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4 Common Rookie Mistakes New Stock Traders Should Avoid

Many successful investors believe that the first step to becoming rich through investing in stocks is avoiding mistakes commonly made by those who are just starting out in stock trading. Easy as it may sound, even smart people fall prey to some of the behaviors this article outlines.

Here are some things you should avoid.

1. Buying shares on margin

Buying stock on margin means borrowing your stock broker money to buy shares. An interest is charged on the amount borrowed and brokers can lawfully compel you to raise more collateral or they settle the entire balance of the debt on a moment’s notice. The broker can even lawfully liquidate all the assets in your account to settle the debt, and they can do so without giving you time to get more money.

When disasters such as terrorist attacks or market crashes occur, you’re entire account to be instantly wiped out. In the worst case scenario where the value of your entire account is not enough to settle the debt, you’ll be held personally liable for the remaining amount, which might drive you to file for bankruptcy lest you’re taken to court.

2. Buying shares without researching the companies

Before directly investing in the stock of a company, it is essential that you research the company by analyzing its balance sheet and income statement among other documents that inform Aussie Share Prices. Failure to do so opens you up to unacceptable risk because you have no idea about the intrinsic value of the stock you are purchasing.

In cases where the market overestimates that value of a company, it eventually corrects itself. In this age of highly advanced agile markets, the correction can occur in a matter of minutes and leave you at a huge loss if you were on the wrong end of the company’s true value.

3. Trading too often and accumulating expenses, fees and taxes

Numerous studies have been done with the aim of understanding how the behavior of average investors influences the returns they get. The results have consistently shown that a higher number of trades leads to poorer results. Contrastingly, rich investors tend to make less trades. A higher number of trades exposes you to more frictional expenses, such as fees and taxes, which leave you at a disadvantage.

4. Being unduly influenced by fear and greed

According to billionaire investor Warren Buffet, the excesses of fear and greed are constantly battling it out in the stock market. Uninhibited acquisitiveness and unreasonable panic often lead investors, especially beginners, to make irrational loss-making decisions.

By keeping your emotions under control, you can avoid losing all your capital in a matter of minutes. Once you research on a well-documented and effective strategy, stick to it even when you are facing pressure to act outside of reason.

In summary, as a beginner, you are better off starting small, with your own capital. And make sure your decisions are supported by extensive research rather than emotion because success in stock trading is driven by well-calculated, highly considered risk-taking.
4 Common Rookie Mistakes New Stock Traders Should Avoid 4 Common Rookie Mistakes New Stock Traders Should Avoid Reviewed by Jhon on 3:34 PM Rating: 5