Published on : 20 August 20206 min reading time
This is what you need to know to start trading stocks. Fast becoming a lucrative pursuit amongst those wishing to find another source of income, trading stocks online is here to stay for good. Follow these 3 easy steps and you could be placing your first stock trade within 1 week from now! Interactive Brokers Options Commissions
1) Open a trading account with a reputable online broker.
Several well-known and trusted brokers are;
Interactive Brokers
TD Ameritrade
Scottrade
Charles Schawb
Etrade
Options Express
IG Markets
All the above brokers offer trading accounts to anyone in the world, and in most cases require only $2,000 USD or equivalent to open an account. You can trades stocks all around the world, and these brokers offer some of the most competitive commissions when it comes to start trading stocks. Keeping your trading costs low is critical to your success as a trader.
Opening a trade account is very easy, usually completed in 15 minutes using the broker online application form, you will be notified within several days of your account activation and funding details. You then log on to your bank account and transfer funds to your trading account, this is similar to transferring to any other financial account. Once your account is activated and funded (usually within a 1 week time frame) you can log onto your brokers trading platform and begin trading. Read step 2 to learn how stock trading works.
2) Understand how buying and selling stocks is done.
Purchasing a stock is more easy than you think, for example if you wish to buy 100 shares of Microsoft, you would bring up a stock quote of Microsoft using ticker MSFT in your brokers online trading platform, from there you would change the quantity on the buy ticket to 100 and click confirm or transmit order. Then you will see in your portfolio window that you hold 100 shares of MSFT. The cost of this purchase will be 100 multiplied the last traded price on MSFT, for example if it was trading at $25 per share, your cost for buying 100 shares would be $2,500 + brokerage. Interactive Brokers Options Commissions
If you wish to then sell the stock, you will see your holding of that stock in your portfolio window, you then click on the stock and click on close position or sell stock. Entering a sell order symmetrical to your buy order will also close your open position.
Every stock has a 3 or 4 letter stock code, stocks that trade on the NYSE have 3 letter codes, for example Pepsi is PEP, MacDonald is MCD, and Nokia is NOK, stocks that trade on the NASDAQ which are typically technology companies have 4 letter stock codes, for example Google is GOOG, Yahoo is YHOO and Amazon is AMZN. Use Yahoo Finance website to search for stock codes for your favorite stocks around the world.
You will also hear terms like going ”long” or going ”short”. To go ”long” means to buy a stock, that is, your betting on a rise in the stock price, to go ”short” means you are short selling a stock, many new traders don’t know you can do this, however you can profit from a falling stock price by selling the stock first, then buying it back later. To do this, simply open up a sell stock quote ticket in your brokers platform and enter in the stock code and quantity of shares you wish to short sell. Learning how to short sell stocks is a powerful technique that allows you to profit in bear markets and when the market is going down.
The stock market is an auction based process, very similar to that of Ebay, where buyers and sellers meet and trade at an agreed price, if a item is in high demand bidders will increase their bids in order to secure stock, and sellers will raise their offers to sell their stock for more money, and vice versa, when demand dries up or supply increases sellers will lower their offers to attract bidders. This is how stocks move up and down, when there is more buyers than sellers the stock moves up, when there is more sellers than buyers the stock moves down. Every time you purchase a stock, someone else has sold it to you and vice versa when your short sell a stock. Now you know the basics of trading stocks, you need to form a trading system that outlines exactly how you buy and sell stocks according to a defined and proven strategy, read step 3 for instructions.
3) Use a proven stock trading system.
You can’t just buy stocks that you read in the newspaper and expect to make money, the market is very sophisticated and requires a little more work to extract consistent profits. A stock trading system tells you exactly what stocks and when to buy or sell them, this removes the biggest hurdle to successful trading, emotions, no longer do you have to rely on your gut feel to making trading decisions, a proven trading system will do it for you.
The most used stock trading system by professional traders is pair trading. Pair trading is buying one stock and at the same time short selling another similar stock. Stocks prices of similar companies are very correlated and is something anyone can take advantage of. For example stocks Mastercard (MA) and Visa (V) are both credit card companies, so their businesses are affected by the same macro-economic and industry conditions and hence their stock prices move in a very similar fashion.
Where the trading opportunity arises is when one stock moves down and another stock moves up, for example, if MA moved down 3 days in a row, whilst V moved up 3 days in a row, you could buy ”go long” MA and at the same time sell ”go short” V and profit from the relationship between the two correlated stocks moving back to normal. This trading strategy also has the benefit of insulating your trading account from large moves in the general market, as your portfolio is what’s known as ”market neutral” an equal amount of dollar exposure on both longs and shorts. Pair trading is the most used trading strategy at hedge funds.
To find good stock pairs to trade and be alerted to potential trading opportunities, you need trading software to help you do this. Every professional trader in the world uses specialist pair trading software to find the best trades. Having software makes it easy, as you will be emailed or alerted to buy or sell certain stocks and then told when to exit the trade. Interactive Brokers Options Commissions