You've surely seen ads for online brokerages or for traditional brokerages that also offer online trading, as most do. If you're like many people, though, especially if you're new to investing, you may be steering clear of them, intimidated by it all. Don't be. Trading online isn't that difficult and it doesn't have to be dangerous.
Here's a quick rundown of how to go about trading stocks online -- something well worth doing if you're interested in building a nest egg that will serve you well in retirement. (Hey, check out a free trial of our new retirement newsletter!)
Compare brokers and choose one
Before you start doing business with a brokerage, you'll need to choose one. Click over to our Broker Center for lots of tips on how to evaluate brokerages and select one that best suits your needs. We also offer a handy comparison table, featuring several brokerages that support your friend, the Fool.
A few initial pointers:
- Don't focus just on the commissions charged per trade. Yes, a brokerage that charges $10 per trade looks better than one that charges $12, but there are other considerations. If the first one charges inactivity (or "maintenance") fees of $100 per year and you don't plan to trade much, you may be better off with the second brokerage. The more often you plan to trade, the more important the commission cost should be.
- Look at other features, such as whether bricks-and-mortar branches are available locally, if that's appealing to you. See if the brokerage offers check writing, if you'd like that. If you want to invest in certain mutual funds, see whether the brokerage offers those funds.
As you shop around, call or write the main contenders and ask for more information. You might request a sample statement to see how clearly they'll be updating you on your holdings' performance. Make sure they send you application forms.
Fund your account
Once you've settled on a brokerage, get the forms you'll need to open an account. The brokerage may have mailed them to you. You may also be able to download them from the company website.
Decide what kind of account you're opening. A regular, traditional account is one where you invest your post-tax money. It's not designated as a special retirement account. Most brokerages permit you to open tax-advantaged retirement accounts, too, and have forms (or boxes to check) for that. Retirement accounts include traditional IRAs, Roth IRAs, and the like. (Learn more about IRAs.)
Once you fill out the application form, you'll probably just mail it in, along with a check. (Note that most brokerages have minimum investment amounts, which are often lower for IRA accounts. Common minimums are $500, $1,000, $2,000, and more. Some brokerages have no minimums at all.)
After you send in your money, you'll probably get a package of documents with your new account number and instructions on how to go about trading online. You'll probably need, for example, to set up a password for your online account.
You're still not quite ready to invest, though. There's an important stone still unturned: You need to select some stocks!
There are thousands of publicly traded companies out there in which you may invest. Some will do spectacularly well for their shareholders, and others will suck shareholders dry. You need to take your deliberation seriously and choose carefully. Here are some tips:
- One good place to look for stock ideas is. your life. Think of your job, hobbies, friends. Look around your house, too. If you're a nurse, you may know of companies that are increasing their sales to hospitals. If you love shopping, you may be among the first to notice an up-and-coming retailer, or to see an established chain boost its business. You're more likely to do well investing if you stick to industries and companies you understand well and would enjoy keeping up with.
- You can get good ideas from our discussion board community. Drop in on boards such as Liquid Lounge, Value Investing, Grape's Fisher Kings, Foolish Collective, Small Cap Investing, Drip Investing, and Dividend Growth Investing. We're offering a free 30-day trial of our discussion board community, so you've got little to lose and plenty to gain. (Maybe even some new friends!)
- Financial publications, such as magazines and newspapers, sometimes offer good leads on growing companies. Newsletters can also be effective sources of investing ideas. We've got newsletters that offer several promising stocks and mutual funds each month -- look into them and consider signing up for a free trial. You can get some free research reports as well.
When you're ready to place an order to buy or sell some stock, you have a few choices. You can, for example, place a "market" order, to trade at the best available price as soon as possible, or a "limit" order, to trade only at a certain (or better) price.
This article explains more about these two main kinds of orders, as well as a few more options you have.
Manage your portfolio
Last but not least is the issue of managing your portfolio, because you don't want to just buy stocks and then forget about them, right? (Right?) One critical way to manage your portfolio is to keep up with your holdings regularly -- at least once a quarter. Read their earnings reports and annual reports, look up news stories, check in on their Fool discussion boards, etc.
Try not to hold stock in too few companies or your eggs will be spread out into too few baskets. But have too many companies and you won't be able to keep up with them. If any holding starts underperforming, look into why. Selling might be in order if there's a long-term problem. But many problems are short-term and fixable -- think of Johnson & Johnson (NYSE: JNJ ) and its Tylenol tampering scandal of yesteryear. Several years ago, people thought that Microsoft (Nasdaq: MSFT ) was washed up because it seemed to have missed the boat on the Internet. It caught up. Even Intel (Nasdaq: INTC ) had a short-term problem years ago with a chip. (Though some might argue that Intel has some longer-term problems today.)
Here are a bunch of other reasons to sell a stock -- check them out.
You may be ready to start trading right now, but don't do so without first getting a good grounding in how to invest prudently. Don't invest all your money before you really know what you're doing. Start slow and small, perhaps buying some shares of this or that just to get your feet wet while you keep learning.
This (admittedly long) page of resources will help you learn more. I prepared it for teenagers, but it's largely a one-size-fits-all resource, suitable for most investors.
Here are some recent Fool articles on brokerages:
- Which Brokerage Is Best?
- The Return of Chuckie
- Brokerage Statement Bewilderment
- Don't Get Blindsided by Your Broker
- Rating the Low-Cost Brokers
Selena Maranjian's favorite brokerage order is the "market order." She owns shares of Johnson & Johnson and Microsoft. For more about Selena, viewher bio and her profile. You might also be interested in these books she has written or co-written:The Motley Fool Money GuideandThe Motley Fool Investment Guide for Teens. The Motley Fool is Fools writing for Fools.