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Online Stock Trading 101: A Beginner's Guide

Sebencapital

Published
28/12/23
Online Stock Trading 101: A Beginner's Guide

Interested in investing in the stock market? Begin by grasping the basics to trade with confidence.

This introductory guide to online stock trading provides a starting point, guiding you through the fundamentals. It helps you gain confidence in selecting stocks, choosing a brokerage, executing trades, and more.

How To Choose an Online Broker

To begin trading stocks online, you'll need to set up an account with an online stock brokerage.

Start by researching different options, considering their reputation, fees, and user reviews. It's important to choose a brokerage that suits your needs.

While exploring, check for trading commission fees (some offer free trading), user-friendly apps or websites, and available research or educational tools.

Established firms like Fidelity, Vanguard, and Charles Schwab offer online and app-based trading tools. They have a history, low fees, and are widely recognized.

Alternatively, there are newer platforms like Robinhood, WeBull, and SoFi that focus on small trades and easy-to-use apps. Your choice between established or newer platforms depends on your preferences.

Why To Research Stocks

Once you've set up your brokerage account, you can begin buying stocks. But if you're new to trading, starting with stocks might feel overwhelming. Instead, consider exploring exchange-traded funds (ETFs).

ETFs let investors buy a collection of stocks together, which can be helpful if you're unsure about picking individual companies.

Starting with ETFs that mirror major stock market indices like the Dow, Nasdaq, and S&P 500 is a good idea. They offer wide exposure to the U.S. stock market.

Diversification is a common strategy among traders to reduce risk. Bonds are a popular choice for diversification as they can lower the risk in your investments, especially during stock market declines.

Note

Picking individual stocks can be challenging. To make better choices, use financial analysis ratios. These ratios compare how a company is doing to its competitors. This way, you can aim to add the top-performing stocks to your portfolio.

What Kind of Trade Is Right for You?

When you trade assets like stocks or ETFs, there are various types of trade orders you can use. The two main ones are market orders and limit orders.

Market orders execute instantly, buying or selling the asset at the current best price.

Limit orders offer more control over the buying or selling price. They don't execute immediately; instead, you set a specific price to buy or sell an asset. This helps you aim for better profits.

Another strategy is to use a trailing stop-loss sell order once you own a stock. This keeps the stock as long as its price goes up and automatically sells it if the price drops below a certain point.

Note

No order type is necessarily better than another. By learning as many of them as possible, you can always have the right tool for your situation.

How To Trade Your First Stock

When you're ready to make your first trade, start by putting money into your brokerage account from your bank. Sometimes, it takes a while for the money to become available. Some brokerages may give you immediate access, while others might wait for a few days.

Once your funds are available, log into your brokerage's online account. Choose the stock you want to trade, select the type of order, and place it. Keep an eye on your order to ensure it goes through. If you use market orders, it should happen right away.

For limit orders, it might not execute immediately. To speed up the process, adjust your limit price closer to the ask price (when buying) or the bid price (when selling).

Are You Ready for Advanced Stock Trading Strategies?

New traders should start with simple buy and sell transactions. Once you're comfortable with those, you can explore more advanced strategies.

Trading options involves higher risks, leading to quicker gains and losses due to increased market volatility.

Another advanced strategy is using borrowed money from your brokerage, known as "trading on margin." While it can help grow your portfolio rapidly, it's very risky and can lead to significant debts if not handled properly. It's best to avoid this strategy until you're confident in your trading skills.

Margin trading also allows for shorting stocks. Shorting involves selling borrowed stocks initially and buying them back later. If the stock's price drops, you can repurchase it at a lower price, making a profit. However, if the price rises, you'll have to buy it back at a higher cost, resulting in losses.

What Are Alternatives to Trading Stocks?

Investing in stocks is just one way to enter the market. There are alternatives to explore.

Mutual funds work differently than stocks or ETFs. They let you invest in various parts of the market using a single fund.

Another option is using a robo advisor instead of trading through a brokerage. Robo advisors are investment services on apps. They rely on algorithms and your responses to basic questions to make investment choices.

For beginners, robo advisors are popular because they're easy to grasp and often have lower fees compared to traditional financial advisers who manually select investments for you.

Frequently Asked Questions (FAQs)

What is the best online stock trading site for a beginner?

Numerous stockbrokers provide online apps or websites for stock trading. Fidelity, Charles Schwab, and SoFi offer some of the top tools for trading online.

How do you make money with online stock trading?

Making money online follows similar rules to other stock trading methods. It involves understanding stock trends, managing taxes and expenses, using effective order types, and taking calculated risks. Online trading might be convenient, but it's not necessarily simple.

When does the stock market open for online trading?

The stock markets in the United States usually operate between 9:30 a.m. to 4 p.m. ET, Monday through Friday. Some exchanges also provide pre-trading and after-hours sessions for online trading. However, trading during these extended hours can be more challenging because there are fewer trades happening.

Written by Sauravsingh

Techpreneur and adept trader, Sauravsingh Tomar seamlessly blends the worlds of technology and finance. With rich experience in Forex and Stock markets, he's not only a trading maven but also a pioneer in innovative digital solutions. Beyond charts and code, Sauravsingh is a passionate mentor, guiding many towards financial and technological success. In his downtime, he's often found exploring new places or immersed in a compelling read.

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