In this digital era, anyone can buy stock online with the click of a button. SoFi, Acorns and other stock trading apps appeal to investors of all experience levels, offering training resources and robust tools. Some also feature stock market simulators that allow beginners to practice their skills before investing real money. Below are some things you should know about online trading before dipping your toe in the water.
You can start trading stocks in as little as five minutes by using robo-advisors or online brokers. But first, make sure you have a strong understanding of investing and the different types of stocks.
Compare Stock Trading Apps
The fastest way to buy stock online is to set up a brokerage account on stock trading platforms. Some apps and websites are designed with beginners in mind, while others target more experienced investors. SoFi, for example, is a beginner-friendly investment app that allows users to buy and sell stocks, exchange-traded funds (ETFs) and cryptocurrencies. After registration, you may choose to have your portfolio automatically managed on your behalf. There is also the option to purchase fractional shares for some stocks to diversify your portfolio and mitigate the risks involved.
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Most stock trading apps have no account minimum, meaning that you can get started with as little as $5 or $10. Some platforms, such as SoFi, Ameritrade and Fidelity, don't charge a commission, either. All you need to do is to sign up for an account and follow the instructions provided. Generally, users must provide proof of identification and choose one or more payment methods.
As you would expect, not all trading platforms are created equal. Ideally, you want to choose one that matches your experience level and offers interactive tools, such as recent price charts, trade notifications and research reports. You should be able to track your profits and losses in real-time and receive market updates. Forbes suggests choosing a platform that offers stock screens so you can narrow down your options and identify the best-performing stocks more easily.
Investors also have the option to use robo-advisors, such as Personal Capital, Wealthfront or Betterment. These platforms use complex algorithms to automate investing and trading decisions. They work similarly to stock trading apps but require little or no human intervention. The difference is that robo-advisors invest your money in a portfolio of ETFs, which may include bonds and other securities in addition to stocks. They offer strong diversification, but the risks are higher too.
Research the Stocks Before Investing
Once you have decided on a broker, assess your risk tolerance and figure out how much you can invest. All securities carry risks and may result in significant losses, warns the Financial Industry Regulatory Authority (FINRA). Stocks are no exception. Online trading can further increase these risks, as some investors may not be able to access their accounts or make transactions when there's a high surge in internet traffic.
FINRA also explains that investors are more likely to trade too frequently or impulsively when using digital platforms. That's why it's important to set clear investment goals before jumping the gun. Learn about the companies you're interested in, check their annual reports and research the industry. Make sure you also have a good grasp of investment fundamentals. Read books and articles, keep an eye on the market trends and learn about the different types of stocks.
For example, if you're interested in startups and have a higher risk tolerance, then it makes sense to invest in growth stocks. Some investors opt for value stocks, which have lower prices than the market average. Those who use this strategy seek undervalued companies. Renault, for instance, is trading more than 50 percent below its true value, according to the financial services firm Morningstar. Dividend stocks, on the other hand, tend to offer more stable returns and may allow you to build passive income.