How to Trade Stocks for Beginners
If you’ve been wondering how to trade stocks but don’t know where to start, this is the perfect resource for you. Even though this primer is primarily for beginners, veterans and seasoned pros can still learn something new, so read on.
This article and video describe how to execute a trade using an online trading platform. If you’re seeking information on the strategy of picking stocks and on the many investment opportunities out there, you’ll find a whole world of information here at Investment U.
The information presented in this article is also featured in the video above. So feel free to watch the video and refer back to this article for reference as well.
Online Brokerages and Investment Apps
The first thing you need to trade stocks is access to a licensed broker, an online brokerage or a trading app like Robinhood. In the investing tutorial video above, Oxford Club Research Manager Ben Dressing uses Investopedia’s Trading Simulator, which allows you to learn the ropes of trading without actually committing real money.
While most online brokerages have unique platform designs, they all generally have the same essential features for placing a trade online. So the online broker you use may look a bit different from the one seen in the video above but should function similarly.
Looking Up the Ticker Symbol
Once you have decided what stock you would like to buy, 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 online trading platform, or you can find it by searching for “Apple” on a site like Yahoo Finance.
The ticker symbol for Apple is AAPL, so we’ll go ahead and enter that into the trading software in the “Company” field.
Quantity of Shares and Stock Pricing
The next thing you need to decide is how many shares of the stock you want to purchase. A good rule of thumb to keep in mind is that you generally never want to put more than 4% of your portfolio in any one position.
We’ll buy 19 shares of Apple in this example.
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 Apple 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.
Types of Stock Orders
The next decision we need to make is to determine what type of order we would like to put in. If we select to purchase the stock with a market order, it will likely be filled at a price close to the ask price.
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 $212, but you do not want to pay more than $211, you can set a limit order for $211, and the trade will be executed only If the stock drops to that price or below.
Similarly, if we set the limit price at $210.18, as is done in the video, that is the highest price we are willing to buy the stock at.
The Duration of the Order
The next thing to set is the duration of the trade. If you select the good until canceled option, this tells the brokerage that the price we set is good until we manually cancel it. In other words, it keeps the order valid until it is filled and the stock is actually bought, or until we cancel the order.
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 stock has not been purchased, the order will be automatically canceled.
Finalize Your Stock Trade
Now we can preview and review our order. Some brokerages will have a commission fee for the trade, and that will be reflected in the total cost.
Your estimated total cost will be displayed. If you need to edit or cancel your order, now is the time to do so.
Now you may place your order.
Go to your account overview and look at your orders where you can see your filled and open orders. If this order has not yet been filled, you will see it in the open orders list.
Those are the fundamentals of how to trade stocks on an online trading platform. 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.
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