By Adam Jusko, ProudMoney.com, adam@proudmoney.com

If you’re a beginner to the world of stock buying and selling, this guide will help you get started. Note that this is NOT a guide on how to choose which stocks to buy, but instead the basics of how to set up a stock trading account if you’re a beginner.

Step 1: Choose An Online Broker

In order to buy and sell stocks, also known as “stock trading”, you will have to have an account with an online broker. “Online broker” sounds sort of intimidating and mysterious, but an online broker is just an online trading platform — it’s a company’s website (or mobile app) where you go to buy and sell stocks, and also to see your current stock holdings, deposit money for trading, etc. You have probably heard some of these brokerages’ names before, even if you’re not sure how they work — Charles Schwab, E-Trade, Robinhood, Fidelity, TD Ameritrade, etc. All of these will let you set up an account for free, and once you’ve done the next step below, you’ll be ready to buy stocks.

Step 2: Fund Your Account

If you’re going to buy stock, you’ll need money in your account. Whichever online stock broker you choose, there will be a way to add money. In most cases, you’ll give information about your bank account (account number and bank routing number) and how much money you’d like to transfer to the broker’s platform. Here’s how that looks on E-Trade:

Once you approve the transfer, it could take a few days before that money moves from your bank account into your new broker account. Once it does, you’ll be ready to buy stocks!



Step 3: Find Stocks To Buy

You may already have some ideas of companies whose stock you’d like to own. Maybe you want to buy stock in Apple or Facebook or Tesla or Amazon or Nike. If you know the company in which you want to buy stock, you can look up their ticker symbol (such as AAPL for Apple or TSLA for Tesla) and then make a purchase.

To make that purchase, most brokers/platforms will have a “Trading” tab or link. This is where you want to go. Once you do, you’ll usually see a screen that looks something like this:

 

The key things you’ll want to know to complete your stock purchase:

  • Symbol – The abbreviation for the company you are buying. For example, AAPL is Apple’s symbol.
  • Action – Buy or Sell. For your interest in buying stock, you would of course choose “Buy”.
  • Quantity – How many shares of stock do you want to buy? If AAPL (Apple) is $150 per share of stock, how many will you buy?
  • Price Type – As a beginner, you will want to choose “Market”. In the future, you may want to learn how to place Limit orders for buying as well as Stop orders for selling. A “Market” order means you are buying at the current price. However, note that prices change rapidly, and the price you think you are buying at might be slightly different than the “market” price when your order is actually filled. For example, that $150 AAPL share might actually be sold to you at $115.06 per share instead, because the price changed while you were getting your order ready.
  • Duration – Your market order is generally going to be “Good for Day”, meaning that the broker will attempt to buy the quantity of shares you want before the stock market closes for the day. If that doesn’t happen, which is somewhat rare, your order will be canceled and you’d have to try again the next day that the market is open. (The stock market is usually open Monday through Friday, except for holidays.)

NOTE: Some stocks have very high per-share prices, so some online brokers will allow you to buy fractional shares of a stock, meaning less than a full share. For example, if a stock is trading at $1800 per share and you only have $900 in your account, you can’t afford a full share. But if the online broker lets you buy fractional shares, you could potentially use your money to buy half of a share of that $1800 stock.

Individual Stocks vs. ETFs vs. Mutual Funds

As a new stock investor, you probably know you can buy stocks of individual companies like Apple, Tesla, etc., but you might not be as familiar with ETFs (Exchange-Traded Funds) or mutual funds. An ETF or mutual fund is like a “basket of stocks” all rolled into one, and when you purchase the ETF, you are actually buying a little piece of all of the stocks within that basket. The advantage to this is that you diversify your investments by having a little money in a lot of different companies (through the ETF or mutual fund) and thus you are at less risk of losing a large amount of your money all at one time. ETFs and mutual funds usually have a “theme”, meaning that there is something similar about all of the stocks in the fund, such as all the stocks being part of a big stock index like the S&P 500 or maybe being all airline stocks or all technology stocks, etc. Stock traders with less money to invest often like ETFs and mutual funds because they can own a piece of many companies without having to buy shares in each company individually.

Have Fun, Be Careful

Investing in stocks and ETFs and mutual funds can be very enjoyable (especially when the stock prices rise and your money increases), but you also can lose a lot of money very quickly if you don’t have a good reason to buy the stocks you are buying, or if you get antsy as soon as the price goes down and you sell too soon. It’s difficult for many new investors to be patient once they’ve made a stock purchase, so you may want to start small and see if you can stomach the ups and downs in the market before committing too much of your hard-earned money.