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Beginner’s guide: Share trading on the stock market
Beginner’s guide: Share trading on the stock market
Staff writer
Posted 26/04/2024 Updated 29/04/2024 6 mins
Digital share trading platforms make it easier to start investing in the stock market.
Traditionally, many people shy away from investing in the stock market, leaving it to professional investors or those with knowledge of the financial markets. In recent times, that picture has changed, largely because the internet makes information about stock markets, and investing in them, so much more accessible and understandable.
Nevertheless, you may still find stock markets intimidating as an individual investor. If you’re keen to explore this type of investment, what do you need to know? Here’s a clear, straightforward explanation of how to invest in the stock market if you’re a total beginner.
Share trading basics
Put very simply, investing in stocks is a way to grow your money over time. Whether you have thousands of rand to play with or a more modest amount, you can make your money work for you – if you have patience and pay attention.
Share trading always includes the chance of making a loss, but there are ways to lower the risks. With advisory apps, automated platforms and financial specialists readily available online, it’s more accessible than ever. These are the steps to follow:
Decide on your investment goals
What is it you want to achieve through share trading? Set clear financial goals, tied to your timeframe and your life goals – retirement, saving for a home, etc. The more specific you can be and the clearer you can be about a timeframe, the more confidently you can invest in shares. Your investment goals will change over time, so review why you are trading and what you want to get out of it regularly.
Set your budget
How much you can commit to buying shares depends on your financial means and your overall budget. Don’t worry if you can’t invest thousands straight away, and don’t let it deter you if your initial investment is determined by what you can afford. If you are thinking of setting out to trade, don’t expect any immediate returns to be paying off existing debts, but decide whether investing with a lump sum or investing smaller amounts each month is what you can afford.
How much you can commit to buying shares depends on your financial means and your overall budget.
Determine your relationship to money
Your attitude to money will determine your trading style – especially your tolerance for risk. You might prefer to be more active in keeping up with your portfolio and checking the performance of the companies that you’ve invested in. Or you might have a hands-off approach, trusting that your portfolio will grow over time. It’s important to assess your attitude and change it if necessary. The different styles boil down to whether you will manage your own portfolio, through online brokers for various investment options – such as stocks, bonds and exchange-traded funds (ETFs) – or whether you will invest via a financial adviser, who will collaborate with you to understand your investment goals and trade on your behalf.
Choose an investment account
Once you’ve figured out these steps, you’ll understand what type of investment account you’ll need better. The most common are brokerage accounts, which are flexible and usually don’t have investment limits. These can be:
- Individual brokerage accounts, opened by 1 person. The account holder has full control over the investments and is solely responsible for any tax implications. You can buy shares usually through a cash account using the available money.
- Joint brokerage accounts. These are shared by 2 or more individuals, typically spouses or partners, and can be structured as joint tenants with rights of survivorship. This means that if someone on the account dies, ownership passes to the survivor or survivors.
- Managed accounts. These accounts are professionally managed by a portfolio manager who makes decisions on your behalf, personalised to your needs, goals, and investment style.
Know the costs of investing
Primarily, apart from paying for shares or your chosen stock market instrument, the costs you will bear relate to broker’s commissions. These can take several forms, depending on the type of broker you work with, which in turn is relative to your investment needs.
- Commissions and fees. Brokerages normally charge fees for account maintenance and additional services like research or financial advice. A broker might charge a commission every time you trade a stock, whether you buy or sell. Some brokers charge no trade commissions at all, but they make up for it with other fees. Depending on how often you plan to trade, these fees can add up, affect your portfolio's return, and deplete the money you have available to invest.
- Maintenance fees. Some brokerages charge monthly or annual fees to keep your account active. These might be waived, though, if your account balance is above a certain threshold.
- Service fees. You might pay additional fees if you haven't used your account in a while. Brokers may also charge for services like broker-assisted trades, or access to their premium research. These fees and services will generally be optional.
- Subscription-based models. A recent trend in the share trading space has been the rise of brokers taking on clients on a monthly or annual fee basis for apps and app-based services if you are trading online.
Understand brokers and accounts
Your final step before you begin trading is to enlist broker services and set up a trading account. Your brokerage, which can be a purely online trading company, should align with your budget and investment goals. Factor in their fees, investment options and their ease of use before you commit. Choosing an account type will involve submitting personal information, as will linking the bank account that you want to use for paying fees and making trades. Once your bank account is linked, you’re ready to load funds and start making trades.
Pick stocks
You’re now at the business end of your share trading journey – and perhaps the most difficult step of them all. If you’re starting out, it’s sensible to look for stocks that have stability, a strong track record, and the potential for steady growth. Here are some options:
- Blue chips. These are shares of large, well-established, financially sound companies with a history of reliable performance. These are often businesses that appear on the JSE Top 100 companies list, or the likes of the S&P 500 for international organisations. They are typically industry leaders and offer stability during market fluctuations.
- Dividend stocks. Companies that regularly pay share dividends are a good choice if you’re starting out. Dividends provide a regular income, which can be reinvested to buy more stock or put into tax-free investment vehicles.
- ETFs. These share trading vehicles track many share indices and industry sectors and enable you to gain exposure to wider range of share assets. They often track a specific market such as the JSE Top 100.
A good takeaway to remember is that you should keep it simple. Investment funds should feature prominently. Warren Buffett, perhaps the world’s best investor, famously said that a low-cost ETF is the best investment most people can make, and that you should only choose individual stocks if you believe in the company’s potential for long-term growth.
Nedbank offers comprehensive advice on investing and a full brokerage service. If you’re interested in going ahead on your own or through an online service, you can email nedbankonlinetrading@nedbank.co.za.