Stock exchange: how to succeed in the first steps in the financial markets?

The stock market offers high prospects for returns. But it is also a risky investment. Before you get started, here’s what you need to know.

After more than 10 years of shunning the stock market, the French recently returned to the markets. Between 2019 and 2023 1.5 million individuals thus, according to the Office for Financial Markets (AMF), they took the first steps on the stock market.

Between them, 40% they are approximately up to 35 years old. Record level according to the market policeman, who is delighted with the arrival of a new generation of savers in the stock market.

The stock market owes this success mainly to its good results. Over the past 15 years, the CAC40 index, the flagship of the Paris market, has achieved an average return 10.7% per year once dividends are reinvested.

But the stock market is not a long, quiet river. This investment is accompanied by the risk of capital loss associated with high volatility. Result? AT 89% individuals who trade lose money according to the AMF.

However, there are principles that, if respected, can help you take advantage of the opportunities that the financial markets offer without risking losing everything. Here are 5 golden rules to succeed in your first steps in the stock market.

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1. Define your investor profile

Trackers, warrants, futures… The stock exchange is a separate world with its own rules and jargon. At first glance, the complexity of the financial markets is enough to intimidate novice stock traders. Especially since these investments carry the risk of capital loss.

Therefore, if you want to hope to get long-term returns, the first step is to understand how the financial markets work and then create an investment strategy tailored to your risk profile.

Start by defining your long-term goal, the risk you are willing to take and your preferences in terms of products, sectors or economic zones, recommends Nicolas Chron, an independent analyst.

But be careful: if there are a large number of assets and financial instruments that are more or less complex and risky, it is better to keep things simple at the beginning and stay away from the most speculative assets.

Some brokers target new investors by promising them exceptional performance through leverage. But it’s a gamble, because if prices fall, the losses also multiply, warns Olivier Ravenel, founder of the investment club for students and professor of economics and management at the IUT in Aix-en-Provence.Marseilles.

Initially, it is therefore in the interest of novice traders to limit themselves to classic shares and ETFs. The latter, also called index funds or trackers, allow you to invest with lower costs in a basket of stocks.

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2. Succeed in your first stock market simulation

Favorite action, of course. But which ones? Over 1900 companies are listed on Euronext, the main stock market in the Eurozone. Not to mention international markets. So where to start?

I often advise my students to start investing crush. The idea is to follow the price of a share they know well and try to understand its fluctuations, says Olivier Ravenel.

For this first practical exercise, you can also go through a virtual wallet. There are actually many sites through which you can practice fictitious money trading such as Zonebourse Or ABC Exchange.

Run a few simulations to familiarize yourself with the different job types and KPIs available to you. Then, when you’ve made the majority of winning trades, go for it.

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3. Choose your broker

To invest in the financial markets, you need to open a securities account or an equity savings plan (PEA) with a stockbroker. There are dozens of them. But not all are equal.

Your broker acts as an intermediary between you and the markets. Every time you want to buy or sell a stock, it receives your order and ensures its proper execution.

In return, these players charge several types of fees, the most well-known of which are brokerage feescommission charged for each order you place, as well as escrow fees and withdrawal fees.

Most traditional banks offer brokerage services. However, their prices are often prohibitive. As a result, individual investors are increasingly turning online brokers or no-brokers known to be more competitive.

BNP Paribas takes e.g. 0.55% brokerage fees on European markets as part of its Bourse Essentiel offering. Worse: the bank states that it applies a minimum billing amount 7.30 euros according to the order.

In contrast, online broker DEGIRO charges 1 euro for every transaction made. Faced with such differences, it is important to compare offers. Choosing a broker plays a big role in the final performance of your investment, says Olivier Ravenel.

In addition to the fees applied by the brokers, you also need to look at what markets and securities are available to find a broker offer that is truly suitable for your investor profile.

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4. Build your portfolio

Once your broker is selected, it’s time to get to work. Indeed, building a diversified and well-balanced portfolio is the key to achieving high returns over time.

But specifically, how do you know when a stock is going to go up in value? To predict price fluctuations, you can look at two things: the economy in general and society in particular.

Start by choosing a few sectors that seem promising to you. For each of them, then determine which companies seem best equipped to develop their business.

To do this, placefundamental analysis. First, look at the profits the company generates. Because the market valuation of a company to some extent reflects its ability to generate profits.

Is the company’s turnover increasing? How is her margin changing? Is the sector growing? The whole purpose of this exercise is to estimate the company’s growth potential.

Second, you can enrich your analysis by taking into account other indicators. These can be quantitative, such as the company’s debt level, or qualitative: has the management team already proven itself?

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5. Develop your skills

To go further, experienced traders have other decision support tools in their arsenal such astechnical analysiswhich consists in the study of market prices in an attempt to predict their future development.

But rest assured: it is not necessary to master all these skills to take your first steps in the stock market. Learning happens over time, learning from every operation you do.

There are so many elements that can affect the price of a share… To predict price fluctuations, you need to adopt a multi-criteria approach that can only be gained by experience, emphasizes Olivier Ravenel.

If you want to improve your skills, keep training and keep learning. The economic press and forums are a wealth of information for the novice investor.

However, be careful to choose your sources carefully. Vigilance is required regarding discussion groups on private chats, where training and advice are sold by people without any certification, Nicolas Chron points out.

Another way to develop your knowledge of financial markets is to join an investment club: a structure that allows you to pool risks, make collective decisions and exchange ideas with other investors.

Stock market: securities account or PEA, how to make the right decision?

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