Investing in the stock market | 9 Steps to Success

By Flinston
14 Min Read

Investing in the stock market, you must first understand what it means and how it works. It is only a trading platform where investors may buy and sell firm shares. This transaction is mediated by brokers.

Imagine a varejo, where manufacturers showcase their items for consumers to purchase, to give you a better idea. The stock market operates in a similar manner: if you offer a share and another investor expresses interest in purchasing it, then is the point at which you will enter into negotiations.

This is now done electronically, thanks to advances in technology. As a result, the cluttered environment portrayed in countless movies and newspapers, with individuals yelling everywhere while holding a phone to their ear, is a thing of the past.

The single stock market in Brazil is known as B3 (Brasil Bolsa e Balco). Its primary goal is to establish a transparent and safe environment in which shareholders may negotiate the acquisition and sale of securities.

Interested in investing in the stock market to achieve financial independence? So, keep reading to find out what you need to do to succeed in the financial market.

Understand how the stock market works

It’s an easy concept to grasp. It works like this: a firm chooses to go public on the stock market and issue shares in return for cash. In this instance, interested persons might become “partners” of the firm by purchasing modest “slices” of the company.

Following the Initial Public Offering (IPO), shares begin to trade, and investors engage in purchase and sell bids. This procedure depicts the main market, which aids in the supply and demand connection for securities.

For example, suppose a main investor wants to sell his shares because he believes their value will fall, but someone else wants to acquire them because he believes they will be worth more in the future.

In this case, the principal investor initiates a sell order for their shares, specifying the price they want to receive in return. The information is then sent to the stock market through the brokerage system. Meanwhile, the investor interested in the shares submits a buy order (in the amount they want to pay) to their broker, who enters the transaction automatically.

The transaction is completed when the purchase and sell orders have the identical value. This is referred to as the secondary market.

Fortunately, all of this happens in a matter of seconds, and it all happens via a system called Home Broker, which is supplied by brokerages to aid investors during their exchange transactions.

Financial market mini-glossary

To better understand how to invest in the stock market, it is required to be familiar with the investor’s jargon:

share: A share is a portion of a company’s share capital.

opening: the first trading of an asset (stocks, contracts, etc.) on the stock exchange;

open capital: Corporate securities that are openly exchanged on the stock market are referred to as open capital.

Brokerage: a financial market organisation that mediates agreements. They now operate as software that provides a variety of financial applications. Assets (stocks and bonds) may only be purchased via brokerage accounts.

brokerage: a fee charged to brokerage companies for facilitating stock buy and sell orders.

dividends: Dividends are a percentage of a company’s earnings that are distributed to its shareholders.

interest: Rent on capital (money) is referred to as interest.

paper: a financial market phrase that may refer to a stock, an asset, or a security. Paper may be either book-entry or electronic, but it is not tangible.

Trading session: the period of time during which securities traded on an exchange are exchanged. This might happen in the trading room or over the internet trading platform.

Selic: the Brazilian economy’s fundamental interest rate. The Monetary Policy Committee (Copom) determines its objective. The Selic rate is utilised in operations involving federal government bonds and acts as a benchmark for other sorts of market interest.

9 steps for you to be able to invest in the stock market

After understanding how the stock market works and the terminology used in this market, it’s time to learn what to do before investing. You’ll need to take a few steps to do this.

1. Don’t compromise your monthly income

Remember that there is a possibility of major falls or delays in the stock’s appreciation. In other words, you must be careful in your investments and make them with additional funds that do not jeopardise your budget. As a result, you prevent hassles such as debts and difficulty in repaying regular obligations.

2. Be prudent

Some people believe that luck might help you earn money in the stock market. This does happen on occasion. The financial market, on the other hand, is not a lottery where the outcomes and awards are determined at random.

So, avoid risky investments in favour of more cautious ones. Gains with them are likely to be modest, since you should not anticipate skyrocketing overnight highs. However, the dangers are lesser, and the return will be accompanied by more piece of mind.

3. Open a brokerage account

Because there is no minimum investment amount, stock brokers assist clients of all profiles. Simply produce the required paperwork (RG and CPF) and evidence of residency to create an account. It is also important to have a bank account with the same CPF in order to transmit the values to your brokerage account and perform redemptions.

Brokerages charge for brokerage services as well as money protection, with costs varying depending on the service. With the account open, all you have to do is send the money to the brokerage house to make the stock exchange investments.

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4. Learn to use your Home Broker

After registering and authenticating with the broker, you will be given the access key to the Home Broker online platform (“home broker,” in Portuguese) to place your buy and sell orders.

Each platform has its own set of features and services, but they all function in the same manner. You are able to customise the splash screen in order to see quotations and charts. It is also possible to specify how much you want to invest or how many papers (stocks and bonds) you want to purchase, as well as the maximum price you are willing to pay for them, and then submit the order. The programme will search for a deal that meets its criteria and, if found, will complete the transaction.

It is crucial to emphasise the importance of monitoring your investments and reassessing whether the investment made still makes sense and should be maintained, or whether it is time to modify your approach.

5. Follow the news

It is not enough to pick a competent broker and which firms or companies to invest in; you must also seek information on a regular basis. For example, a private institution may incur financial losses or display bad balance statements. A public corporation, on the other hand, may be the victim of a corruption scandal or a tragic accident.

Furthermore, changes in law may have an impact on the country’s economy, either favourably or badly, affecting a variety of activities. So keep an eye on what’s going on in the news.

6. Manage risk

Investing in the stock market is risky, especially if you have little knowledge in the financial and investing markets. However, although the stock market has the potential for big returns, the odds of losing your investment are significantly reduced if you behave prudently (at least at first) and study stocks and financial mathematics.

As a result, the ideal is to track the present market condition and examine each firm over a longer period of time than the recent 60 days. For example, while investigating firm X on the stock exchange in 2021, look at how its value was on the market 5 years ago. As a result, you may take steps to lower your risks and raise your chances of achieving the projected return.

7. Choose stocks from good companies

A good stock market corporation is one that expands and profits year after year. As a result, purchasing a stake in a company simply because you are a client and feel you know it, or buying on impulse, is pointless.

It is vital to do research and assess market estimates in order to determine if the investment will be worthwhile and whether profits will be realised, even if only in the medium or long term.

8. Define an investment strategy

Consider the following elements before trading on the stock exchange: goal, investor profile, investment period, and, ultimately, current market circumstances (and short-term future projections). In this approach, you may create an investing plan that is connected with your objectives in order to maximise your return on the stock market.

The following are the most common sorts of strategies used:

Day trade: comprises of buying and selling transactions that take place in a relatively short period of time, generally one day;

Short term: the investment lasts a few days, weeks, or months, and may last up to a year; nevertheless, opportunities must be regularly examined to assure profits.

Medium or long term: based on the acquisition of excellent company shares with the goal of profiting in 5 to 10 years;

Dividends: Some businesses pay out a portion of their income to investors on a regular basis. As a result, some people earn this sort of revenue on a regular basis, which they may reinvest in other activities.

long short: Long story short, even when the market is down, it is feasible to earn from the stock market, which in this method functions similarly to a stock rental. The investor must sell his assets and then buy them at a lesser price; his profit is determined on the difference between these two prices.

9. Have an emergency fund

Last but not least, the stock market has its benefits and appealing profitability. However, in order to protect yourself from probable share price declines and prevent debts, it is essential to maintain an emergency reserve – in fixed income. As a result, if the market has significant instabilities, you may ensure your financial stability while avoiding the volatility of the variable income market, allowing you to wait for the market to resume appreciation with more peace of mind.

As you can see, investing in the stock market is an amazing way to generate profits. However, this method requires advance planning on the side of the investor. As a result, if you want to enter the financial market securely, invest in particular courses and speak with professionals who have experience in this field.

Also, keep in mind your objectives and investor profile; if you need to accumulate a particular amount of money with high liquidity, investing in the stock market may not be the best choice right now. However, if you want to maximise your earnings without depending on chance, this may be an excellent option.