So you want to trade equities in the market? Do you have an account with some brokerage firm? This might be the first step. Here is some other advice...

INVESTING, TRADING AND THE NATURE OF RISK

Introduction to investing
Everyone who puts some money aside and out of the clutches of immediate gratification is at least a saver. He or she has some concern that the future is risky and it is desirable to have some reserves for emergencies, like losing a job, death in the family or freaks of nature. Then there are those who decide somewhere around 50 to 65 that they had better start saving for retirement. Others, unfortunately a minority, enjoy saving for many reasons but primarily to add more elements of security to life. Saving is good but starting to save for retirement at even age 50 is real risky. We have all heard how the US Government has raided social security funds so that there is little real money at retirement from this source. It will, perhaps, pay the mortgage for the average worker but certainly not much more and there is a lot more to life after retirement.
By now you have probably figured out that this material is really for the small investor but it is also for the new investor either big or small. You professionals can move on to other material unless you also might be interested in how to deal with risk. Really all investors have this problem and it begins right after the money is taken out from under the mattress and put into some other hands for safe keeping. Well, the mattress isn't too safe either, your partner might find it or the house could burn down.
So, you have decided to save some money and give it to somebody else for safekeeping. Perhaps you want more than safekeeping. You will be interested in extra compensation for turning your hard earned funds over to another person or institution. Now you are not only saving but have become an investor and even more, a trader. Traders, however, are classically defined as those who make frequent trades and not just day traders. If you have a yen for this you had best get over that right at the start. Good investing is not making money real quick. It is a lifetime of planned and careful execution.

Risk Tolerance
What is risk tolerance, really? Why is some understanding of that important to investing? Answers to these questions are of utmost importance and every would be and experienced investor must constantly deal with the twin tigers of fear and greed. How do we balance these into some acceptable level of dealing with emotional needs for security while also giving up some of that. Everything in life is risky, and life itself is a risk. Crossing a street or sky diving both entail risk and both can get you killed. So to avoid these risks do you avoid sky diving and crossing the street? Probably sky diving but we all need to cross the street sometime.

Our life experiences condition us to have some types of risk aversion. A small child touches a hot stove, leaning early and acutely that hot stoves are a risk to be avoided. Since our growth and development adds risk to risk without end we build up a portfolio of risk awareness and their aversions. Thus experience teaches us and sometimes most painfully. However, humans are resilient and develop coping mechanism to dealing with risk. Either avoid it or learn how to deal with it. Since the avoidance of all risk is impossible the leanings on how to cope are valuable additions to our portfolio of life. Everyone has a different level of risk tolerance to the same threat. Everyone has some concept of acceptable levels of risk taking. Investors need to be acutely aware of how much risk they feel comfortable with before they cast their bread upon the waters.

Investing for risk management
Investors immediately take on some level of risk when they give their money to someone else to manage. On the low end of risk is the FDIC insured saving account or Certificate of Deposit. These are very safe but pay poorly. If you have a lot of money that may be an acceptable investment since even modest earning on a lot of money can be substantial. But the small investor doesn't have a lot of money, mind you, how much is quite relative to individual perception. Investment risk taking ranges all the way from pure gambling on a turn of the dice to planned apportionment of money to various well-researched securities.
Financial markets are not secured savings. There is no guarantee that you will make a certain rate of return unless you invest in a security that makes that stipulation. Again these pay poorly. So casting your funds into more risky ventures is desirable and this is where the "well researched securities" concept enters the picture. Investing is work, hard work and takes a great deal of preparation. Professional traders spend their entire life energy on this subject. Most small investors cannot do that because they have other jobs, their day jobs which bring in the bread and butter. So their investment work is part time.

As, mentioned earlier, investing is prone to risk. So your risk tolerance is the first order of understanding and the second is to find the security that you are going to feel comfortable with. With some 15,000 mutual funds available and 12,000 stocks plus multitudes of ways to invest in stocks, bonds, mutual funds, futures, real estate, you name it, well your work is cut out for you. Surprisingly, Americans have taken to investing with a vengeance with over 60% of households now invested in the US or foreign securities markets. Presumably a lot of work is being done, or is it? Just how much work are you prepared to give to this investing thing? Some consider it a game, others dead serious stuff. If you want to protect your capital it had better be dead serious stuff.
Perhaps a broker or investment advisor should be consulted if you are not ready to do the work. Well, my friends that is a risk too. We are now getting an increasing barrage of news about securities dealers and their firms that are stealing from their investors even while they charge high fees. Greed is certainly present on the investment front. More risk. Should you do your own work? Emphatically yes, even if you use a broker. These folks have thousands of accounts and they haven't laid awake at night about your small investment. But perhaps you have because it is yours and you have a critical interest. So to get better sleep you need to arm yourself with the facts about your potential investment. This means research into past performance, future prospects, the economic conditions of businesses, the impact of legislation, taxes and a host of other essentials.
If you do the work you are already investing for better risk tolerance. Knowledge is power, without it you are just gambling. And who is better equipped than you to do the work on your own investments? No one. Before even making your first investment it is a good idea to go to investment school. You can do this in your own home by reading a few good investment books. You might consider getting a copy at your library of "The Small Investor" (Jim Gard, 10 Speed Press, 1996.) If you are a real serious investor you should get a copy of "Trading for a Living" Psychology, Trading Tactics, Money Management (Dr. Alexander Elder, John Wiley & Sons.) It is currently out of print but a library search will find it. Make a photocopy - you professional traders read this like the bible. Also, you part timers will learn how to use technical analysis. This book is a permanent reference to be read again and again.

Summary
Investment is necessary to provide for emergencies and retirement. Your hard earned money will be turned over to someone else for safekeeping and hopefully for a good return on their use while you lend it to them. You might get a good return, you might lose it all. Your aversion to the risks of investing needs to be managed by knowledge and preparation. You need to find your comfort zone for risk. You need to select a security that will provide for that. You will need to work hard and you will profit best by doing your own work. Researching into the way financial markets work and how to use them is essential and reference reading is most necessary. Good investing is a skill to be acquired and takes time, just like fine wine.