Before you invest anything
Investing comes after the basics, not instead of them. Have a budget, an emergency fund, and no expensive debt. Money you may need in the next few years doesn't belong in the stock market, because it can be down exactly when you need it.
Stocks, funds and ETFs
A stock (share) is a small piece of one company. If that company struggles, your money struggles with it. A fund pools many people's money and buys many investments at once. An ETF (exchange-traded fund) is a fund you buy and sell on the stock exchange like a share. An index ETF simply copies an index, for example the biggest companies of a country or of the whole world, so one purchase spreads your money across hundreds or thousands of companies.
For most beginners, spreading money widely matters more than finding the next big winner. Picking single stocks is a skill, and most professionals don't beat the index over long periods once costs are counted.
Words you'll meet on European funds
- UCITS: the EU framework for funds sold to ordinary investors, with rules on spreading risk and on what the fund must disclose.
- Accumulating (Acc): dividends are reinvested inside the fund automatically. Distributing (Dist): dividends are paid out to you. Which is better depends partly on how your country taxes each; check your local rules.
- KID: the Key Information Document. Packaged products sold to retail investors in the EU, such as funds, ETFs, structured products and CFDs, must have one (plain shares don't). It's short and shows costs and a risk score from 1 to 7. Read it.
Why you can't buy some US ETFs
Under the EU's PRIIPs rules, a packaged product like an ETF needs a KID before it can be sold to retail investors. Most US-listed ETFs don't publish one, so EU brokers block them for ordinary customers. That's why you'll find European-listed (often Irish- or Luxembourg-domiciled) versions of similar funds instead. It's not your broker being difficult; it's the law.
Fees: the part that decides more than you think
- Ongoing charges (TER): a yearly % taken from the fund. Broad index ETFs are often well below 0.5% a year; some actively managed funds charge 1.5–2% or more.
- Broker fees: per trade, per month, or hidden in the price.
- Currency conversion: buying in dollars from a euro or lei account can cost a fee on every trade. Look for it in the price list.
- Spread: the gap between buy and sell prices. Small for big, popular ETFs; larger for small or exotic products.
Fees compound against you just like returns compound for you. Try lowering the return by 1–2% in the compound interest calculator and look at the result after 30 years.
Buying regularly beats waiting for the perfect moment
Investing the same amount every month, whatever the market does, is called dollar-cost averaging. You buy more units when prices are low and fewer when they're high, and you stop trying to time the market, which almost nobody does well. Many brokers offer automatic savings plans for ETFs.
CFDs and leverage: read this twice
A CFD (contract for difference) lets you bet on a price with borrowed money. Leverage multiplies gains and losses. Because so many retail clients lost money (in 2018, national regulators found that 74–89% of retail CFD accounts typically lose money), the EU's markets regulator, ESMA, limited CFD leverage for retail clients in 2018.
ESMA's measures could only last three months at a time. So between March 2019 and April 2020 the national regulators adopted their own measures, which replaced ESMA's and, unlike ESMA's, can be permanent. The limits below are the 2018 ones; your own country's regulator publishes the rules that apply to you:
| Underlying | Maximum leverage |
|---|---|
| Major currency pairs | 30:1 |
| Other currency pairs, gold, major stock indices | 20:1 |
| Other commodities, other stock indices | 10:1 |
| Individual shares and other | 5:1 |
| Cryptocurrencies | 2:1 |
The same rules close your position automatically if your margin falls to half of what's required, protect you from losing more than your account balance, and force providers to publish the share of their retail accounts that lose money. Look for that number on any CFD provider's website. It's usually most of them.
CFDs and forex are also where many investment scams hide: an "account manager" in a chat app, a celebrity ad, a platform that won't let you withdraw. See the red flags and how to check a broker.
Leveraged ETFs and ETPs are a different product with their own trap. See the leveraged ETF calculator.
Choosing a broker
- Regulated in the EU or UK: check the regulator's public register, not just the broker's website. How to check a broker in 3 steps.
- Investor compensation: if an EU investment firm fails and can't return your investments, national schemes cover at least €20,000 per investor. That protects against the broker failing, not against market losses.
- Costs that match how you invest: a monthly savings plan and occasional big trades suit different price lists.
- Tax reporting: some brokers give you ready-made tax documents for your country, others leave it all to you.
The habits that matter most
- Know why you own something and when you'd sell it. Write it down before you buy.
- Never put in more than one mistake can afford. For traders, that's position sizing.
- Expect to be wrong often. It's the size of wins vs losses that counts (here's the maths).
- Don't check prices every hour. Long-term money needs long-term nerves.