Get Started with Stock Trading: A Beginner’s Roadmap

Essential Insights for Beginner and Occasional Stock Traders

If you’re a beginner or an occasional stock trader, understanding the fundamentals is crucial for building a solid foundation in stock trading as you learn how to invest. From identifying market trends to managing risks and making informed decisions, this informational piece will help you navigate the stock market with greater confidence and deepen your understanding of stock trading.

What is a Stock Market?

A stock market is an avenue where buyers and sellers come together to trade stocks. Globally, there are around 60 major stock exchanges, including New York Stock Exchange (NYSE) — the largest in the world, Nasdaq — a leading hub for technology stocks, and London Stock Exchange (LSE) — one of the oldest stock exchanges in existence.

In Singapore, stocks are primarily traded on Singapore Exchange (SGX), with the Straits Times Index (STI) serving as a good benchmark as it tracks the top 30 companies listed on SGX.

With a strong and robust economy boasting consistent GDP growth, Singapore offers a favorable investment climate for investors. Besides, its stable political scene provides a stable and well-regulated trading environment.

However, it is a relatively smaller market with a concentration in specific sectors like real estate and banking. While ideal for income-focused investors and those seeking regional exposure, it may not offer the same level of diversification or opportunity as larger global exchanges.

Which is why, investors should not limit themselves to a single stock exchange. By opening an account with SC Online Trading, you can access up to 14 global stock exchanges, significantly increasing the variety of stocks at your fingertips. This allows you to trade in major exchanges across the US, EU, HK, and JP.

In the US, stocks are primarily traded on the New York Stock Exchange (NYSE) and NASDAQ, with the S&P 500 serving as a key benchmark, tracking the top 500 leading companies listed on these exchanges. Similarly, in the UK, the FTSE 100 serves as a benchmark for the largest companies, while in Hong Kong, the Hang Seng Index tracks the top firms listed on the Hong Kong Stock Exchange. In Japan, the Nikkei 225 is a key index that represents 225 leading companies in the Tokyo Stock Exchange.

While trading across the globe will give you global exposure, do note that global market trends, economic conditions, and geopolitical events can heavily influence global stock markets. Additionally, government policy measures such as fiscal stimulus and regulatory changes can significantly impact market sentiment and investor confidence.

All these factors above can influence whether the market enters a bull or bear phase.

Identifying the current market phase—whether bullish or bearish—is crucial for making informed investment decisions.

Bull vs Bear Market

A bull market is generally characterized by rising stock prices, investor optimism, and strong economic indicators such as GDP growth and low unemployment. During these periods, investors may experience portfolio gains and heightened market activity.

Conversely, a bear market usually involves a sustained decline in stock prices, driven by economic downturns, investor pessimism, and potential global economic challenges. In bear markets, investors may experience portfolio losses and reduced market activity, though some may see opportunities to buy undervalued stocks for long-term gains.

Ways to Earn Returns from the Stock Market

Stockholders typically earn returns in two main ways:

Capital Gains

Shareholders can sell their shares at a higher price than the initial invested amount, earning capital gains if the company’s share price appreciates over time. This price appreciation is often a reflection of the company’s growth, performance or market perception.

An example of capital gain: If a stock was bought at S$1.00 per share and it subsequently increases to S$1.10, the capital appreciation is 10%.

Dividends

Companies distribute a portion of their profits to shareholders in the form of dividends. Not all profits are distributed, as companies may retain some to reinvest in the business for growth and future opportunities.

An example of cash dividend: A company declares a dividend payout of S$0.05 per share. This means, if you hold 100 shares, you will receive a total cash dividend of S$5. Assume the stock price is S$1.00, the return is 5%.

The decision to pay dividends or reinvest profits depends on several factors that include the company’s financial strategy, growth stage and goals.

Key Benefits of Trading Equities

Capital Gains and Dividend Income

Stockholders may receive dividends that are a portion of the company’s profits distributed to them. Dividends can provide a steady income stream in addition to the potential capital gains from stock trading.

Liquidity

Stocks are considered liquid as they can be bought and sold quickly. They can be traded on the stock trading platform almost instantaneously.

Diversification

With stocks, you can build your own investment portfolio and achieve diversification by investing in multiple sectors. This helps to balance risks should an industry takes a hit due to an economic slowdown.

Straightforward Ownership in Companies

Shareholders gain partial ownership and has voting rights on important company decisions.

Limited Liability

Shareholders have limited liability, with the liability restricted to the amount they have invested into the company’s shares.

Must-Know Trading Risks for Every Beginner

It’s crucial to understand the key risks involved with equities trading.

Market Risk

Market risk refers to the overall volatility of the stock market, with prices fluctuating due to economic conditions, interest rates and global events. This means that even if a company is performing well, its stock price could decline due to broader market impacts. To manage market risks, consider diversifying your portfolio, staying informed, knowing your risk tolerance and adopting a long-term investment strategy.

Company Risk

Meanwhile, there is also the individual stock risks as stock prices may decline if company’s performance does not meet expectations.

Liquidity Risk

Liquidity risk arises when it’s difficult to trade a stock quickly. This can result in delays or unfavorable pricing, potentially impacting an investor’s ability to buy or sell without significant price changes.

Timing Risk

There is also timing risk. Timing the market — trying to buy low and sell high — is challenging, even for seasoned equity traders. Poor timing can result in buying stocks at their peak prices and selling them during dips, leading to big losses.

Emotional Risk 

Emotional decisions can also negatively impact your trades. When emotions take over, investors might lose sight of their plans, leading to missed opportunities or unnecessary losses.

How Corporate Actions Impact Stock Prices

While not a risk, do note that there are different types of corporate actions which may impact your stockholdings on a short notice. Examples of corporate actions include stock splits, dividends distributions, mergers and acquisitions, and rights issues. These corporate action events are usually agreed upon a company’s board of directors and authorized by its shareholders. Corporate actions can be mandatory or voluntary. In the case of voluntary, they will require your election decision. Sometimes, election decisions are required within a short and stipulated timeframe. This requires investors to be well-informed to make timely decisions.

Why Do Stocks Have Two Different Prices?

In stock trading, “bid” and “ask” are fundamental terms that represent the prices at which a stock can be bought or sold. Understanding the bid and ask prices is crucial for making informed trading decisions, as they reflect the immediate market conditions for a stock.

BID / BUY

The bid price is the highest price a buyer is willing to pay for a stock. It is the price investors can sell a stock on the open market. If the bid price for a stock is $100, it means that buyers are willing to pay up to $100 per share.

ASK / SELL

The ask price is the minimum price the market is willing to sell a stock. It is the price investors can buy a stock on the open market for. If the ask price for a stock is $101, it means that sellers are willing to sell at $101 per share.

Understanding Spreads and Why It Matters

The spread is the difference between the buy (bid) price and the sell (ask) price of a financial instrument.

Remember:

• • Bid / Buy Price: The price at which the market is willing to buy a security from you.
• • Ask / Sell Price: The price at which the market is willing to sell a security to you.

Example: If the bid price of a stock is $100 and the ask price is $101, the spread is $1.

The spread is a good indicator of the liquidity for a stock. A smaller spread typically means the stock is highly liquid. A larger spread might indicate lower liquidity.

When markets turn volatile and illiquid, spreads tend to widen. This happens when both bid and ask trade orders becomes difficult to match, resulting in a wider spread between the bid and ask.

There are different types of buy and sell orders that can be executed by either a stockbroker or an individual trader. Two common examples are:

• • Market Orders: These orders are executed at the prevailing market price at the point of execution.
• • Limit Orders: Limit orders are valid up to the limit execution price. For example, if you are placing a limit order to buy at $10, your buy trade will not be executed at a price above $10. If you are placing a limit order to sell at $10, your sell trade will not be executed at a price below $10.

What is Needed to Start Stock Trading

To start stock trading, you will need to:

Open a Trading and potentially a CDP Account

Open a brokerage account with a licensed brokerage firm. At Standard Chartered, we offer licensed brokerage services through our online trading platform in Singapore, SC Online Trading. There is no need to open a Custodian Depository Account (CDP) when you trade with a SC Online Trading account as we will act as your custodian to safekeep your shares across different exchanges globally.

However, if you wish to hold onto your shareholdings for Singapore Exchange (SGX) stocks, you will have to open a CDP account.

*Do note that a CDP account is only used for Singapore Exchange (SGX) trading/shares.

Meet the Requirements

• • Meet age requirement of 21 years old to open an SC Online Trading account
• • Provide personal identification
• • Non-residents must also submit proof of residency

To access Specified Investment Products (SIPs), clients would be required to complete Customer Account Review (“CAR”) to formally assess individuals that they have the necessary investment knowledge and experience to trade those products. Some examples of SIPs could be exchange-traded funds & foreign listed stocks. Specifically for US markets, non-US persons would be required to complete W8-BEN before they are allowed to invest in US stocks.

*Do refer to our Online Trading FAQ here for more information.

Fund the Account

Deposit funds into your Securities Settlement Accounts to start trading. There are up to eight currencies for you to trade in. You can conveniently convert currencies into your desired currencies using LiveFX, our real-time foreign currency conversion tool available on iBanking and SC Mobile Banking App.

Understand Fees and Taxes

Be informed of the brokerage fees and potential charges. There are market fees (such as tax or stamp duties) charged by the respective exchanges you trade in. Also, some brokerages will charge custody fees – good news, SC Online Trading does not charge custody fees. To find out more about our Online Trading fees and charges, please refer here.

*Be careful of platforms that claims zero/low commission fees as they may have hidden charges such as account inactivity and platform fees.

Conclusion

This article provides the fundamental knowledge you need before diving deeper into stock trading. As you continue your trading journey, remember to stay informed about market trends, manage your risks wisely and continually educate yourself. With these basics in mind, you’ll be better equipped to navigate the stock market confidently and make more informed trading decisions.

If you’re interested in stock trading, then our Online Trading platform can be an option for you. SC Online Trading grants you access to 14 major global stock exchanges at low brokerage fees with zero custody fees.

This article is brought to you by Standard Chartered Bank (Singapore) Limited. All information provided is for informational purposes only.