So you want to trade, either part time to earn some extra cash, or full time. But you know nuts about trading and the stock market. All you have seen and heard are analyst talking on Bloomberg and reports on the finance section in the newspaper. Which stock do you buy? How do you go about owning a stock? Is it risky? How do you monitor your stocks? When do you sell?
In this post, I will cover all the answers to these questions. But first, lets lay down some basic terms and definitions.
Difference between Trading and Investing
Trading: Normally referring to short term buying and selling in the market for small gains. Time frame can range from minutes to days.
Investing: Refers to growing your money in the medium to long term (typically months to years). Investors take a broader outlook of the market and disregard small fluctuations (noises) in between.
As you can see, if you want to make a living from the markets, you have to be a trader. But if you want to grow your savings while holding on to a full time job, you will most likely fall into the investor category. Of course, there are others who, like me, love to trade out of our working hours.
What are the instruments I can trade/invest in?
There are so many financial instruments that you can utilise to grow your money. Stocks, forex, CFDs, futures, options, etc.... But for the beginner, stocks and forex (foreign exchange) are the most accessible and simplest to understand. For simplicity sake, I shall just touch on the stock market.
How do I purchase a stock?
Since I'm in Singapore, I will talk about this in Singapore's context.
First, you need to set up an trading account with a brokerage company. It can be a bank, or a finance company. In Singapore's context, a few examples will be UOB Kay Hian, Phillip Capital, DBS Vickers, Maybank Kim Eng.
Other than signing up for a brokerage account, you will need to open a CDP (Central Depository) account. Your CDP account will enable you to hold the stocks that you bought through the brokerage company. CDP forms will also be available on the brokerage company's website, together with the trading account opening forms.
To buy a stock, you will need to make payment. So you will need to link an existing bank account of yours to your CDP account. This will be the bank account that funds will be transferred from to your brokerage company when you purchase a stock.
Once your brokerage and CDP accounts are approved, you will receive a letter from your broker (or brokerage company) with a log in ID and password. Log in to the system and you will be able to view the instruments available for your trading and investment needs.
Which stock should I buy?
Now you have everything set up, you are ready to own a few money making stocks (or some call them counters). But there are over thousand stocks listed on SGX (Singapore Exchange), which one should you buy?
Different people select different stocks based on different theories and experience. Some base their selection on company performance, some base it on technical charts, some prefer to source for 'insider tips'. It is hard to put it in a few words. I will cover some basics of stock selection in my next post.
Till then, happy trading!
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