How to Trade Stocks in 2022: Beginners Guide
To start trading stocks, you need your main instrument – a trading account. You can open it either at a broker or bank. However, how do you choose the right and reliable company if you’re completely new to the market?
We’ve made a checklist for you.
Checklist for choosing a broker
1. Make sure that the financial organization is licensed. You can easily find all the documents on the official website of the company.
2. Check for how long a company has been operating on the market. No secret that the longer this period, the more reliable a company becomes. Choose brokers that are at least 5 or, even better, 10 years “old”.
3. Check the trading conditions. You are interested in the following:
- Commission fees for money depositing and withdrawal: whether they are high or low.
- Fees for trading stocks – of course, the lower, the better.
- The number and types of available instruments: if a broker allows trading premium-class stocks only, such as Tesla or Google, you might simply be short of money to invest in them. Diversity is the key here.
4. Check a broker on aggregators and in ratings. Usually, they provide all the information mentioned above as well as the feedback from other traders that might help you make up your mind.
As soon as you’ve chosen a financial partner, open a trading account there.
How to define the amount of investments?
Now you need to decide how much you are investing in stocks.
On one hand, the answer to this question looks simple: invest as much as you can afford to lose. This is the most rational approach.
The larger your investment – the higher your potential profit, but the greater your risks. There’s no magic number that is suitable for all the traders in the world.
Also, account for the volume of your investment (or, how many stocks you buy) and the price of one asset (meaning the price of 1 stock). Moreover, note that some brokers set a minimum investment for trading stocks which can be practically any sum they want.
Now let’s decide what to invest in, or which instruments to choose.
What kind of instruments to choose for investing?
Here we’ll discuss not just the stocks of separate companies but the types of assets. The thing is that:
- Stocks of companies comprise stock indices that you can also invest in.
- You can trade stocks via CFDs.
- Also, there are ETFs, or Exchange-Traded Funds.
Here are more details.
- Indices. In simple words, an index is a set of stocks. For example, a popular Dow Jones index (you must have heard about it) consists of 30 largest companies traded on US stock exchanges. Mind that indices are never traded as they are, traders operate their derivatives, such as CFDs.
- A CFD stands for a Contract For Difference. The difference is in the stock prices – the one you buy a CFD at and the one you sell it at. There are CFDs on indices, stocks, metals, and so on. The main difference between trading “real” assets and CFDs is in the opportunity to use leverage.
- As for ETFs, they are, generally speaking, sets of stocks traded as one instrument. There are ETFs for indices, that are copying stock indices; commodity ETFs, uniting certain goods, say, precious metals; branch ETFs, uniting stocks of one sector, and others. An ETF is quite a new instrument gaining popularity.
To sum up: on step three, choose your instrument for investing in stocks.
If you choose CFDs, you will get access to higher leverage and will be able to open buying and selling positions. More information about what is leverage and how to trade with leverage you can get from our previous post.
Also, you can choose classical investments in stocks: in this case, your starting investment will be larger but your risk a bit smaller.
Another option is trading ETFs. If you are interested in investing in a certain sector of economy or a stock index, ETFs will be a perfect choice for you.
What have we learned?
1. Choose your broker.
2. Decide upon an affordable sum of investment.
3. Choose your trading instrument.
Allright. We finished with the theoretical part and now going forward to the analysis part, where we’ll tell you about most promising stocks to invest in 2022.
How a beginner investor can choose stocks for investing?
We need to find out the shares of which companies or which sectors of economy are likely to grow at the beginning of 2022. To do this, we analyze the market situation. 2021 can be described by just one word — inflation. It was a pain in the back for Central Banks but not for companies.
For the leaders of corresponding sectors, last year was the time of profit records. Corporations managed to accumulate 7 trillion USD of cash on their accounts, and a part of this money is planned to be used for BuyBack programs. Hence, the first trading idea for 2022 is investing in companies with all-time high sums meant for stocks buyback.
On this list there are Apple Inc. (NASDAQ: AAPL), Meta Platforms (NASDAQ: FB), Microsoft Corporation (NASDAQ: MSFT), Mastercard Incorporated (NYSE: MA), Morgan Stanley (NYSE: MS), and other global corporations.
In 2020, the outsider was the energy sector that lost 32%. Yet in 2021, things changed dramatically, and the sector became the leader, showing 52% profitability.
Let me explain you how this happened. When the pandemic issue was acute, the demand for the products of the energy sector shrank because enterprises were closed for quarantine. In the end, market supply exceeded demand, affecting the commodity price noticeably.
Central Banks of developed countries hurried to help businesses and started pouring lots of money into the financial system, which let them avoid mass bankruptcies. The other side of the medal was increased demand for goods because enterprises got help from the governments, took cheap loans, and could pay for the work of their employees.
Alongside the decline for the crude material, production also dropped. When enterprises started getting back to previous production volumes, it turned out that the supply of energy carriers had also dropped. This led to growth of prices for energy carriers, and profit was made by companies working in this sector.
In this situation, the shares of of issuers with relatively small capitalization will show the most prominent growth. The leader of the sector became Calumet Specialty Products Partners, LP (NASDAQ: CLMT): over 2021, its shares grew by 400%.
So, this year you still can look for investment ideas in the energy sector but this is also risky. The crude material price grew at once: this attracted attention of investors to this sector who were trying to make profit faster on the high prices for energy carriers.
In 2022, supply might stabilize because of an inflow of investments into the energy sector. In the first six months, the shares will grow a bit more, and in the second half of the year market players will try to take the profit, and the shares will fall.
The most conservative investment option is the financial sector. Over last year, it showed 38% profitability. The reason is the expectations of growth of interest rates.
This year, it has become obvious that the US Federal Reserve System will increase the interest rate. This will augment the revenue of financial entities. However, here you also have to be careful looking for a moment for taking the profit.
When the Fed starts to lift the interest rate, the growth of the share price will slow down, because expectations will meet the reality, so next thing you will need to check for inflation. If it does not fall, the interest rate will keep growing alongside the revenue of banks.
Capitalization leaders of the sector are JPMorgan Chase & Co. (NYSE: JPM), Bank of America Corporation (NYSE: BAC), and Wells Fargo & Company (NYSE: WFC).
Moreover, the growth of the interest rate directly influences the yield of treasury bonds, so check out the US bond market.
The tech sector, demonstrating the revenue of 36%, became number four on the list of leaders-2021. It remains an interesting investment option thanks to the metaverse.
Mark Zuckerberg attracted investors to the virtual reality market. The leaders here are Meta Platforms (NASDAQ: FB), Apple Inc. (NASDAQ: AAPL), NVIDIA Corporation (NASDAQ: NDA), Advanced Micro Devices, Inc. (NASDAQ: AMD), and Taiwan Semiconductor Manufacturing Company Limited (NYSE: TSM). The latter three companies produce components that are essential for the metaverse.
Game developers that already have their virtual worlds — Unity Software Inc. (NYSE: U) and Roblox Corporation (NYSE: RBLX), for example — are also worth attention.
So now, we have our investment plan for 2022! We have included companies from the technology and financial sectors, as well as companies from the energy sector, with an eye to risk.
Which companies would you include in the list? Share your thoughts in the comments down below!
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