Stocks 202 – How To Get Started Investing in Stocks?
Getting started investing in stocks can seem like a daunting task. You don’t know how to begin, where to invest, or how much to start with. There’s no need to stress, the start is the easy part. Once you’ve made the decision to strive for financial freedom and head down the path of personal wealth, the fun will begin – and rise of your future net worth.
Before you can buy your first stock, you will need to open up a brokerage account. A brokerage account is an account set up through a brokerage firm for investors to submit orders for which the brokerage firm completes the transactions on the account holder’s behalf. The investor owns all assets present in this account. All brokerage firms will try to sell you on why they can take care of your investment needs better than any other firm. Some will market themselves as the lowest costs firm to convince new customers that they would save money with them.
Based on your preferences and strategies, you will be able to narrow a brokerage firm that fits you. Some investors like the convenience or technological advantages one may have such as ease of trading from an app. Others may choose to open an account with the lowest cost per trade company to minimize their fees. In order to open an account there are two major requirements: the account holder must be 18 years old and the minimum account balance must be met.
Here are a few online brokers’ minimum account deposit and their trading fee:
Charles Schwab – $1,000 to open, $8.95 per trade
E*Trade – $500 to open, $9.99 per trade
TDAmeritrade – $0 to open, $9.99 per trade
Scottrade – $2,500 to open, $7 per trade
Now that you have chosen your account to begin your investment journey, it’s time to understand buying and selling stocks. Say you’ve landed on a company you feel strongly about, but you aren’t exactly sure how to make the purchase or “trade”. Once you have the company’s stock symbol, you will need to determine how many shares you would like to buy. The price shown for the company is the market price, meaning that is the price the stock is currently trading for. Now there are two common trade options at this point: marker order or limit order. Entering a market order will execute your request at whatever the stock price is, at the time your broker obtains the stock. A limit order is putting a ceiling amount on the price for which the stock is purchased. Basically, the market order means you are comfortable with any price in the ballpark of the marker price, while the limit order guarantees the price or no trade at all.
The most common method of trading is traditional buying and selling. You decide to buy 100 shares of company XYZ for $20 a share ($2,000 value). A year later the stock price is at $35 a share ($3,500 value), so you elect to cash in on your profit and sell. You’ve made $1,500 from that trade.
The other method is short selling, which isn’t recommended for beginning investors because of its unlimited risk. Short selling is when you borrow money from your broker to sell a stock that you think is going to fall in price. Once the price has fallen, then you buy its shares at that lower price to profit. The risks with this strategy is that if the price doesn’t drop then you’re stuck with a losing stock and the money you’ve borrowed is accruing interest. And you will owe all the money you have borrowed.
Opening your first investment account, buying your first stock can be scary, but surely rewarding. As long as you’ve done your homework on the company you are buying and its competitors; and stay confident in your decision, that fear will turn into excitement. If you hit a winner on your first pick, don’t get lost in the success, replicate the method that lead you to that leadoff homer.