Historically, the summer period has always been considered passive and boring in the investment market. After all, all traders and bankers go on vacation to different countries, sometimes there is no Internet at hand. Therefore, trade turnovers for most of the instruments on the exchanges have always declined. For example, the decrease in activity for some assets could reach 2-3 times. Also, new clients were not very willing to open brokerage accounts. Only towards the end of the summer and in early September, activity on the stock markets resumed.
But 2020 turned out to be very different. Adjustments were made by the COVID-19 epidemic. During self-isolation, people also sought alternative sources of income. From being confined within four walls, they began to look for new opportunities, including studying the stock market. Therefore, most brokerage companies have reached new levels of new registrations. A record number of new investors came to the exchange. After all, now you can open an account and buy shares without leaving your home.
What financial instruments are attractive for beginners?
Many novice investors include bonds and shares of the most famous companies in their first portfolio. This is the right decision because trading in derivatives of securities of the third tier requires a certain expertise on the stock market. Therefore, the simplest and most understandable tool is a permanent coupon bond. Initial placement of bonds allows you to get debt securities on the most attractive terms. After all, if the issue turns out to be successful and in demand, the price of the nominal value can grow sharply. You will also need to pay the accumulated coupon income to the counterparty during the transaction.
Of course, everyone wants to have a stake in well-known companies like Apple, Google, Amazon, or Tesla. But the prices of many shares can exceed $ 1000 per paper, which is sometimes not available for beginners. But there are many other interesting companies on the market, whose shares are not so expensive, and the growth potential is even more significant. Anyway, all this requires immersion in the information field of stock markets. Of course, it is not always possible to earn money only on economic news, because often, large transactions are made before publication in the media. But it is very useful to be in the same information field with other investors.
What does a newbie need to know?
In fact, a lot of knowledge is required. There are a lot of tax specifics. I try to cover such topics regularly in my financial blog. For example, how to sign a form W8-Ben to reduce taxes on dividends from foreign companies. Also, for high-yield bonds, the tax may be 35% instead of the usual 13%. Many bonds now have a 0% coupon rate, but this will change from the beginning of 2021.
There are a lot of questions about filling out tax returns. But everything comes with time, and most brokers are now client-oriented and help with many issues. If you have any doubts, you can always contact your broker’s customer support and get an answer to your question. I also recommend reading blogs, websites, and telegram channels that cover trading topics. Very often there is a lot of spam or unnecessary information, but you will know a lot of terms.
How to become a professional investor?
I wrote in one of the articles that for most people this path always costs a certain amount of money. This is often a loss of money due to trading errors. Those investors who didn’t lose money just haven’t reached this stage yet. The question is who will be able to stand up, gain strength and spirit, and continue. Not many, so natural selection in this area is very harsh. The most important thing at first is not to open short positions and not to use margin lending. Of course, try to refrain from the commodity market and derivative financial instruments. It is in the futures market that the greatest losses are made on futures and options.
I recommend watching movies, the TV series Billions, and reading a few books. One of my favorites is the Memoirs of a stock speculator. After a more detailed dive into the investment atmosphere, you will begin to understand how you can create a portfolio to generate passive income. The task is just this so that you do not spend your nerves on active trading, but regularly get a stable income. After half a year or a year, there is some understanding of exchange processes. It is at this time that the most fatal mistakes are usually made. Therefore, you should always control your risks and not use leverage for quick earnings.