How to Buy Stocks and Trade Independently

How to Buy Stocks and Trade Independently
Trading stocks is easy, but picking the right trade is not.

Find an online broker. Although you can still trade stocks with a telephone and your daily newspaper, you are far better off using an online broker. Online brokerage firms are easy to locate. Simply going to the finance section of a major Internet portal such as Yahoo or Google will bring up many ads for prominent online brokerage firms. If you have worked with a broker in the past and liked the service, the same firm probably offers online brokerage services as well. So you may want to start by searching for the website of the company most familiar to you.

Apply for an account. Once you locate the firm you wish to work with, you need to apply for an account. You can either print out the application form from the firm's website, fill it out and mail it back or request to receive an application package at your address. Online brokerage houses with physical branches will also let you open an account in person at one of their branches.

Apply for a margin account. Such an account will allow you to trade with borrowed funds. If you have $10,000 in cash, for instance, you will have the option of borrowing a further $10,000 from the brokerage and buy $20,000 worth of stock. This is a highly risky strategy and not advisable for a novice investor. Until you gain more experience with investing, you should not use the margins, or do so only sparingly.

Familiarize yourself with the online trading system. Study the user interface, or "platform" as it is sometimes called, of the brokerage. Also learn the different kinds of buy and sell orders, such as market orders, limit orders and stop loss orders all of which will be explained on the brokerage's website. Most firms also offer interactive tutorials and videos for new investors.

Pick a few stocks (ideally 5 to 10 companies) and follow their price action. Learn how they react to broad market moves, how many news releases come up for each stock on a typical day and how the stock price reacts to news. Check past prices for the stock. Make note of each firm's key competitors and keep an eye on the competition's stock prices as well. You will note that prices of competing firms tend to move together as entire industries often benefit from or are hurt by key economic developments.

Start slow and make a few small trades to get comfortable with investing independently. As you feel more comfortable about independent investing, start to build a portfolio of multiple stocks. It is never a good idea to put all of your eggs in one basket by purchasing just one company with all of your funds. Spread your risk so you don't lose too much if your handpicked company does poorly.