In recent years, banks are continually cutting savings account rates. This trend is probably happening in your country too. In response, even more people are starting to look for some alternative ways of multiplying their savings. So, what are the best alternatives to a savings account in case you are a newbie-investor?
Even though foreign currency investing may work well for some people, it requires an investor to carefully and continuously follow the global markets, and that requires time and dedication. Some people would better prefer putting their savings into a safe place and then just waiting for their capital to grow (well, in reality, you need to occasionally revisit your investment portfolio anyway). As a result, many beginner investors are choosing to put their savings into precious metals or company shares.
When comparing the precious metals with company shares, you will quickly notice that precious metals (like gold or silver) are generally better storage of value – it has been a very stable and reliable commodity over many years. But gold or silver may not be good enough in multiplying your savings. Company shares appear to be a good compromise between the safety of your investment and the opportunity to multiply it. In this article, we will explain how you can purchase shares of your local or international companies; moreover, we will describe a simple example of buying and selling shares via an online trading platform.
Do you focus dividends or share price?
The first question that is frequently asked by beginner share investors is related to the dividends. Sure, owning a share can make you eligible for getting an annual payout, but unfortunately, it is not always available (for example in case the company does not get profit for that particular period of time or maybe made a decision to skip dividends in favor of purchasing some additional assets, etc.). Moreover, dividends can usually appear to be pretty small in comparison with the price fluctuations that shares can experience. That is why, in most cases, you will probably want to think more about the price of the share (at the time when you purchase it), and not the dividends.
When you purchase the “undervalued shares” (which simply means that the purchase price is lower than it should be considering the quality of that company’s assets, management, marketing potential, etc.), you can hope for a considerable increase in share price over some time. So, it is no wonder that many investors pay more attention to picking potentially profitable shares. Anyway, if you are eligible for any dividend, you will probably get it added to your balance with the share trading platform of your choice.
The best place to buy shares
The second question asked by a newbie stock investor will probably relate to the best place for buying and selling shares. Can anyone purchase shares, or are you required to have a license to buy shares? Can you purchase shares online from home? Is it difficult? What is the minimum investment when buying stocks? These are the questions that are probably flying in your head too! The good news is that you can buy shares online using your home computer, you don’t need a license, it is a pretty simple process, and the minimum investment can be as low as $10.
Before explaining an example of buying and selling shares, we need to compare stock trading platforms, so that you understand which option is suitable for you. Generally, you can put all online and mobile trading platforms into two categories: your local banks and CFD brokers. You can also use many brokers and advisors to buy or sell shares for you, but note that those agents will usually charge you for a significant amount in their commissions. It may be better to start investing stocks yourself (just with a small amount of money) until you understand how the financial markets work.
The main advantage of using your local bank’s share trading platform is that you can have some type of free person-to-person consultation in your bank’s branch. You may be fond of communicating with people and prefer things explained in person. If the banking sector is relatively reliable in your country, that may be an option for you. The downside of this method is the high price that you usually pay to access your bank’s share trading software. Moreover, you will also need to pay for each trade you complete. This fee stands even if someone buys shares for you. The other thing that you need to know about the traditional share trading process is that your bank will not usually offer any shares of foreign companies.
Use CFD share trading platform if you want to buy foreign company shares
In most countries, you can only use your bank to buy your local company shares, or sometimes the bank will allow you to buy some selected American stocks, and that’s it. If you are interested in accessing international shares (as there are so many successful companies around the world), then your option will be a large international CFD broker. On the contrary, a CFD trading platform may not give you access to shares of some of your local companies, but it will let you buy and sell shares of hundreds of best-performing global companies.
So, for most beginner share investors, their choice between the bank and the CFD broker is rather a choice between shares of small local companies or large international companies like Amazon, Google, Volkswagen, Hyundai Motor, Airbus, McDonald’s, etc. Many of these companies will not have their shares based in the United States. So, as a newbie investor, you will have no choice other than to open an account with an online CFD broker if you want to buy and sell shares of these international corporations. Local companies are good because you know them well, but global companies are more reliable (so your investments are more secure) and transparent (plenty of information available to research).
It is not possible to provide you an example of buying and selling shares via internet banking software, as we have no idea which country you are from or which local bank do you prefer. So, we will base our example on the well-known international CFD trading platform. The advantage of CFD trading is that you do not normally pay any software access fees or fees to complete each trade (it really saves you a lot of money). The downside of CFD trading is that you are not eligible to attend any general shareholder meetings because you do not trade shares directly, but instead, you trade their “mirror copies”.
The price of the CFD share will always mirror the price of the real asset, so in terms of buying and selling your shares, it is no different. But it is a considerable difference taxation-wise. CFD taxation is usually much more straightforward, so when you choose to invest in CFD shares, you will probably save some time and money taxation-wise. Please note that this article is a general guide only, so please ask your certified accountant or financial advisor regarding your specific situation.
How to open a share trading account
Now let’s get into an example of buying and selling shares via the CFD trading platform. First, you need to complete a simple online registration. Then you need to log in into your user cabinet and deposit funds into this personal CFD trading account. You will use this deposit to buy shares. These funds can be deposited via a variety of ways: from a credit card or bank transfer to one of the popular payment systems. Then you are ready to access a list of shares and start trading.
As you can see from the image above, there are 198 shares offered for trading at the moment the screenshot was taken. Shares are not available for trading 24h, because they are linked to the business hours of their corresponding stock exchanges (located in different parts of the world), and these are usually normal business hours Monday to Friday. As displayed on the screenshot, Spread means the price difference between buying and selling, and Multiplier means how much money you may lend from the CFD broker to buy more shares. For example, a multiplier x20 means that you only need to pay 5%, and the CFD broker will cover the remaining 95%.
What is leveraged share trading?
The multiplier is also called leverage. It is aimed to help you to purchase many times more shares than you can afford with your deposit. Let’s explain how the CFD multiplier works. Imagine you purchase some shares with a multiplier x20. Later, if the price of that share rise by 1%, then your profit will be 20% (and not just 1%). After you “close your position” (in other words, sell back your shares), you collect your full earnings and then pay off your loan. It will happen automatically, so your balance will reflect only the money left after you paid off your loan. Leverage trading is a good example of buying and selling shares that shows how the CFD trading platform may be more profitable compared to the traditional one. Please note that CFD is a risky way of trading, and you should not ever trade with money, which you can’t afford to lose.
So, your share trading process will basically look like this. You select some share that you want to buy, state some amount that you want to invest, and some multiplier that you wish to use. Then you press “BUY” button in case you think the price will go higher or “SELL” button if you think the price will go lower. Then you come back to your CFD trading platform in a few days, in a month, or even in a year, to close your position. CFD shares can’t expire, so you can hold them for as long as you want. When you want to close your position, you can do it any time manually, or use an auto-close function. For every CFD trade, you can set up Stop Loss or Take Profit values, which will inform the platform of the exact price or a percentage of your purchase price that will trigger the auto-close function. In such a way, you can adjust the amount of risk you take to make sure that you never lose more than a certain amount.
After you close your position, you can withdraw your money from your CFD trading platform via the same method you used to deposit. It is up to you whether to withdraw or reinvest your profit. You can withdraw any part of your deposit at any time (while this money is not used in any trades).
If you prefer to use an application to trade shares, for example, Android, iOS, or desktop app, you will first need to open your account in the same way as described above. After logging in into your account, you can download an official trading app that is offered by the CFD broker inside your user cabinet. By the way, CFD trading platforms usually provide a set of useful tools, which are generally not available with other stock brokers. Among the tools, you can find a live chat with your fellow traders who are located all over the world or many educational materials translated into all major languages.
The best way to learn share trading is to create your first example of buying and selling shares using a virtual balance – it is called demo-trading. Before depositing your real money, you can practice share trading with some free virtual money at no risk to you. The good news is that some major CFD trading brokers, like IQ Option, allow you to practice with such a mock-up trading account as long as you wish and totally free of charge. So, don’t hesitate to start learning financial markets today! Even if you later find out that financial trading is not your thing, you will not lose any money anyway. Moreover, you will acquire some valuable knowledge that will undoubtedly help you in other financial aspects of your life.