How to Trade on the Stock Market

In the past, stock trading was a popular activity for rich, financially savvy individuals looking to increase their wealth. Over time, the stock market has become more accessible to the average person. Now, the majority of Americans own stocks and invest during their free time.

While anybody can trade stocks, the process can be confusing — especially if you don’t have much financial expertise. Not only is stock trading filled with confusing language, but if you don’t invest wisely, you could lose money. To help you start building your stock portfolio, we’ve assembled a guide with tips for amateur stock traders.

Open An Online Brokerage Account

What stocks should I buy? What’s the difference between market and limit orders? These are just a few of the questions you might have as you begin to navigate the confusing world of stocks.

While the stock market may seem overwhelming, the good news is you don’t need a degree in finance to make sense of it. There are plenty of online applications that can introduce you to financial language and walk you through the different trading options. You can also use these applications to buy and sell stocks and other investments. Some popular apps for amateurs include:

  • Robinhood: This commission-free stock trading app teaches you about the stock market while helping you invest.
  • SoFi: SoFi is an affordable, easy-to-use application that supports low-stakes investing for beginners.
  • Acorns: In exchange for a $1 per month fee, Acorns creates and manages an automated investment plan.
  • TD Ameritrade: TD Ameritrade offers multiple account platforms, letting you choose the one that best meets your goals.

These applications provide helpful tips and are designed for amateurs interested in growing their portfolios. After you’ve become more comfortable trading, you may want to transition to a more advanced application, but these are a great place for new traders to start.

Set Your Budget

Once you’ve opened a brokerage account, you need to determine how much money you’re willing to set aside for investments. In general, you should never invest more than you can afford to lose. You should also avoid investing money that’s reserved for specific, upcoming causes (such as next month’s mortgage payment).

Remember that you can buy individual shares of stock. Put simply, a stock is made up of many individual shares — each share gives you partial ownership of a certain company. If you’re nervous about your first investment, consider buying just one share of stock as opposed to multiple.

Understand Your Options

Although online brokerage apps can guide you through investing, it doesn’t hurt to understand your options. Most people pick between the following two stock options:

A market order buys and sells a stock at the best available market price. A limit order, on the other hand, gives you control over the price. For example, if a stock is trading at $100 per share, but you would prefer to pay $90, you can set a limit order that will only go through at your desired price.

Whether you should go with a market or limit order depends on your needs. As a general rule of thumb, market orders are quicker and best for trading fewer shares, while limit orders are more suited for trading a high amount of shares.

Research Stocks

Before you buy your first stock, it’s important to do your due diligence. Don’t just blindly invest in the first thing you see — take the time to research different companies and look at their histories with the stock market. Many businesses also provide the following information for investors:

  • Annual reports: Reports on the company’s financial performance
  • Quarterly earnings: Net income and sales information
  • SEC filings: A financial statement given to the U.S. Securities and Exchange Commission

If you’re confused about how to analyze these documents, don’t worry, there are plenty of mobile apps available to help you read financial reports.

Practice With Virtual Trading

If you’re still nervous about investing, why not practice first? Virtual trading is a method that lets you experiment with stock market simulators in exchange for a virtual profit. In other words, you can familiarize yourself with investing tools without having to risk actual money. Once you feel comfortable, you can easily transition to the real stock market and start trading!

Leave a Comment

Your email address will not be published.

Scroll to Top