.
Step 1: Choose an online broker
Among all the online brokers available in France, eToro has 3 serious advantages: it is at the same time, regulated, reliable and offers competitive spreads.
eToro - The best choice for newbies in the stock market
the broker eToro . Since 2007, when it was founded, eToro has been active in most financial markets and today has more than 11 million members across Europe. These members can benefit from both spot trading and CFD trading.
eToro stands out from other brokers by the 'copy trading' function, i.e. social trading that it offers. This particular feature makes it possible to replicate any position that other traders on the platform take, which is ideal for getting started in trading.
Another strong point of eToro: it is a licensed company that is regulated by regulatory authorities. These authorities include the CySec in Cyprus and the 'Financial ConductAuthority', known by the acronym FCA, in the United Kingdom.
There are hundreds of different financial assets available on the eToro platform (stocks, ETFs, cryptocurrencies, commodities, currencies, and CFDs), each with specific pricing.
There is no commission for trading in stocks and ETFs either on the buy or the sell side. However, the difference between the bid price and the ask price at the time of the transaction must be taken into account for all other assets. This spread is called a 'spread' in the stock market. This spread is generally very competitive compared to the competition, it amounts, for example, to 1 pip at the moment on the EUR / USD parity.
EToro strengths
- eToro is regulated in a large number of countries
- 0% commissions on the purchase of shares on the stock market
- Access to most financial markets and financial instruments
- The purchase and sale of shares are not subject to commission
- No management fees
- Trading platform that is perfect for beginners
- Presence of the copy-trading function
- Very efficient stock market application on Android and iOS
Weak points
- Absence of an analysis and research center, but compensated for by copy-trading
- Few advanced trading devices
- $ 200 deposit threshold
It is therefore with the broker eToro that we will show you how to open your stock exchange trading account in order to start investing.
The opening of an account is done for free in a few clicks. Just follow our link presented above to access the eToro site . See our review and tutorial for eToro for more information.
Step 3: Make deposits to your account
Once your trading account is opened, you will deposit funds there . The minimum deposit on eToro is $ 200.
All eToro customer accounts are held in dollars, but not in euros. This is valid even for the accounts of the French. This is the reason why any deposit made in euros will instantly be converted into dollars. The conversion is made at the exchange rate in effect at the time of the deposit.
The minimum threshold for subsequent deposits is $ 50. You can make your deposits in several ways: with Neteller, Skrill or Paypal, but also with a credit card such as MasterCard, Visa or Maestro.
A deposit by bank transfer to your eToro account is also possible, but under conditions. The first is a minimum threshold of $ 500. The second is a 24 hour to 72 hour delay before your funds are credited to your account.
If you are ready to start trading, click on the blue button at the bottom left 'Deposit Funds' to be able to fund your account .
Step 4: Find your asset on the trading interface
To do this, it's very simple, let's say you want to buy Amazon stocks, just name 'Amazon' in the search bar at the top of the screenshot above and click on it.
Step 5: Open your position
The final step is to place your buy order on Amazon stock . To do this, all you have to do is enter the amount in euros that you plan to invest and then click on the 'Open position' button.
Good to know : you can also trade Amazon shares through CFDs using leverage (limited to 5); to do this, you just need to click on the 'X5' button (see screenshot below).
The basics of the stock market and financial jargon
The stock market world has developed its own jargon or language. For novice traders, it is essential to master this financial jargon because a misunderstanding of these terms can sometimes lead to a misinterpretation which can cost you money. This is the reason why we are going to review a small lexicon of the most common words and expressions on the stock market, which must therefore be known before getting started.
Active
It is a contract, also called a title, which is tradable on the stock exchange. Investors in the stock market hold assets with the objective of obtaining profits from them in the more or less near future. Assets come in the form of bonds, stocks, ETFs, commodities, crypto-currencies or even currencies.
Fundamental analysis
Fundamental analysis is a method for evaluating the intrinsic value of an asset and analyzing the factors that can influence its future price from financial and economic analyzes. Fundamental analysis is one of the two major methods of market analysis, the other being technical analysis.
Technical analysis
Technical analysis is a way of studying and anticipating the price movements of assets, based on their price history. It is based on the idea that if an investor can identify market trends, these can be a fairly accurate prediction of future prices.
Broker
A broker, also known as a broker, is actually a corporation. Its function is to place a client's trading orders. His remuneration generally consists of the commission on each stock market order placed through him.
Leverage
It is about opening a position on an asset by locking in only part of your choice of capital. As a concrete example, if you decide on a leverage of 10, your exposure in the market will be a hundred times greater. So with 100 euros, it is 1,000 euros. Your potential gains are therefore multiplied, but you must take into account that your losses will also be if the market turns badly.
Forex is the acronym for Foreign Exchange. It is therefore the market where currencies are traded. It is also called the FX, a term which refers to the currency and foreign exchange market. While the equity market is regulated, the currency market is not.
Derivatives
We call derivative products financial instruments such as swaps, futures contracts, turbos, warrants, options or other CFDs. The value of these derivatives depends on the price of an underlying asset.
Underlying
It is a financial asset on which the value of a derivative depends. This means that if the value of the underlying changes, that of the resulting derivative will also change. For example: a CFD on Bitcoin is a derivative product that depends on the price of Bit-coin, which is an underlying.
Scalping
It is about trying to make profits on the stock market on weak market movements. Very often, it is necessary to use significant leverage effects. This style of trading consists of opening and then closing a position within a shorter or shorter time frame given weak market movements.
Volatility
It is the measure which allows to evaluate the variation of the price of an asset during a given period. This measure is considered for both upward and downward variations. The degree of risk of an asset is also assessed through this measure: the greater the level of volatility, the greater the risk.
How to make money on the stock market?
If investors turn to the stock market to invest their money, it is above all to make money. In the financial markets, this can mainly be done in several ways that we will present to you:
Capital gains: the investor buys an asset that increases in value over time and by selling it for more than what he bought it, he earns the difference.
Income received: certain financial assets such as shares or bonds pay income each year to their holders, for shares, this is dividends and for bonds, coupons.
A combination of the two methods: in order to maximize earnings on the stock market, equity traders often seek to buy stocks that are likely to see their stock price rise, while paying dividends, in order to win both at the same time time.
Short selling : it is actually betting on the fall in the stock market price of an asset, such as a stock for example. The investor can then realize a capital gain with his price falling, but on the other hand in this case, he will not receive a dividend. However, this is a technique not recommended for novice traders.
Trading on derivatives: Sometimes stock market investors turn to derivatives for speculation through financial tools such as futures, CFDs and options. The main advantage of these instruments is that they allow a leverage effect likely to multiply the gains but also the losses in the event of error in judgment. Again, this is a technique not recommended for novice traders.
How much money can I earn with the stock market?
For novice traders, it can be risky to invest in the stock market. It is important not to invest the money you need to live and even less to borrow it to make your investments.
Know that there is no real minimum to invest in the stock market. It will vary depending on your age, your individual situation, your financial goals and the strategy you choose.
To quantify the amount received by trading, let's take our example of Bitcoin in the cryptocurrency market, whose value has doubled in the past two years.
If, for example, you invested in a BTC in 2019 in August, you shelled out roughly $ 5,000 to pay it off. By keeping it for 2 years, i.e. in August 2020, your profit would be $ 5,000, with Bitcoin having reached $ 10,000 in the previous August. This equates to a 100% profit in 24 months.
Evolution of the Bitcoin price over 3 years
Source: TradingView
To have a precise idea of the amount that can be touched over time, here is an example with supporting figures, with these theories: an investment starting at around one hundred euros and a return every year of 50% deducted from this investment.
- After a year, the initial fund reached 100 to 150 euros.
- After two years, the initial fund reached 100 to 225 euros.
- After three years, the initial fund reached 100 to 337.50 euros.
Good to know : nevertheless, it should be kept in mind that its starting capital rarely increases in a linear fashion, given the volatility of stock market prices. The example of Bitcoin is there to show it, the BTC not having always returned to its highest historical levels reached in December 2017.
10 tips to follow to succeed on the stock market
In this section, we have grouped together the 10 rules to follow to successfully invest in the stock market: You want to make your debut on the stock market a reality, but you don't know where to start? These 10 tips will be invaluable to you. On your marks, get set, trade!
1. Have basic knowledge
To get started on the stock market, you must have the bare minimum of knowledge bases, both in fundamental analysis and in technical analysis. Clearly, you must familiarize yourself with all the products (bonds, stocks, ETFs, commodities, etc.) and know how to identify the market and the links between them.
2. Reasoning over a long period
The least risky solution to improve profitability is to invest over a long period, as assets are inherently volatile. We can see the market decline before moving forward. This is especially true in the equity market which will push back those who fear the most risk. To avoid a general loss, many traders do not engage in these types of markets. Yet, according to a large number of studies, these actions are successful in the long term.
3. Determine your risk appetite
Among the most essential things to get into the stock market is to determine the maximum risk rate that one is willing to take. In this sense, you can opt for products that match your risk appetite. This exercise is essential, because it will allow you to analyze your personal situation in order to orient you towards the investment strategy most suited to your risk profile.
4. Follow strict risk management
It is a question of defining a level of risk before investing, a sort of risk budget in the event that the market evolves unfavorably. If this is the case, then do not hesitate to cut your position. Indeed, risk management is fundamental on the stock market. Many investors buy assets, be it stocks or currencies, without really knowing how much risk they are actually exposed to.
5. Start by opening a fictitious account
As in all learning, after theory we move on to practice. The most suitable solution for getting started on the stock market is a scenario without suffering any loss. This is possible thanks to virtual accounts, in particular demos, visible on certain trading sites. It is a way to practice before investing your own money, but also to test investment strategies before putting them into practice.
6. Make no mistake in choosing your asset
The least volatile and therefore the least risky investment tools are undoubtedly the most compatible for beginners in the stock market. But it is also recommended to opt for an asset that we are able to analyze on the fundamental level. You should know that commodities, currencies and crypto-currencies are among the assets considered to be theft. Which makes them risky assets.
7. Know the basics of diversification to get started on the stock market
The most common solution to reduce financial losses is also to diversify your investments as much as possible. To avoid running any risk, professionals recommend holding around ten different assets, making several investments at the same time. For example, if you had stocks of only one company in your portfolio, in the event of a fall, your portfolio would suffer the same setback whereas by being invested in stocks of several companies at the same time, you would have limited your loss.
8. Be objective and neutral
To avoid negative impacts on your investment, you must remain impartial. In some cases, an investor is tempted not to sell one of his investments despite common sense, while trying to remain as objective as possible in his investment decisions. This imposes an iron discipline, because it is far from obvious for many individuals.
9. Control your emotions
Every investor should pay attention to their emotions. In order to get started on the stock market according to the rules of the art, it is necessary to contain these so as not to take hasty and unanswered decisions. This will result in a significant loss of money. In these troubled times, it is possible to do very well by finding the assets that will do well and especially by keeping a mind of steel.
10. Accept to lose
Investing in the stock market is not without risk, in particular that of loss of capital. It is therefore essential to be able to take responsibility for your decisions which can sometimes lead to losing operations. Over time, you will know that the mistake not to make is not to accept losing on the stock market. You persist in keeping assets whose value is falling or even worse, you continue to buy in a bear market and in the end you ruin your trading account.
Stock market trading: how to do technical and fundamental analysis
Yes, it is quite possible to make a living from the Stock Exchange for experienced traders with a solid starting capital.
To do this, these traders generally use one of the two methods we have already mentioned to you: technical analysis and fundamental analysis. Discover in the following lines their main investment strategies which are intended to be winning over time.
Technical analysis
Short-term and scalping traders particularly appreciate technical analysis to determine when to buy and when to sell.
This is day trading . This term means real-time evaluation and estimation of charts on a minute or second basis.
It must be said that this analysis is based on the analysis of the evolution of the price of an asset over the recent period. To do this, these traders use technical indicators, such as support and resistance levels, trend lines, moving averages or even Bollinger bands, to help them determine the future direction that an asset will take and Act in consequence.
To go further, see this article on The best French books on technical analysis.
Fundamental analysis
Fundamental analysis is more oriented towards long-term investment strategies. Indeed, this type of financial market analysis is based on a whole set of factors (economic, social, political and financial) 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 in order to compare it to its current price. The goal is to determine whether the asset in question is overvalued (sell signal) or undervalued (potential buy signal).
This investment style aims to capture risk premiums and market anomalies observed structurally, over long periods.
The Stock Exchange and any training
To familiarize themselves with the world of trading, a large majority of brokers offer their clients inherent training guides. These are accessible online and promote safe and confident learning. We have identified some available tools for you.
Use free online brokerage training and resources
Online brokers help their traders learn to trade easily by providing free training and many other online resources, such as educational videos on the stock exchange. The trading platforms also offer trading webinars that you can attend for free.
Train on a demo account
The majority of stock brokers give pride of place to the trading education of their users. They set up free demo accounts to familiarize themselves with the functionalities of each platform, without the risk of capital loss.
Offline resources
You can also learn trading by using certain types of offline training. The trading schools are one of the possibilities before launching but their training is obviously paying. Our advice is to favor those that are well established.
For novice traders with small budgets, it is also possible to read trading books that allow them to understand the main indicators of technical and fundamental analysis and to learn the different investment strategies to put in place to be successful.
Our advice : to become a good trader, do not settle for free training offered on online brokerage sites.
Conclusion: how to get started in stock exchange trading?
For beginner traders, it is not complicated to take your first steps on the stock market. You just need to follow a few simple steps to choose the best broker possible and put in place a rigorous investment strategy in terms of risk management in order to preserve your capital for the long term.
eToro is definitely the perfect online broker for all newbie traders from our perspective, with access to hundreds of different financial assets available on their eToro platform (stocks, ETFs, cryptocurrencies, commodities, currencies, and CFDs). ) and particularly attractive pricing.
So nothing stops you from getting started, but always be aware that trading involves risk of loss and never invest all your capital.
Disclaimer: Every trading operation has a risk. We cannot offer any guarantee of profit. All content on our website is for informational purposes only and does not constitute a recommendation to buy or sell. This applies to assets as well as products, services and other investments. The opinions communicated on this page do not constitute investment advice and independent financial advice should be sought where possible.