Has the stock market piqued your interest and now you want to start trading stocks? Maybe your friends have shown off some of their profits and you want in? Whatever the reason, you will find trading to be an exhilarating and fun way to make some extra income.
If you’re looking to successfully trade full-time, you’ll need a vast amount of knowledge and discipline. However, you can still start trading without being an expert. Everyone has to start somewhere! Make sure you are aware of the risks, and who knows? You might end up doing very well for yourself.
What are your trading goals?
How much time will you spend trading? Are you going to be able to actively trade and track your positions every day? Do you plan on trading stocks during or before/after your regular job? What do you plan to get out of trading? You’ll need to define your goals and what trading strategy works best for you.
Some of the common trading strategies
- Day trading
- Swing trading
- Buy and hold (long term investing)
Get familiar with the stock market and terms
Stocks trade on what is called a stock exchange. In the United States, stocks trade on the New York Stock Exchange (NYSE). Regular trading hours are from 9:30 AM ET to 4:00 PM ET. There is also pre-market and after-hours trading. But the majority of trading takes place during regular hours.
Buying a stock is essentially purchasing a small piece of a company. The price of a stock or share mirrors the company’s worth and demand from traders. The price of a stock is never set in stone, it will regularly fluctuate every minute of every day.
“Making a profit is as simple as buying low and selling high. Or short selling when the stock is high and buying it back when it’s low.”
Every publicly listed company has a “ticker.” For example, the ticker for Apple Inc. is AAPL. To find the ticker symbol for a company, search its name online or through a broker/trading account. You’ll need to understand what the Bid/Ask Spread is and know the basics of reading a stock chart. Keep in mind a successful trader is one that can consistently make profits.
How much money do you need to start?
Day trading stocks in the US requires an account balance min of $25,000. This is due to the “pattern day trader rule” (PDT). With an account balance of less than $25,000, you’re only able to make 3-day trades in a 5-business day period.
Swing trading (buying stock and holding for a couple of days or weeks) can be done with a much smaller amount. $3,000 is the lowest amount you should use to start swing trading and $5k-$10K is ideal. You can trade with an account size lower than $3k. But it can be difficult to capture as many opportunities that you could have with a larger account.
Buying and holding a stock is a passive investing strategy. It means you will be holding stocks for many months or years vs a couple days or weeks. You can invest with a much lower amount of money than it takes to start actively trading.
If you want to learn how to start trading stocks, you must learn risk management. Trading involves risk and you should take it seriously. You are risking your money for the reward of getting more of it. Many traders fail and lose most of their funds because they don’t properly manage risk.
Only trade with an amount you are okay with losing. Don’t use your rent money or life savings to trade. Learn to cut losses short and develop a strategy that limits your risk. Losses will happen, it’s just a part of trading. The key is to limit the number of losses and maximize the number of winning trades.
Consider paper trading at first
Practicing using a demo account or trading simulator is a great way to start. It helps you get a hands-on idea of how everything works. You won’t be able to make real profits but you’re not going to have any real losses either. Using a simulator will help you learn how to start trading stocks. But once you’ve gotten a handle on how things work, STOP PAPER TRADING. It’s great for a newbie to get an idea of the basics. But it will never teach you the psychological discipline that’s needed. You can only learn that by using real money.
Choose a broker
A brokerage connects buyers with sellers within the stock market. It will be your gateway to the financial markets. Here are some things you will want to look for when choosing a broker:
- One that has the proper research tools and charts
- Reliability and trustworthiness
- Low fees and commissions
- Ease of use
- Good customer service
If you want a broker that doesn’t charge commissions, read this review on the best free trading apps. Every broker will have its own kind of trading platform. A trading platform is the software used to place trades and is what you’ll see while trading. Some have a design that’s great for day traders and others more for long-term investors. Be sure to try out multiple platforms. You can do this by opening some demo accounts with different brokerages. This will allow you to find one that fits your trading strategy best. If you’re unhappy with your choice you can always go to another broker.
How to survive
- When you start trading stocks make sure you don’t trade with your entire account. If you go “all in” you’re subject to much larger losses. It’s best to trade with only 10-30% of your account balance.
- Do your own due diligence. It’s easy to get excited and rush into a trade without doing any research first. You’ll find tons of “hot tips” and people who hype up a certain stock online. Don’t trust anyone, it’s your money, so do your own research before risking it.
- Always learn from your mistakes and try not to repeat them. Keep practicing and keep learning! The internet is full of great resources to learn about trading. Even the greatest traders are still learning every day. It’s okay to take breaks and you shouldn’t always trade every day but keep with it and you’ll get better.
- Don’t try to get rich overnight. It’s better to be patient and build your profits than it is to risk everything for a huge payout. Don’t treat trading like gambling. If it feels like gambling when you trade, you should stop. Change your mindset and start to make educated trades. Speculation is a part of trading but it shouldn’t be the entirety of your trading plan.