How to Trade Stocks for Beginners
If you’re a beginner wondering how to trade stocks but don’t know where to start, this is the perfect resource for you. Even though this article is primarily for beginners, veterans and seasoned pros can still learn something new or get a quick refresher.
This article describes how to execute a basic trade using an online platform. If you’re seeking information on different trading strategies like day trading, swing trading and long-term investing and you’ll find a whole world of information here at Investment U.
Your Beginner’s Guide to Trading Stocks
Trading Stocks with Online Brokerages and Investment Apps
The first thing you need to do when learning how to trade stocks is access to a licensed broker, an online brokerage or a trading app like Robinhood. If you are a true beginner, it’s a good idea to start with a trading simulator like Investopedia’s Trading Simulator. This is a free tool that allows you to learn the ropes of trading without putting any of your money at risk.
While most online brokerages have unique platform designs, they all have the same essential features for placing a trade. So, the online broker you use may look a little bit different from the simulator, but it should work similarly.
Looking Up the Stock Ticker Symbol
When deciding what stock to trade, you’ll need to know its ticker symbol. For example, let’s say you decided to purchase some shares of Apple. You can look up the ticker symbol for Apple in your platform, or you can find it by searching for “Apple” on a site like Yahoo Finance.
These ticker symbols are usually just abbreviations of the company’s name. They are unique to the specific company on a specific exchange. For example, Apple’s ticker symbol is AAPL. Using this symbol is the easiest way to find the stock you want to buy, but most platforms will allow you to search by company name too.
Quantity of Shares and Stock Pricing
The next thing a beginner needs to decide is how many shares of the stock you want to purchase. A good rule of thumb is to not put more than 4% of your portfolio in any one position.
One of the most important things to pay attention to when purchasing a stock is its buy price. Here are some specific definitions relating to the buy price that you need to know:
- Last Price – The most recent price at which the stock sold.
- Bid – What people are willing to pay for the stock.
- Ask – The price at which people are willing to sell stock.
You never want to pay more than the ask price. And the general rule of thumb is to go between the ask and sell price. So if the ask is $20 and the sell price is $22, a good buy price would be $21.
Types of Stock Orders when Trading Stocks
The next decision you need to make is to determine what type of order you would like to put in. If you decide to purchase the stock with a market order, it will likely be filled at a price close to the ask price.
But if you put in a limit order; you can set the price you would like to purchase the stock for. The limit price sets the maximum you are willing to pay. If the stock is trading at $22, but you do not want to pay more than $21, you can set a limit order for $21. Then you execute the trade only if the stock drops to that price or below.
The Duration of the Order
The next thing for a stock trading beginner to do is set is the duration of the trade. If you select the good until canceled option; this tells the brokerage that the price you set is good until you manually cancel the order. In other words, it keeps the order valid until it is filled, and the stock is actually bought. Or until you cancel the order yourself.
You can also set cancel dates. So if you select day order, the order will be valid until the end of the trading day. At that point, if the system makes no purchase, the order will automatically be canceled.
Finalize Your Stock Trade & Concluding Thoughts on How to Trade Stocks for Beginners
Now you can preview and review your order. Some brokerages will have a commission fee for the trade, and that will be reflected in the total cost.
It will display your estimated total cost. If you need to edit or cancel your order, now is the time to do so.
Now you may place the order.
Go to your account overview and look at your orders. This is where you can see your filled and open orders. You will see your order in the open orders list until it’s completed. Or if the trade has been immediately executed, you will see the stock in your portfolio.
Those are the fundamentals you need to know for how to trade stocks as a beginner. Of course, that’s the easy part. Now you’ll need to do your research and decide on the best stocks to buy. And that’s where the real fun begins.