The basic rules to know before investing in the stock market

1 – Investing savings that you do not need

Given the risk involved, the individual must only invest in the stock market the portion of his or her savings that can be dispensed with and which, in the event of loss, will not lower his or her standard of living. It is important that the investor does not use the savings he may need for his daily life projects.

2 – Getting informed before investing

It is important to be well informed about financial products before investing. This involves asking about the type of product (shares, bonds, derivatives), its mechanisms and the risks involved, and on the issuer, whose financial health and the outlook will influence the price and risk of the securities it issued.

The individual may call upon a certified professional who will provide advice in accordance with his / her situation and objectives.

An investor who decides to choose the securities on which he invests without assistance can also find general information on financial products from financial intermediaries and directly from the issuer of securities.
Issuers are obliged to regularly disclose their financial information to the public: quarterly, half-yearly, annual, announcements in the event of a merger, etc. Information will be more comprehensive, frequent and accessible on securities that are listed on a regulated market. Conversely, non-regulated markets such as multilateral trading systems are less protective of investors.

It is also advisable to regularly follow the economic and stock market information via the financial press or the stock market websites.

3 – Define an investment strategy

It is advisable to define an investment strategy before investing. The easiest is to set a gain target and a maximum loss floor, and this according to your investor profile.

It is also necessary to define an investment period that corresponds to an investment horizon.

4 – Diversify your portfolio

The diversification of the portfolio makes it possible to distribute the invested capital in a balanced way. Thus, the decline in a single value will have less impact on your overall portfolio.

The diversification of the portfolio makes it possible to distribute the invested capital in a balanced way. Thus, the decline in a single value will have less impact on your overall portfolio.

It is important to determine the distribution of the various investments between equities, bonds, derivatives, etc. The investor can also divide his portfolio into securities of different economic sectors.

This diversification of the portfolio will be based on the risk profile of the investor.

5 – Monitor your portfolio regularly

Markets can fluctuate widely, so it is important to regularly monitor the portfolio, especially if the investor is positioned on leveraged products that require special attention.

6 – Knowing how to take profits and cut off losing positions

The investor must define his objectives of gains and losses before investing in the stock market. So you have to be rigorous if the earnings goals are met and think about taking your profits.

Similarly, if the threshold of acceptable losses for the investor fixed in advance is reached, it is necessary to know how to take these losses. It should be borne in mind that certain investments may entail a total loss of capital invested, hence the importance of meeting the threshold.

Even if it remains difficult, cutting off its losing positions remains an effective way of avoiding even greater capital losses and maintaining control over its investments.

Risks and Precautions

Risks are associated with all forms of investment. It is advisable to be well informed and to know the functioning of the financial products before investing in stock market. Generally, an investment with high return potential involves greater risks. Some investments may entail a total loss of capital invested, or even, for the most risky investments, a greater loss than the invested capital.

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