One of my friends opened an investment account couple of years ago with a broker and began to buy stocks based on the recommendations in newspapers, friends and broker. Since I knew he was new to the stock market, I asked him to be very cautious and get educated about the various techniques of successful investing. He said he get enough advice and guidance from his sources.
I recently met him and asked about his stock market performance. He said that he suffered losses and quit that business. I told him to get educated and start again. But he was hesitant. This is common for many investors. They want easy bucks. That too in truck loads. They ignore the eternal principle that 'there is no free lunch' and that 'the exceptions prove the rule'.
Two important things a new investor in stocks, futures and options should do are the following:
1. Get good education & practice
2. Start small
Start with the small capital and gradually increase as you make more and more money. If you can’t manage small capital; you won’t be able to do it with big.
This is a craft. It is like learning driving or cycling. Initially, you have to be careful. The initial years were difficult for me as well. But over time, you become experienced and expert.
The key is to break the ice, and even if buying only a few cheap options is not economical from a commission standpoint, at least you get in the game.
Though you might be planning on entering far more risky or complex trades, such as spreads or option writing, I suggest, to gain experience, that you start by taking some very small positions. Again, only stick one toe in the water. Then if you make some mistakes, you will not pay a high fee for your experience.
As you gain experience, commit more money into the business.
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