How to Start Stock Trading at Home: A Starter Guide

Investing in stocks is a way to make your money grow over time. This article will guide beginners on how to start stock trading at home. It covers important steps and by following these steps, even beginners can successfully navigate the world of stock trading from the comfort of their own homes.


Start stock trading at home by learning basics, setting goals, choosing a broker, practicing with virtual trading, funding your account, and executing informed trades.

Key Takeaways

  • Stock trading from home allows individuals to grow their money over time.
  • Setting clear investment goals is the first step in starting stock trading at home.
  • Assessing your financial situation helps determine how much you can afford to invest.
  • Evaluating your risk tolerance is crucial in developing an investment strategy.
  • Determining your investing style, whether DIY or working with a financial advisor, is essential.

How to Start Stock Trading at Home

Investing in stocks offers a pathway to growing your wealth over time. Starting as soon as you have the means is crucial, given that a longer time horizon enhances the potential for substantial returns. This blog outlines key steps and approaches, covering the amount you need, stock selection, and other fundamentals to kickstart your stock trading journey from the comfort of your home.

Setting a Sensible Trading Budget: A Crucial Step for Successful Stock Trading

Getting started on your stock trading journey demands a meticulous approach, starting with the establishment of a realistic trading budget. This foundational step is pivotal for both novice and experienced traders alike, as it lays the groundwork for effective financial management and risk mitigation.

Understanding the Significance of a Trading Budget

A trading budget serves as your financial compass in the dynamic world of stock trading. It delineates the amount of capital you are willing to allocate for investments, ensuring that your financial commitments remain within manageable limits. By establishing a clear budget, you not only safeguard your assets but also cultivate discipline, a fundamental trait for sustained success in the stock market.

Allocating Percentages for Diversification

To set an effective trading budget, consider allocating percentages of your total investment portfolio to different asset classes. Seasoned investors often advocate the 1% to 2% rule, suggesting that a small portion, typically up to 2%, of your total budget can be allocated to exploring new and potentially high-return assets. For instance, with a budget of £10,000, dedicating £100 to £200 for experimenting with new investments allows for controlled risk exposure.

Avoiding Short-Term Financial Impacts

Crucially, a trading budget should not encroach upon funds earmarked for short-term financial needs. Money reserved for mortgage payments, emergency funds, or other immediate obligations must remain untouched. This separation ensures that your trading activities do not compromise your financial stability, providing a safety net in times of unforeseen expenses.

Example Scenario: Balancing Risk and Exploration

Consider a scenario where your total investment capital is £5,000. Adhering to the 1% to 2% rule, you allocate £50 to £100 for exploring new assets. This cautious approach allows you to test the waters without jeopardising a significant portion of your portfolio. It exemplifies the principle of balancing risk and exploration within the confines of a well-defined trading budget.

The Role of Discipline in Budget Adherence

One of the primary advantages of setting a trading budget lies in cultivating discipline. In the fast-paced realm of stock trading, emotional impulses can lead to impulsive decisions. A predetermined budget acts as a financial boundary, preventing you from deviating into risky territories driven by momentary market fluctuations.

Conclusion: A Pragmatic Approach to Stock Trading

In conclusion, setting a realistic trading budget is not merely a procedural step but a strategic move towards prudent financial management. By understanding the significance of budgeting, allocating percentages judiciously, and avoiding short-term financial impacts, you lay the groundwork for a resilient and disciplined approach to stock trading. Remember, a well-structured budget empowers you to navigate the complexities of the market with confidence and resilience.

Analytical Techniques: A Dual Approach for Novice Traders

In the dynamic realm of stock trading, the decision-making process is significantly influenced by two distinct yet complementary analytical approaches: Technical Analysis and Fundamental Analysis. As a novice trader, understanding the nuances of these methods is crucial for informed and strategic investment decisions.

Choosing Between Technical and Fundamental Analysis

Technical Analysis: Unveiling Price Movements and Trends

Technical analysis revolves around interpreting stock price movements and historical market data to forecast future trends. Chart patterns, statistical trends, and other indicators are pivotal tools in a technical analyst’s toolkit. For instance, identifying a bullish trend in a stock’s price chart might signal a potential buying opportunity. On the contrary, recognising a bearish trend could prompt a decision to sell.

Fundamental Analysis: Evaluating the Company’s Financial Health

In contrast, fundamental analysis involves a thorough examination of a company’s financial statements and overall health. This approach assesses a company’s intrinsic value and financial stability by delving into aspects such as earnings, revenue, and growth potential. For example, scrutinising a company’s balance sheet may reveal insights into its debt-to-equity ratio, aiding in determining its long-term viability.

Synergising Technical and Fundamental Analysis

While technical and fundamental analyses are often viewed as opposing strategies, a judicious combination of both provides a comprehensive understanding of the market. This blended approach equips traders with a broader perspective, enhancing their ability to gauge market trends and make well-informed decisions. For instance, identifying a bullish trend through technical analysis and confirming it with positive earnings growth from fundamental analysis strengthens the conviction behind an investment.

Utilising Virtual Trading for Skill Development

Aspiring traders often find themselves on a steep learning curve when entering the stock market. To hone their skills without risking real capital, virtual trading, also known as paper trading, emerges as a valuable training ground.

Testing Strategies in a Risk-Free Environment

Virtual trading allows traders to experiment with various strategies in a simulated, risk-free environment. Whether you’re exploring technical indicators or implementing fundamental analysis, this practice enables you to refine your skills without the financial consequences of real trades. For example, a novice trader can simulate buying and selling decisions based on technical signals to observe the outcomes over time.

Developing Discipline and Confidence

Engaging in virtual trading instils discipline and confidence in traders. It offers a safe space to make mistakes, learn from them, and refine strategies. This iterative process prepares traders for the challenges of the real market, mitigating the impact of emotional decision-making. Virtual trading acts as a crucial stepping stone, allowing traders to transition from theoretical knowledge to practical application.

Conclusion: A Holistic Approach to Skill Enhancement

Mastering the art of stock trading involves a dual approach, incorporating both technical and fundamental analyses. By understanding the intricacies of each method and synergising them judiciously, traders can navigate the market with a comprehensive perspective. Additionally, utilising virtual trading as a training ground accelerates skill development, fostering discipline and confidence. This holistic approach empowers novice traders to make informed decisions, laying the groundwork for a successful journey in the world of stock trading.

Crafting a Robust Trading Plan: Your Blueprint for Success in Stock Trading

In the fast-paced and volatile world of stock trading, having a well-defined trading plan is like having a roadmap guiding you through the complexities of the market. This section explores the critical elements of developing a solid trading plan and illustrates how this blueprint can be the differentiator between success and uncertainty.

Understanding the Importance of a Trading Plan

A trading plan serves as a comprehensive strategy that outlines your approach to trading, encompassing key elements such as entry and exit points, risk tolerance, and overarching goals. It acts as a crucial tool for maintaining discipline and consistency, essential attributes for navigating the ever-changing landscape of the stock market.

Elements of a Comprehensive Trading Plan

1. Defining Clear Entry and Exit Points

A successful trading plan starts with the identification of precise entry and exit points for each trade. These points are informed by your analysis, risk tolerance, and overall trading strategy. For example, if employing a trend-following strategy, your plan might specify entering a trade when a stock breaks out of a particular price range.

2. Tailoring to Your Skill Level and Risk Tolerance

A well-crafted trading plan aligns with your skill level and risk tolerance. For instance, if you are a novice trader with a lower risk appetite, your plan may focus on longer-term investments or a more conservative approach. Conversely, an experienced trader comfortable with higher risk might incorporate short-term, high-volatility strategies.

3. Defining Overall Goals and Objectives

Clearly defining your overarching goals and objectives is pivotal for shaping your trading plan. Whether your aim is capital preservation, steady income, or aggressive growth, these goals dictate the strategies you employ and the risk you are willing to undertake.

Example Scenario: Building a Trading Plan for a Novice Trader

Let’s consider a novice trader who is starting with a modest capital of £1,000. Their trading plan might include allocating 2% of their capital (£20) per trade, ensuring a diversified approach. Entry and exit points could be determined through a mix of technical and fundamental analysis, with a focus on less volatile stocks to align with their lower risk tolerance.

Maintaining Discipline Through a Trading Plan

Discipline is the bedrock of successful trading, and a well-structured plan enforces this discipline. It prevents impulsive decisions influenced by market fluctuations or emotional responses to losses. Each trade executed adheres to the predefined rules, reducing the impact of emotional biases on your portfolio.

Evolving Your Plan with Experience

A trading plan is not static; it should evolve with your experience and changing market conditions. Regularly reviewing and adjusting your plan allows you to incorporate lessons learned, adapt to new market trends, and refine your strategies. Flexibility within the framework of a plan is key to long-term success.

Conclusion: A Strategic Framework for Trading Success

In conclusion, developing a solid trading plan is an indispensable aspect of navigating the complexities of stock trading. By defining clear entry and exit points, tailoring the plan to your skill level and risk tolerance, and establishing overarching goals, you create a strategic framework that guides your decisions. Examples and scenarios help illustrate the practical application of a trading plan, demonstrating its significance in maintaining discipline and fostering success. As you embark on your stock trading journey, remember that a well-thought-out plan is your roadmap to achieving your financial goals.

Lessons on the Investment Landscape: Choosing and Exploring the Right Accounts

Beginning a career in stock trading involves strategic decisions regarding the type of investment accounts you choose. This section explores the intricacies of selecting the right investment account and delves into the diverse landscape of account types available to investors.

Choosing the Right Investment Account

Understanding Different Account Types

Selecting the right investment account is a pivotal decision that aligns with your financial goals, risk tolerance, and the level of control you desire over your investments. Common account types include retirement accounts (e.g., 401(k), IRA), taxable brokerage accounts, and managed accounts. Each has unique features, benefits, and considerations.

1. Retirement Accounts: A Long-Term Approach

Retirement accounts, such as the 401(k) or IRA, are designed for long-term savings and offer tax advantages. For example, contributing to a 401(k) allows you to defer taxes on your contributions until withdrawal, potentially benefiting from employer matching contributions. The choice between a traditional or Roth IRA depends on whether you prefer tax-deductible contributions or tax-free withdrawals in retirement.

2. Taxable Brokerage Accounts: Flexibility and Accessibility

Taxable brokerage accounts provide flexibility and accessibility without the tax advantages of retirement accounts. Investors can trade various assets, including individual stocks, mutual funds, ETFs, and options. While lacking tax benefits, these accounts have no contribution limits, allowing you to tailor your investments to your preferred style.

Exploring Different Types of Accounts

Understanding Individual and Joint Accounts

Individual accounts provide full control to a single account holder and are ideal for personal investment strategies. Conversely, joint accounts are shared by multiple individuals, often spouses or partners, and can be structured with rights of survivorship. These accounts offer shared control and ownership.

1. Professionally Managed Accounts: Delegating Decisions

Managed accounts involve a portfolio manager making investment decisions on your behalf. Tailored to your needs and goals, these accounts offer a hands-off approach, allowing professionals to handle the intricacies of your investments.

2. Specialised Accounts for Specific Goals

Certain accounts cater to specific financial goals. Education Savings Accounts (ESA) and Health Savings Accounts (HSA) offer tax advantages for education and medical expenses, respectively. Trust accounts, managed by trustees, are structured to benefit a third party based on the terms of a trust agreement.

Example Scenario: Tailoring Your Investment Strategy

Consider an investor who values tax advantages for retirement savings. They might opt for a combination of a 401(k) offered by their employer, benefitting from tax-deferred contributions and potential matching, and a Roth IRA for tax-free withdrawals in retirement. Additionally, they could maintain a taxable brokerage account for more immediate and flexible investment options.

In Brief: A Customised Approach to Investment Accounts

Choosing the right investment account and exploring diverse options is an integral part of your stock trading strategy. Whether aiming for long-term retirement savings, flexibility in taxable brokerage accounts, or specific goals through specialised accounts, each choice shapes your investment journey. The example scenario illustrates the potential combination of accounts, highlighting the importance of customising your approach based on your unique financial objectives. As you navigate the investment landscape, the right mix of accounts empowers you to build a portfolio that aligns seamlessly with your goals and preferences.

Brokerage Fees: A Strategic Approach to Choosing the Right Broker

For stock trading, understanding and evaluating brokerage fees is a crucial aspect of selecting the right broker for your needs. This section explores the intricacies of brokerage fees, embraces the changing dynamics in this realm, and provides insights into choosing a broker aligned with your trading goals.

Evaluating Brokerage Fees

Traditional Fee Structures

Historically, brokerages charged fees through trade commissions, account maintenance fees, and additional charges for research or financial advice. Trade commissions, often per transaction, ranged from £2 to £10. These fees directly impacted a trader’s portfolio returns and the overall cost of executing trades.

Impact on Portfolio Returns

To illustrate, suppose you purchase shares in five companies with a £1,000 investment. With a £10 transaction fee per trade, your total trading costs amount to £50, equivalent to 5% of your initial investment. Subsequently selling these stocks incurs another £50, constituting 10% of your initial deposit. Such fees can significantly impact the return on investment and diminish available capital.

Evolution of Brokerage Fee Structures

In recent years, the brokerage landscape has witnessed a transformative shift. Many online brokers have abolished account minimums, making trading accessible to a broader range of investors. Some brokers have eliminated trade commissions altogether, opting for alternative revenue streams. This evolution benefits traders, especially those with smaller capital, by reducing the cost barrier to entry.

Embrace the Changing Landscape of Brokerage Fees

Flat Fees and Subscription Models

A notable departure from traditional fee structures is the emergence of flat fees and subscription models. Some brokers now offer flat monthly or annual fees, providing subscribers with commission-free trades, research tools, and premium support. This subscription-based approach caters to the preferences of a new generation of investors accustomed to app-based services with fixed costs.

Tiered Subscription Levels

Some platforms adopt tiered subscription levels, offering enhanced features or lower margin rates at higher subscription rates. Traders must assess their usage patterns to determine if the subscription cost justifies the benefits. This shift towards subscription models aligns with changing consumer expectations and provides a predictable cost structure.

Choose the Right Broker for Your Needs

Considerations When Selecting a Broker

Choosing the right broker involves a careful evaluation of your trading style, preferences, and financial goals. Beyond fee structures, factors such as educational resources, customer service, and trading tools play a crucial role. For active traders, low commissions and fast order execution are paramount, while beginners may prioritise educational support.

Example Scenario: Tailoring Choices to Your Needs

Consider an investor who values simplicity and plans to execute a few long-term trades annually. Opting for a broker with a flat annual fee may be cost-effective in this scenario. On the other hand, a day trader requiring real-time data and rapid order execution might lean towards a broker with a tiered subscription offering advanced features.

In conclusion, evaluating brokerage fees is a pivotal step in the stock trading journey. The evolution from traditional commissions to innovative fee structures reflects the changing dynamics of the brokerage landscape. Embracing these changes empowers traders with cost-effective options. By choosing the right broker aligned with your needs, you can optimise your trading experience and set the stage for financial success. The example scenario underscores the importance of tailoring your choices to match your unique trading requirements, ensuring a seamless and cost-efficient investment journey.

Embrace the Learning Journey

Allocate time to learn the fundamentals of stock research. Whether through educational articles, online tutorials, or seminars, investing time in understanding stock trading pays off in the long run.

In a nutshell, embarking on a stock trading journey from home requires a blend of knowledge, strategy, and careful consideration. By following these steps, investors can navigate the complexities of the stock market with confidence and increase their chances of long-term success.

Step 1: Set Clear Investment Goals

When starting stock trading at home, setting clear investment goals is the crucial first step. By defining specific financial objectives, you can create a roadmap for your stock trading journey. Whether you aim to save for a dream home, fund your child’s education, or secure a comfortable retirement, having clear investment goals enables you to focus your efforts and make informed decisions.

Investment goals should be:

  • Precise: Clearly define what you want to achieve financially, such as a target amount of savings or a specific investment milestone.
  • Time-bound: Set an investment horizon to align your investment strategy with your desired timeline.
  • Realistic: Evaluate your finances realistically to determine the feasibility of your goals.
  • Prioritised: Rank your goals based on importance, allowing you to allocate resources accordingly.
  • Flexible: Regularly review and adapt your investment goals to accommodate changes in your life circumstances.

Determining Investment Goals

Take the time to reflect on your financial aspirations and ambitions. Consider what matters most to you and what you want to achieve in the short and long term. Setting clear investment goals provides a sense of purpose and direction to your stock trading activities, increasing your chances of success.

“Setting clear investment goals allows you to steer your stock trading journey in the right direction, ensuring you stay focused and motivated.” – Jane Smith, Financial Advisor

Investment GoalsDescription
Buy a HomeSave for a down payment on a dream home within the next 5 years.
Education FundingEstablish an investment portfolio to fund your child’s higher education expenses.
Retirement PlanningBuild a substantial retirement nest egg to enjoy a comfortable and financially secure retirement.

Step 2: Determine How Much You Can Afford To Invest

After setting clear investment goals, the next step is to determine how much you can afford to invest. This involves assessing your financial situation, considering your sources of income, having an emergency fund, paying off high-interest debts, and setting a budget. It’s important to only invest money you can afford to lose and not put yourself in a financially vulnerable position.

Assess your financial situation: Take a comprehensive look at your income, expenses, and existing investments. Determine your monthly surplus, considering your fixed and variable expenses, and identify a portion that can be allocated for investments.

Consider your sources of income: Evaluate your income streams, including salary, freelance work, investments, and other sources. Assess the stability and predictability of these sources to determine a realistic investment budget.

Have an emergency fund: Before investing, it’s crucial to have a separate emergency fund. Aim to save three to six months’ worth of living expenses in a liquid and easily accessible account. This fund serves as a safety net in case of unexpected financial setbacks.

Pay off high-interest debts: Prioritise paying off debts with high-interest rates, such as credit card balances or personal loans. By reducing your debt burden, you can free up more funds for investing and improve your overall financial stability.

Set a budget: Establish a budget that aligns with your income and financial goals. This will help you track your expenses, avoid unnecessary spending, and allocate a specific amount towards investments each month. By setting a budget, you can ensure a disciplined approach to investing while maintaining your financial foundation.

Step 3: Appraise Your Tolerance for Risk

Understanding your tolerance for risk is a crucial aspect of stock trading. It involves evaluating how comfortable you are with the uncertainties of the stock market and how much risk you are willing to take on. By gauging your risk tolerance, you can determine the types of stocks that are suitable for your portfolio and develop an investment strategy that aligns with your financial goals.

When it comes to stock trading, the market can be volatile, with prices fluctuating rapidly and unexpectedly. Understanding stock market volatility will help you make informed decisions and navigate the ups and downs of the market.

Risk management strategies play a key role in mitigating potential losses. By implementing techniques such as diversification, setting stop-loss orders, and regularly reviewing and adjusting your portfolio, you can effectively manage your risk exposure.

Additionally, determining your investing style is crucial in stock trading. Are you a conservative investor who prefers safer, low-risk investments, or are you more willing to take on higher risks to potentially earn greater returns? Understanding your investing style will help you make decisions that align with your preferences and financial goals.

Remember, it’s essential to find a balance that suits your individual preferences and risk tolerance level. Being overly adventurous or overly cautious can hinder your stock trading success. By appraising your tolerance for risk, understanding stock market volatility, implementing risk management strategies, and determining your investing style, you’ll be better equipped to navigate the world of stock trading.

Step 4: Determine Your Investing Style

Each investor has a unique investing style that suits them best. This step involves determining your preferred approach to investing, whether it’s through a do-it-yourself (DIY) approach or working with a financial advisor. If you choose the DIY approach, you can set up an online brokerage account and have full control over your investments. Alternatively, working with a financial advisor can provide personalised advice, portfolio management, and collaboration in making investment decisions. By understanding your investing style and choosing the right approach, you can begin your stock trading journey with confidence.

Choosing Your Investing Style

Choosing the right investing style is crucial for successful stock trading. It involves evaluating your risk tolerance, investment knowledge, and time commitment. There are two primary investing styles: active and passive.

  1. Active Investing: Active investing involves making frequent trades and actively managing your portfolio to try and outperform the market. It requires in-depth research, analysis, and monitoring of market trends. This approach may be suitable for investors who have the time, expertise, and interest in actively participating in the stock market.
  2. Passive Investing: Passive investing, on the other hand, takes a more hands-off approach. It involves investing in broad market index funds or exchange-traded funds (ETFs) to track the overall market’s performance. Passive investors aim to match the market’s returns rather than beat them. This approach may be suitable for investors looking for a long-term, low-cost, and low-maintenance investment strategy.

Working with a Financial Advisor

If you’re unsure about taking the DIY approach or need expert guidance, working with a financial advisor can be beneficial. A financial advisor can provide personalised advice based on your financial goals, risk tolerance, and investment timeline. They can help you create a diversified portfolio, select suitable investments, and provide ongoing monitoring and management of your investments.

“Working with a financial advisor offers the advantage of their expertise and experience in navigating the complexities of the stock market. It allows you to leverage their knowledge and receive professional advice tailored to your individual financial situation, ultimately helping you make informed investment decisions.

Personal Investment Management

Regardless of the approach you choose, personal investment management is essential. It involves regularly monitoring your investments, staying informed about market trends, and making adjustments as needed. Keep in mind that investing involves risks and you should always be prepared for market fluctuations.

A Comparison of DIY Investing vs. Working with a Financial Advisor

FactorsDIY InvestingWorking with a Financial Advisor
CostLowMay have management fees
ControlHighShared with advisor
ExpertiseRequires self-educationBenefits from advisor’s expertise
Time CommitmentHighReduces time commitment

Table: A comparison of DIY investing vs. working with a financial advisor

Conclusion

Embarking on a stock trading journey from the comfort of your home can be a rewarding experience for beginners. By following the steps outlined in this guide, including setting clear investment goals, determining your investment budget, appraising your tolerance for risk, and choosing your investing style, you can approach stock trading with confidence.

Remember to stay informed and continuously educate yourself about the stock market. Keep up with the latest news, trends, and strategies to make informed investment decisions. Adapt your strategies as needed, keeping in mind that the stock market is dynamic and ever-changing.

With time, experience, and a prudent investment strategy, stock trading from home can be a successful and fulfilling endeavour. Stay disciplined, patient, and focused on your long-term goals. By applying the knowledge gained from this guide and staying committed to your financial objectives, you can navigate the world of stock trading with confidence and work towards achieving your financial aspirations.

FAQ

What is stock trading?

Stock trading refers to the buying and selling of shares (or stocks) of publicly traded companies on stock exchanges. It is a way for investors to participate in the ownership and potential profits of a company.

Do I need a lot of money to start stock trading at home?

No, you don’t need a large amount of money to start stock trading at home. Many online brokers allow you to open an account with a small initial investment. However, it’s important to only invest money you can afford to lose and not put yourself in a financially vulnerable position.

How do I choose the right stocks to trade?

Choosing the right stocks to trade involves conducting thorough research on companies, analysing their financial health, evaluating market trends, and considering your investment goals and risk tolerance. It’s also helpful to stay informed about current events and developments in the industries you’re interested in.

How can I manage the risk involved in stock trading?

Managing risk in stock trading involves diversifying your portfolio, setting stop-loss orders to limit potential losses, and being prepared to accept that not every trade will be profitable. It’s also important to stay educated about market trends, practice proper money management techniques, and avoid making impulsive decisions based on emotions.

Can I trade stocks from my smartphone?

Yes, many online brokerage platforms offer mobile apps that allow you to trade stocks from your smartphone. These apps provide access to real-time market data, research tools, and the ability to execute trades on the go.

Can I start stock trading without any prior experience?

Yes, beginners can start stock trading with little to no prior experience. It’s important to educate yourself about the basics of stock trading, learn about different investment strategies, and practice with virtual trading platforms before investing real money. Additionally, working with a financial advisor or joining online communities of traders can provide valuable guidance and support.

How do I keep track of my stock trades and investments?

Many online brokerage platforms provide portfolio tracking tools that allow you to monitor your stock trades and investments. These tools typically provide real-time updates on the performance of your portfolio, including gains or losses, asset allocation, and transaction history.

How can I stay informed about the stock market?

Staying informed about the stock market involves regularly reading financial news, following reputable financial websites and blogs, and staying connected with market trends through social media platforms or newsletters. It’s also beneficial to attend seminars, webinars, or workshops on stock trading and continuously educate yourself about investment strategies and market analysis techniques.

Can I trade stocks outside of regular market hours?

Yes, some online brokerage platforms offer extended trading hours that allow you to trade stocks outside of the regular market hours. However, it’s important to note that trading during extended hours may come with increased volatility and liquidity risks.

How long does it take to become a successful stock trader?

The time it takes to become a successful stock trader varies for each individual. It depends on factors such as your dedication to learning, your ability to adapt to market conditions, your risk management skills, and your overall investment strategy. It’s important to have realistic expectations and understand that successful stock trading requires continuous learning, practice, and experience.

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