Explaining stock trading in Singapore to your mom

Many people in Singapore are interested in stock trading but don’t know where to start. Here is a guide on how to get started in stock trading for your mom:

What are stocks?

Firstly you need to understand what stocks are. Stocks represent partial ownership of a company that is traded on an exchange. You buy only a piece of that company when you buy stocks and become a shareholder. As a shareholder, you now have the right to vote on certain company decisions and receive dividends (a portion of the company’s profits).

How does trading work?

Now that you know what stocks are, we have to look at how trading works. Stock prices are constantly changing as buyers and sellers come together to form the market price. When you buy shares, you buy them at the current market price.

If you think the stock is undervalued (meaning the market price does not reflect the company’s actual value), you can buy and hold the shares, waiting for the market to correct itself. Alternatively, if you think the stock is overvalued, you can sell short, meaning you sell the stock now in hopes of repurchasing it at a lower price in the future.

What are some risks?

Of course, you should know that nothing in life comes without risk. When trading stocks, there are a few things you need to be aware of:

The first is that stock prices can go down as well as up. If you buy shares and the price falls, you will lose money. The second is that you may not be able to buy or sell a stock when you want to. It can happen if there are not enough buyers or sellers in the market or the stock is suspended from trading. Finally, remember that stocks are long-term investments. You should not expect to make a lot of money quickly; it may take years for the stock price to go up significantly.

What are some tips?

Here are just a final few tips to keep in mind:

Do your research

You need to understand what you’re buying before you invest your money. Please read about the company, its financial reports, and the industry it operates in. It will also help to read about stock trading in general, so you know what you’re doing.

Have a plan

Before you start trading:

  • Have a plan.
  • Decide your goals and how much risk you’re willing to take.
  • Once you have a plan, stick to it.

Use stop-loss orders

It’s an order to sell a stock when it reaches a specific price. It can help you limit your losses if the stock price falls.

Don’t trade on margin.

Margin is borrowing money from your broker to buy shares (read more here), it can be tempting to do this so you can buy more shares, but it’s also hazardous. If the stock price plummets, you will lose money on the stock and have to repay the loan.

Be patient

Remember that stocks are long-term investments. Do not expect to make a lot of money quickly; it may take years for the stock price to go up significantly.

Have realistic expectations

Don’t expect to become a millionaire overnight. It’s essential to have realistic expectations when trading stocks.

Diversify your portfolio

Don’t put all your eggs in one basket. It would help diversify your portfolio by investing in various assets, such as stocks, bonds, and real estate. If one investment goes down, you will still have others doing well.

Keep emotions out of it.

Don’t let your emotions guide your decisions. Greed, fear, and hope are all emotions that can lead to bad decisions. Stick to your plan and make rational decisions.

It’s a general guide on getting started in stock trading for your mom. For more specific information, please consult a financial advisor or stockbroker.

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