How to Invest in Stocks: Beginner's Guide

New or novice investors are always looking for a way to get started in the best and simplest way possible.  

Naturally, the stock market usually draws plenty of attention as a route for the beginner investor. It’s also crucial to keep in mind that any investing activity always involves an amount of risk, which one should first always establish their tolerance for losses. 

After all, stocks are now seen as more accessible to the general public, with more global daily coverage, from the morning news to the homepage of your preferred news source. It’s no longer only for the Wolves of Wall Street! 

However, at the same time, getting started in the stock market may also sound intimidating, which is perfectly understandable.  

In this guide, we will go through the basics of stocks and the stock market, so you can understand how to invest in stocks for beginners.  Why should you invest in the first place?

Let’s get started on this first pillar of financial education – A journey which can also be considered endless! With investing and finance, you never stop learning. 

What are Stocks? 

A stock is, to put it simply, a share of a company.  

In other words, it means that by investing in a stock, you are acquiring a small fraction of that same company.  

Of course, owning more shares also means owning a bigger slice of that company. This is also positive for the company, as it will be able to gather funds for further investments. 

Generally speaking, there are two kinds of stocks: common stocks and preferred stocks.  

Common stock owners have access to a few benefits aside from receiving part of the company’s profits (known as dividends, which are not always applicable to every company’s stock).  

One of those benefits is having voting rights during shareholders’ meetings, meaning you will have a say on the company’s direction going forward. Naturally, the more shares an investor has, the more voting power; on the contrary, the less shares they have, the lesser the voting power. 

Keep in mind, though, that the investors won’t have the final say in the given matter. The directors and other members further up the hierarchy will retain that privilege. 

Preferred stocks, as the name suggests, have a few more benefits compared to common stocks.  

While preferred stock owners do not have voting rights, they will receive their dividends first.  

That’s particularly important in case the company folds, as preferred stockholders will receive whatever they are owed ahead of the common stockholders.  

In terms of price, preferred stocks are also less volatile, which means that their price doesn’t fluctuate as much. On the one hand, it means that their price won’t drop as much. On the other hand, it won’t go up by much either, so it all comes down to balancing risk and reward. 

Stocks are a very popular and common investment, which can provide returns both in the long and in the short term. You will be paid dividends from your stocks, which is usually done quarterly. Some companies, however, will only pay dividends semi-annually (twice a year) or yearly. 

How Do Stocks Work? 

First of all, a company must go public in order to sell stocks.  

This is done through a process called Initial Public Offering (IPO). After the IPO, a company will transition from private to public.  

The process isn’t exactly simple, and the company will be under intense scrutiny from financial authorities to prevent fraud and protect potential investors. Going public, the company will be able to raise funds by selling its stocks. 

From the investor’s point of view, they will be able to buy stocks from that company once it goes public.  

You can buy stocks through a reliable and trusted broker or by yourself. Stocks can be bought individually or through funds. While individual stocks are limited to a single company, funds (such as mutual funds or ETFs – Exchange Traded Funds) offer a diversified portfolio containing multiple smaller stocks from different companies.  

Individual stocks will usually fluctuate more, so it all comes down to your investment style and how you balance risk versus reward as an individual. 

When you buy stocks, either by yourself or through a broker, you will have an open position. You can hold it for the long term, and potentially profit from the dividends. 

Advantages and Disadvantages of Investing in Stocks 

Just like any investment, stocks come with positives and negatives. We will go now through some of the pros and cons of investing in stocks. 

Advantages 

• Stocks are one of the best ways to diversify your investment portfolio. You can own stocks from a single company, or from multiple ones as well. 
• Contrary to what some people believe, you don't need massive capital to start investing in stocks. It’s viable to start off with a very small investment, and then increase it as your capital grows or as you feel more confident. 

• Stocks offer high liquidity, which means that you can buy or sell them whenever you want during market hours. Your funds won’t be locked in, and you can withdraw them at any moment.    

Disadvantages 

• Stocks are slightly more volatile compared to other investments, which means that their price tends to fluctuate a lot more. It comes down to your style, and how you balance risk and reward. 

• Aside from volatility, stocks offer no guaranteed returns. In other words, you can also lose money investing in stocks. 
• Investing in stocks demands a bit more time compared to other options, as you will probably need to do a bit of research before investing.   

How to Invest in Stocks at Admirals 

If you want to start investing in stocks, you can do it with a reputable, trusted and regulated broker. Admirals offers you the chance to learn more about stocks before investing with our educational content, available for beginners and intermediate and advanced traders. 

At Admirals, you can invest in stocks directly with the popular MetaTrader 5 tool – More specifically, the Invest.MT5 platform.   

The MetaTrader 5 tool is available for Windows, Mac, Linux, Android and iOS. MetaTrader 5 is a modern, easy-to-use tool that comes with many features: 

• Charts, including your own personalized charts.
• Free market data and news.
• Educational tools.
• Access to thousands of markets.
• Level II market.
• Trading robots. 

 If you’re ready to start your own investment journey, you can do so efficiently by creating a live account with Admirals.  

Please always follow your risk management strategy and tolerance, in order to properly manage your account and investments. 

Click the banner below to get started with a live investment account today:

 

This material does not contain and should not be construed as containing investment advice, investment recommendations, an offer of or solicitation for any transactions in financial instruments. Please note that such trading analysis is not a reliable indicator for any current or future performance, as circumstances may change over time. Before making any investment decisions, you should seek advice from independent financial advisors to ensure you understand the risks.