As with any profession, you must first learn the fundamentals; here we learn some share trading basics. Most people start trading the Australian sharemarket with $2000 but you can start for as little as $500 plus brokerage costs. But before looking into the basics of trading shares you should ask yourself the following questions: What do you want to achieve from your share trading? What level of return do you expect? Do you think this level of return is realistic? Are you prepared to strictly follow rules and systems in your share trading? How much money are you prepared to risk in your share trading activities? Answer these questions as truthfully as you can.
An important basic share trading principle is the amount of time you are willing to spend in the market. Also consider the other influencing factors such as opportunity cost and other interest repayment costs. Also keep in mind that this length of time will vary greatly from person to person and there is no one correct answer. The best length of time to choose will fit your trading personality. Most of the time trading stocks involves a short time frame but there are trading systems which involve a longer time period. (Such traders who trade longer time frames may have a multitude of reasons why they have longer time frames: some may find it more comfortable or others may trade longer time frames to minimise their analysis time) Be mindful that you don't transform your trading into an investment portfolio where you have let a trade turn sour and you have not followed your planned exit from your trading plan.
Your share trading activities may attract tax implications. If your market trading activities match certain criteria set out by the taxation department, your professional share trading could be seen as a type of "business". Please seek professional advise from your accountant about tax implications and your share trading.
Keep liquidity in mind when you are trading. You will definitely want liquidity when you trade so you can easily enter and exit trades as you please, as close to your bid or asking price. Most stocks on the sharemarket are liquid, but many are also illiquid. Most liquid stocks are usually in the top 10, 100 or 200 companies of the stockmarket (in order of market capitalisation) and in Australia, these companies would be listed on the ASX100 and ASX200 indices.
Finally, you must accept the fact that you and you alone are responsible for your financial future and your share trading. You control the amount of risk in a trade and any losses must be accounted for as well as have a trading plan strictly followed. The share market doesn't dictate how much YOU lose, only you decide how much money you are prepared to lose by presetting your stop loss and the amount of risk you are willing to place in every trade you execute. The stop loss level must be determined and set in stone before any trade is initiated. Many formulas and theorems exist for differing trading needs, but most traders use a simple rule called the 2 percent rule.