Best Practices

How to Start Trading on the Stock Market

by Jim Hughes   July 9, 2020
Before you start trading stocks, there are certain things you need to know about the market before leaping in and investing your money. You should know what to expect and what tools you will need to make sure you are moving forward the right way.

Learning the stock market.

Is Trading the Right Decision For You?

You may want to start trading stocks if:

  • You have started investing in an IRA or have maxed out your 401(k) matching dollars from your employer. Many 401(k) plans do not allow you to purchase your stock of choice – instead, investors give you a few options to choose from. However, you can generally buy and trade stocks with an IRA account. Trading within an IRA account is a good idea because the taxes on these accounts will be deferred or avoided.
  • You have made the maximum contributions to your 401(k) and will meet your retirement goals.
  • You are not currently paying back an installment loan. If you are in the process of paying off high-interest debt, then you should pay off the loan early with any extra money you have. Then, when the debt is paid, you can look into trading on the stock market.

Trading your own stock carries more risk, and it also requires more effort than investing in mutual or index stock. You will need to constantly watch your positions and understand how the market moves so you know how to react.

Educate Yourself

Before you decide to get into the stock market, be sure to learn everything you can about investing and trading. You are investing your savings, so there is a risk of losing your hard-earned money. There are numerous resources available that explain how to trade through an online broker. Some stockbrokers even offer their own educational centers and have a staff of former traders and investors who can steer you in the right direction when choosing which stock to invest in.

Find an Online Broker

Choose an online stock broker.

Choose an online broker to teach you the ropes and help you find what you are looking for when it comes to stocks. New traders want to follow a process that is simple, straightforward, and easy to navigate through.

Here are some things you would want from a broker:

  • Low cost - low fees and commissions
  • Trustworthy - you can count on them to guide you through the transaction
  • Honest - will not engage in risky behavior or steal your money
  • Resourceful - educates you about stocks and give you the tools you need to succeed

Some brokers are fit for day traders or swing traders. Others are fit for long-term investors. Choosing the right broker is important, as your money is given to this company. Make sure you do your research before deciding who to work with. Each broker also has a trading platform that allows you to see charts, stock quotes, and do research so you can choose which stock to invest in. You may be able to test out several different platforms with various brokers.

Research Stocks

Once you’ve learned enough about stocks, it’s time to start investing. The tricky part is deciding which stocks you want to invest in and where you want to put your money. Most traders will conduct an analysis of the company and look at public information such as SEC reports, financial filings, earnings reports, and any other research reports from experienced analysts. Your broker should be able to provide you with this information, as well as any recent company news or risk ratings that have been reported.

It is best to start slowly and select a few stocks you want to invest in. You must be willing to lose the money you invest, so choose wisely. Also, do not invest more than you are willing to lose. With time and experience, you can slowly start to increase your investments.

Make a Plan

Investing is serious, especially for those who are new to it, and losing hard-earned money can be devastating for many. You may pull out of the stock market at the wrong time out of fear of losing out, or you may stay longer than necessary in what seems like a winning stock. It’s crucial to plan ahead and decide how much you’re willing to let a stock fall before you get out. You should never invest money you cannot afford to lose. However, if you do lose money and find yourself in a tight spot financially, you may want to look into payday loans online to cover your debt in the meantime.

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Familiarize Yourself with the Stock Market

Stocks are essentially smaller parts of a company. The stock price, also known as a share, shows the value of the company and its outlook for the future, which depends on the traders and investors. Stocks don’t have a set price; they fluctuate daily.

Stocks are traded on an exchange, such as the New York Stocks Exchange, which has hours of 9:30 a.m. to 4:30 p.m. ET. To find the stock and make a trade, you will need the stock’s “ticker” symbol. Tickers are 5-letter codes used to trade stock. You can also buy stocks and then sell them after some time has passed and they are more valuable. Or, you can try short-selling and sell off your stocks earlier than expected. Some investors prefer to wait it out and sell later, but it depends on each individual investor. Be sure to learn the basics of how to read stock charts and stock quotes.

Figure Out Why You Are Trading

Why did you choose to trade stocks? Is it something you plan on doing every day? Or do you prefer trading a few times per week? Are these long-term stocks you plan on buying, or do you want to hold onto them long-term? There are a few options when it comes to trading:

  • Day trading - taking trades that last less than a day
  • Swing trading - taking trades that last from a day to several weeks.
  • Investing - taking trades that last months to years

Day Trading Tips for Beginners

Day trading tips.

If you are considering becoming a day trader, there are a few things you need to know.

  • Picking a day trading market - Every market has its own unique profit potential and requires a considerable amount of time and dedication to reach full profit. Focus on one market at a time and take your time learning the ropes. Once you can make money in one market, it becomes easier to move onto the next.
  • Equipment and tools for trading - You only need a few tools to start day trading: a computer or laptop, a broker, and a trading platform.
  • When to day trade - You want to be consistent when you are day trading, so be sure you are trading regularly within the same hours 9:30 a.m. and 11:30 a.m. EST. This is usually the best time to trade and offers the most trade potential.
  • Manage your day trading risk - before you move forward with your trades, consider your daily risk and trade risk. Daily risk is a single loss caused in a day, whereas trade risk is how much you as a trader are willing to lose on each trade.
  • Practicing strategies - Day trading takes time and experience to master; it does not happen overnight. Working with your broker to come up with tactics and trading strategies can set up for a successful trading process. Then, you can use those strategies to set up a demo account. You can practice or test drive on markets before investing your money –– this way, you can learn the best methods for profit gain.

Pay Attention to Your Finances

If you want to trade stocks, you need to save up and be willing to lose money as well. Stock markets are risky business and if you cannot afford to lose your money, it is best to save up until you feel secure enough in your finances to take the risk. Swing trading does not require a minimum amount of money, but if you want to trade stocks of varying prices, you may want to have $10,000 saved up to invest with. Here are a few more guidelines to take note of when trading stocks:

  • You can begin to buy stocks once you can afford 100 shares of the stock you are interested in
  • Save money on your commission by trading one stock at a time as opposed to multiple stocks (this only applies to small stocks)
  • If you are buying thousands of dollars worth of stock, the commission is not as impactful

Once you’ve decided which broker you want to work with, you can practice placing trades. Start coming up with different strategies and testing them out on historical price charts. You can even place fake money trades based on the strategies and see what your findings are. This way you can gauge the best course of action when trading real stock, and see if you will produce a profit.

If you produce no profit with fake money, then it may not be the best idea to spend your real money on stocks. Practice enough so that when you are ready to invest, you feel confident with each move and are not afraid of losing your money.

Bottom Line

There is a lot of research, time, and commitment that goes into investing in stocks. If you save early on and frequently, you can have multiple options to choose from. But if you are just starting out, start slowly, do your homework, and be aware of the potential risks you may face when investing.

Jim Hughes   OpenCashAdvance Marketing Manager
Personal Finance
Jim Hughes remembers checking his first email on the original BlackBerry 850 nearly 20 years ago. It was spam, and he fell for it. Even so, he’s been on the beat every day since, following the ebbs and flows of financial technology. Look to Jim for insider exclusives on shorter-duration loans, installment loans, and other popular products in fintech today.
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