Trading 101: How to Make Passive Income with Apps & Essential Risk Factors for Beginners

As you dive into this article, you'll uncover:

What trading truly entails.
How it can serve as a source of passive income.
Step-by-step guidance for beginners to get started with trading apps.
Risks that you should be aware of before you start trading.

What is the basic concept of trading?

Trading is the act of buying and selling financial instruments, such as stocks, bonds, commodities, or currencies, with the aim of making a profit. The basic concept revolves around the principle of buying low and selling high. Traders seek to capitalize on market fluctuations to generate returns on their investments.

There are different types of trading strategies, such as day trading, swing trading, and long-term investing. Day trading involves making multiple trades within a single day, aiming to profit from short-term price movements. Swing trading spans over several days or weeks, capturing medium-term trends. Long-term investing focuses on holding assets for extended periods, often years, to benefit from long-term growth.

Which trading apps are best for beginners?

When selecting a trading app as a beginner, it's crucial to consider user-friendliness, educational resources, and low fees. One highly recommended app is Robinhood. It offers a simple and intuitive interface, making it easy for beginners to navigate. Additionally, Robinhood provides commission-free trades, which can help new traders save money as they learn the ropes.

Another excellent option for beginners is Webull. This app not only offers commission-free trading but also provides a wealth of educational resources, including tutorials and webinars. Webull's paper trading feature allows users to practice trading with virtual money, which can be invaluable for gaining experience without financial risk.

For those who prefer a more comprehensive platform, TD Ameritrade's thinkorswim app is a great choice. While it may have a steeper learning curve, thinkorswim offers extensive research tools, real-time data, and a robust educational section. TD Ameritrade also provides access to a wide range of investment options, including stocks, ETFs, and options.

For beginners who prefer a more guided approach, Acorns is an excellent choice. Acorns simplifies investing by rounding up everyday purchases and investing the spare change into diversified portfolios. This app is perfect for those who want to start investing with minimal effort and gain exposure to the stock market without the need for active trading. Acorns also offers educational content to help users understand the basics of investing.

What are the primary risks involved in trading?

One of the primary risks involved in trading is market volatility. Prices of stocks, commodities, and other assets can fluctuate significantly in short periods, leading to potential losses. This unpredictability can be particularly challenging for beginners who may not have the experience to navigate sudden market changes.
Leverage risk is another critical factor. Many trading platforms offer the option to trade on margin, which allows traders to borrow money to increase their position size. While this can amplify gains, it also magnifies losses, potentially leading to debt if the market moves against the trader's position.
Liquidity risk is also a concern. This occurs when traders are unable to buy or sell assets quickly enough to prevent a loss or to make a profit. Low liquidity can result in wider spreads between the bid and ask prices, making it more difficult to execute trades at desired prices.
Emotional decision-making is a common risk in trading. Fear and greed can drive traders to make impulsive decisions, such as panic selling during a market downturn or over-investing in a rising asset. These emotional responses can result in significant financial setbacks.
Lastly, the risk of fraud and scams is prevalent in the trading world. Unscrupulous individuals and entities may offer fraudulent investment opportunities or operate unregulated trading platforms. It's crucial for traders to conduct thorough research and use reputable apps and brokers to mitigate this risk.