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How to increase your wealth by learning to trade stocks

How to increase your wealth by learning to trade stocks


The coronavirus hit the world right out of the blue at the beginning of 2020, however, nobody expected us to still be suffering its effects nearly a year later.

The world has still not returned to normality as global travel has all but come to a standstill, people who are lucky enough to still have jobs are working from home, and children are being educated online rather than in the classroom.

This has all meant that many people are looking for ways to supplement their income without leaving the home. The obvious place to start is by using the internet, and one way that many people find profitable is to learn to trade stocks. However, this is not an easy subject to learn and requires lots of careful research to turn a profit and not lose your investment before you have even got started in earnest.

In this article we are going to offer some help to novices by taking a look at how to increase your wealth by learning to trade stocks, so read on to find out more.

Research

If you want to trade stocks successfully then you must do your research, and that doesn’t just mean reading the paper daily, it means delving into the financials of every company that you are thinking of investing in, as well as their sector of the economy. You must also have a real understanding of geopolitical events and how they can affect the price of stocks and shares. Knowledge is power, and without knowledge, you will literally be throwing your money down the drain. Keep an eye on every stock under consideration for at least a month before you invest, and corroborate your own judgment by reading what various different analysts have to say about your chosen stocks. This will all help you to make an informed decision and will avoid you making those early damaging losses.

Set a Trade limit

It is all very well trying to chase megabucks by picking stocks that will increase in price exponentially, but in reality, very few of us have this ability, otherwise, we would all be millionaires. You need to choose the size of your investment fund at the outset and then a limit to the size of each individual trade. Most professional traders would work on basis that no single trade can be worth more than 1-2% of the entire fund, and this way, you will never suffer ruinous losses. You may not become a millionaire overnight, but earning little and often is better than losing a fortune in one go.

Avoid Penny Stocks

We have all heard about penny stocks from watching films such as Wolf of Wall Street, and if you think back to that film, the only people getting rich were the brokers. The investors were often left destitute. There are various reasons for this, but the main one is that penny stocks are extremely illiquid. This means that there is a tiny market exchanging the shares, so once you have bought them, it is often impossible to sell, even if the share price notionally goes up. Even if you have done your research, it is worth staying away from these stocks as the chances of you picking the ‘one’ that outperforms the market really are quite minimal.

Use Options

If you have done your research properly, then investing in options can be a great way of increasing your wealth. Andrew Keene’s extra income project review explains that Instead of actually buying a stock, what an option does is give you the right, but not the obligation, to buy a stock at a defined price at a future date. This means that if you see a particular stock increasing in price for one reason or another, then you can strike an option giving you the right to buy it when you think it will have increased in price. Profits can be much larger using this type of trading system, but conversely, losses can be huge as you risk losing the premium that you pay when you strike the option in the first place if you do not take up the option. This is the risk/reward factor of this type of trade, so you must research thoroughly before you delve into this market.

As we have learned, there are various ways to increase your wealth by trading stocks. Research is key, as without doing it, you will likely lose all your money. Set trading limits to limit your loss, and avoid illiquid penny stocks as you will struggle to get rid of your holdings. Use options to increase the profits that you can earn, but always make sure you are aware of the pitfalls. If you follow this guide, hopefully, you will see your wealth increase in no time at all.



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