To a large degree, the days of calling up a broker to buy or sell stocks is gone. Discount stock brokerage firms all offer online account and trading access. To get started with buying and selling stocks online, you need to select a brokerage firm and open an account. The online systems make buying and selling easy — to generate more commissions for your broker. Your challenge is to develop an investing or trading strategy that will produce profits for your investment portfolio.
Select an online broker. Do not base your broker selection on commission rates alone. SmartMoney magazine publishes — online — an annual survey and ranking of online discount brokers. The magazine looks at product offerings, research, trading tools and customer service as well as commission and fees. You should compare brokers using the same factors along with your personal investing goals.
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Determine which type of account you need. Brokers offer three main types of accounts — cash, margin and retirement. Retirement accounts are for tax-qualified individual retirement accounts — IRAs. A margin account allows you to borrow a portion of the cost of stocks. If you plan to be an active stock trader, you will need a margin account. A cash account would be appropriate if you want to start stock investing with a small amount of money or plan to buy and hold your share investments.
Complete the broker's account application. The account application can be completed online through your selected broker's website. As part of the application process you will set up your online user name and password. Once the account is approved, you can log in to your account through the brokerage firm website.
Fund your account. The broker's website will provide directions for sending money to fund your account. A wire transfer is the fastest method, but you will incur wire fees from your bank. If you set up an Automated Clearing House — ACH — transfer from your bank, the money will be in your brokerage account in a few days. The ACH setup will also allow you to withdraw money from your brokerage account to your bank account.
Familiarize yourself with the broker's online tools. At a minimum you need to know how to look up stock prices, find the current values of your investments and which screens you use to place buy and sell orders. The trading and research tools provided on the broker's website can be used to help with the selection of stocks.
Learn about the different types of stock market orders and when you would use each type. The trade screen for your online brokerage account allows you to enter different types of orders, including market, limit and stop orders. You can also control how long an order is open — for the current trading day only or good-til-canceled (GTC). A market order buys or sells at the current stock market prices. Limit and stop orders allow you to buy and sell when a stock's share price hits predetermined levels.
Use the information on your broker's website to build your stock buying and selling knowledge. Most brokers provide a large amount of educational material about investment and trading strategies. Go through the educational materials offered by your broker before you start trading stocks. For success in the stock market, you need a strategy and the discipline to follow it. The first time you buy a stock, write down the reasons you are buying. Then when you sell, check your reasons to see if your analysis worked out.
The results from investing or trading online will be entirely due to your own investment choices. It is possible to lose a significant amount of the money you put into your brokerage account. Understand the risks before you make your first stock trade.