How to Trade Stocks in Three Easy Steps
Investing is one of the best ways to start building wealth. And one of the easiest places to start begins with this question: How to trade stocks? The reason here is simple. There are all sorts of ways to invest. There’s property and real estate. Fixed interest and bonds are other ways to invest. There are ways to invest now and set up streams of passive income. But of these possibilities, trading stocks is probably the easiest to get started with. Here’s why…
For the most part, getting into the real estate market is expensive. It takes a decent chunk of cash to get started. And the bond market can be tricky to navigate. That’s not to say it’s impossible by any means. However, it also usually requires a sizable investment upfront in order to start collecting interest payments. While that’s not always the case, it usually requires more time spent before collecting the spoils from your efforts.
Then, of course, there’s stock trading. This is preferable for new investors because the price of entry couldn’t be lower thanks to fractional shares. Even if you wanted to invest in a megacap stock like Amazon (Nasdaq: AMZN), you could start with less than $5. Sure, you’d wind up with only 0.0016 of a share. But if Amazon’s share price doubled, so would your investment. On top of this, commission fees are all but a thing of the past. So, for the most part, any money spent on an investment goes directly toward that investment.
These two points have proven to be revelatory in the investing world. They’ve democratized investing. And that’s made the boundary to entry virtually obsolete.
Getting Started: How to Trade Stocks
Step one in answering the question of how to trade stocks is setting up a brokerage account. This step can seem intimidating. But it’s pretty straightforward. And if you’d like a little advice as to where to start, you can check out our list of the best online brokers. And not to complicate matters, but you can also get started trading stocks by downloading an app on your phone.
Once you pick a brokerage, you’re going to need some information to set up an account. The necessary information might differ slightly from brokerage to brokerage. But here’s a basic list of the things needed to set up an account in order for the brokerage to comply with regulations:
- Social Security number (or taxpayer identification number)
- Telephone number
- Email address
- Date of birth
- A driver’s license, passport or information from other government-issued identification
- Employment status and occupation
- Whether you are employed by a brokerage firm
- Annual income
- Net worth
- Investment objectives and risk tolerance,
It may seem like a lot. And it could seem a little intrusive. But these are the rules set by the U.S. Securities and Exchange Commission.
Once your account is set up, it’s time to fund it. For this step, most brokerages have two options. They either allow a one-time deposit or can facilitate recurring deposits made on a regular schedule. Either one works. But if you’re planning to take investing seriously, it can be helpful to set up recurring deposits. This simply ensures a set amount will be used for investing purposes on a regular basis. However, if you’re not quite ready to take this step yet, you can make a one-time deposit now and set up recurring deposits later.
Now that you’ve got money in your account, you’re technically ready to start trading. But it’ll be helpful to learn some basic strategies from experts before you “YOLO” your hard-earned money into the latest meme stocks.
A Little Know-How Before You Get Started
The truth is, you don’t need much more than a couple of bucks and an internet connection to start investing. But that’s probably not the best path toward financial freedom. Building wealth starts with a solid foundation. It’s best to learn as much as possible about how the stock market works before throwing your money at some random stocks… which brings us to the importance of education.
Just because you know how to trade stocks doesn’t necessarily mean you’re ready to start trading. But there are lots of stock trading courses out there to start building a foundation to trade on.
These are all invaluable resources for those ready to start investing. And they do more than just answer the question of how to trade stocks. They teach new investors how to trade stocks well. And having a leg up on the competition is essential in order to succeed.
Once you have the basics down, there’s one more step we recommend before putting your money on the line.
Simulate Before Trying to Stimulate Your Bank Account
Once you establish a plan, there are all sorts of ways to test that plan – that don’t involve losing your money. One of the easiest ways is paper trading. This is a way to practice buying and selling stocks, options, exchange-traded funds or other financial instruments in a simulated environment. It’s a smart way to get your feet wet, making trades without placing them in the live market. And it’s an excellent way to test out the lessons you’ve learned from any stock trading courses you’ve taken.
The term “paper trading” originates from the practice of actually keeping track of trades on paper. Practitioners would then keep track of their practice investments on paper. But these days, there are much easier ways…
Today, you can let the computer keep track of your practice trades for you. Here’s a quick list of some of our favorite online stock trading simulators. These make practicing much easier. And their interfaces look very much like that of an actual brokerage account. So they also make for an excellent way to learn the process of how to trade stocks in a real-time environment.
Now You’re Ready to Start Trading Stocks
The learning curve can be steep. But it promises to be an education that pays off well. If there’s anything worth spending the time to learn, it’s how to put your money to work… and make you more money.
But your journey isn’t over once you figure out how to trade stocks. For many, trading stocks is a gateway to even more lucrative hobbies. There’s options trading, futures trading, forex trading, etc. And once folks get bitten by the stock trading bug, many take up day trading – which is a full-time job in its own right… but can be a very lucrative one at that.
But even if these other investing styles don’t appeal to you, there is always more to learn… even when it comes to just trading stocks. There are myriad trading strategies for short-term traders. Long-term buy-and-hold traders have their own strategies as well. And you can choose the ones that are as traditional or technical as you like.
How to Trade Stock: The Bottom Line
Learning how to trade stocks can be a huge endeavor. But the reward is even greater. And remember, practice makes perfect. There are all sorts of anecdotal stories out there about traders who just have “the knack” for picking stocks. But for most of us, trusting our gut is a recipe for disaster. In order to be successful and make money trading stocks, you need a plan. And it takes discipline in order to stick to that plan.
About Matthew Makowski
Matthew Makowski is a senior research analyst and writer at Investment U. He has been studying and writing about the markets for 20 years. Equally comfortable identifying value stocks as he is discounts in the crypto markets, Matthew began mining Bitcoin in 2011 and has since honed his focus on the cryptocurrency markets as a whole. He is a graduate of Rutgers University and lives in Colorado with his dogs Dorito and Pretzel.