Savings accounts are out and have been for a long time. It seems like interest rates never recovered from the crash of 2008. There was a time when a top savings account could net you 4 or even 5% interest. Now, the best you’re likely to get is 3%, and even then there are deposit requirements and time limits (usually you’ll get a year before your rate plummets). With other investment avenues like property increasingly out of reach, it’s no surprise so many people are seeking alternatives. Enter the stock market.
Know the risks
We know you’ve heard it before, but the first thing we’re going to tell you is to approach the stock market with caution. Because there are no certainties in this game, it’s essentially gambling. 76% of new trading accounts lose money. This isn’t something to dive headfirst into – it’s complex, ruthless, and unpredictable (no matter what the YouTube gurus tell you), and can trip up even the most elite professionals. With that said – when used properly and understood as much as possible, it can be an excellent (and fun) way to boost income and generate savings. If you’re good at managing emotion and risk, you’re a prime candidate for amateur investing. Here’s how.
Set your goals
Are you looking to build savings or create wealth over the long term? Or are you trying to achieve a high windfall in the short term? Your timescales will define your risk tolerance. Risk and reward are inextricable in the stock market. Lower risk trades might not seem very sexy, but they’re an excellent way to make steady, consistent gains (see our article on dollar cost averaging for more on low-risk strategy). Establishing a clear vision at the start is essential for keeping emotion and impulse at bay.
Read, read, and read some more
To say there is a wealth of reading material on the internet regarding financial education is an understatement. But sometimes knowing what to Google is the difficult part. Here are some key concepts and terms to understand before you even download your trading app:
- Exchanges and indexes (e.g. LSE, ASX, FTSE, NASDAQ)
- Candlestick charts
- Bear and bull markets
- Bid and ask prices
- Margin call
- Moving averages.
Watch, watch and watch some more
As above, but if you’re a visual learner, you may find YouTube an easier induction. Video content is a great way to see trading in action and familiarise yourself with charts, but each YouTuber will have their own advice and opinions, which you should always take with a pinch of salt. Try to learn from their strategies rather than their biases. A combination of video and written guides from trusted sources like Investopedia usually works best.
Try a practice account
Apps like Trading 212 & eToro have practice versions, where you can trade up to £50,000 of fictional funds to practice execution. Really, this is more of a tutorial of the app than any kind of real education. Don’t put too much stock (pun intended) into your practice trading results. There are huge psychological differences between pretend trading and real trading – your decision-making processes work differently, and you might even enjoy some confidence-boosting beginner’s luck which can spell danger for real-time trading. Some find it more beneficial to practice with a real account, but starting with tiny sums of money.
Know your trading hours
UK markets open at 8am, European markets at 8am, and US markets at 2:30pm UK time. With the exception of crypto markets which trade 24/7, it’s vital to be aware of this. Most activity will happen within the first few minutes of market open, and you need to be there to see it. It’s good practice to set alarms on your phone for the opening hours of whichever markets you hold stocks in.
Establish a strategy
There are hundreds of different strategies, models, and methods you can apply when trading, but whatever you do, your strategy shouldn’t be to “make as much money as possible”. You’ll want to decide in advance where you want to enter the market, and when you plan to exit. A common example is to add a trailing stop loss to every execution. This will automatically sell your shares if the value drops below a set amount. You should then make the (much more difficult) decision to exit after a certain profit percentage has been hit, even if the stock is still going up. Many people lose huge sums of money before they finally learn it’s best to sell consistently at modest profit levels than to lose it all because you held on too long.
Choose your fighter
There is an increasing selection of trading apps available to budding investors, and it can be difficult to know which is best. It largely comes down to personal preference and interface, but there are a few things to be aware of before you decide:
Trading 212 offers free stop losses, limit orders, and an S&S ISA. It’s widely regarded as the best in the UK, with over 10,000 global stocks to trade in. Learn more in our detailed Trading 212 review, the features it offers and how you can get a free stock worth up to £100.
Freetrade, despite the name, doesn’t offer all of the above for free – just the basics. To access these features you must upgrade to the premium version costing £9.99 a month. It offers around 3,700 stocks currently but has recently unveiled plans to expand. See here for a more in-depth comparison.
STAKE is another great platform that focuses only on US stocks and ETFs. It has a slightly different strategy than the others on this list. Find out more in our review of this platform and find to how you can get a free stock.
Don't think we have forgotten our US readers, there are two platforms we recommend that focus on US clients only.
Webull is a fantastic platform well polished and packed full of features we highly recommend giving them a look. You can read our comparison between Webull vs M1 Finance to help you decide the right platform for you.
M1 Finance is another innovative platform where they focus on automation of your money with cool features like auto reinvest, create your pie and more.