Tue. Nov 29th, 2022

    As you begin your new adventure into the world of trading, you must get off on the right foot. Understanding some stock basics can help to avoid mistakes and costly losses. Fortunately, there are some things that everyone must know before they begin trading shares in Hong Kong.

    What you need to know

    By law, all public companies listed on the Hong Kong Exchange (HKEX) must disclose their financial data to shareholders each fiscal year. This data includes annual reports, quarterly reports, announcements of dividends, shareholding changes, and so forth. By understanding this information, investors will be armed with enough knowledge to decide which stocks to buy or sell.

    As far as buying and selling stocks is concerned, all orders must be routed to a broker who acts as an arbitrator between the buyer and seller. As such, brokers charge commission for their services. Opening a margin trading account is best to avoid paying high trading fees. This allows buyers and sellers greater freedom because they can trade at any price level without paying commission fees.

    Trading certain shares carry’s more risk than others, and you should familiarize yourself with these before attempting to purchase them. Stocks considered penny stocks have low share prices but substantial potential returns on investment. Generally speaking, penny stocks are very volatile due to being thinly traded on the stock exchange’s secondary board. If you do not wish to take this additional risk, choose a blue-chip stock with a much higher share price and less risk.

    It is suggested that you obtain professional advice before trading shares in Hong Kong, especially if this is your first time investing. Several well-respected companies are ready to help beginners learn about the stock market and make a well-educated decision on their next course of action.

    What risks are involved with stock trading?

    Loss of capital

    New stock traders must know how easily they can lose all their capital. Investing in stocks is risky and almost always entails an element of loss. You cannot avoid this risk entirely, but you can manage it by trading cautiously and only trading with money you can financially manage to lose.

    Illiquidity

    For new investors, one of the most common mistakes is placing a trade before fully understanding the liquidity and size of the market for each share (i.e., how much buying or selling activity goes on at any one price). Gaining enough experience to do so takes time. A good rule to follow is “Don’t try to catch a falling knife.” In other words, wait until you feel comfortable judging the size and volatility of a particular share before trading it.

    Information asymmetry

    Information asymmetry often allows some investors to profit at the expense of others. For example, an investor may use superior information to learn about a positive development in the industry that other investors don’t know about and buy shares before others do. The price of these shares will increase as more investors hear about this positive news; they can profit at their expense by selling them quickly. This is known as insider trading and is illegal in Hong Kong unless authorized by law.

    It is difficult to ascertain whether your broker has such privileged information because it will be treated confidentially, but you should always bear it in mind.

    Price volatility

    The more volatile a share, the wider the gap between its high and low prices during each trading session. It is crucial to understand that volatility does not necessarily indicate that a particular share has become less or more valuable; it just means that it fluctuates widely compared with other shares on the market. This may be due to new information about the company becoming available (good or bad), changes in market sentiment, or any number of factors. The only way to find out is by doing your research thoroughly before buying a particular share. If you decide to invest in a very high-volatility stock, make sure you have enough money available for trading because there will likely be more swings up and down, which you will need to ride out. This risk is constant regardless of your trading style, so it should be factored into your overall risk equation before taking a trade.

    If you’re sure, this is the route for you, navigate to this website to start your stock trading adventure.

    By Pooja

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