Learn to Trade Stocks Step by Step for Beginners

Simon Quayson

2 years ago

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Learn to trade stocks for beginners (Step by Step)

The beginner can have skin in the game with just a single share from a single company.The days of large minimum balance requirements, and costly broker commissions are long gone. If you are in the mood to buy your first stock, you have definitely found the right place. Learn to trade stocks for beginners without any background in investing.

Now here, are the baby steps each beginner investor can use to purchase their first stock. These investments would be managed in a portfolio and held for a period of time. Over the long term, you can expect to achieve your financial freedom goals.

STEP #1: Choose Your Online Broker

A broker or a brokerage firm is an institution that is licensed to deal in stocks and other securities. They do this by acting as a mediator between YOU (yes you!), a buyer who wants to learn to trade stocks for beginners, and a seller on a stock exchange. This sort of transactional arrangement is consistent with all brokerage firms all over the world.

New investors like you learning to invest in stocks for the first time will find a wide range of online discount brokers to choose from. On the other hand, if you would like comprehensive help beyond this article, I’d recommend Road to Successful Investing full resource.

I’ve personally seen the kind of material they have in the beginners guide. Every information you’d need to get a practical head start condensed in less than 80 pages. Click here to view some of the benefits include very basic investment analysis, portfolio management, etc.

1.1 Registering With Online Discount Brokers

Here is a list of top rated online discount brokers for beginner investors:

Merrill Edge
Fidelity
E-Trade
Zacks Trade
Firstrade
TD Ameritrade
Interactive Brokers IBKR Lite
Webull
Ally Invest
TradeStation
Charles Schwab

On a lighter note, make an online stock simulator your first broker. Select one below to register for free and receive play money to make hypothetical trades that simulate exact real life trading environments. This simulation is without cost or risk to you.

Your road to successful investing unleashed: Full Guide – Fro beginner to intermediate! Try it !

It is a nice way to learn to trade stocks for beginners without taking the actual position. An online stock simulator allows you to practice for as long as you want, before making an actual trade with an official brokerage firm. This basic move is suitable for the absolute beginner getting into stocks for the very first time.

1.2 Practicing Using Online Stock Simulators

Here is a list of good online stock simulators for beginner investors:

Investopedia
Pilot Trading
TradeStation
NinjaTrader
Warrior Trading
Wall Street Survivor
MarketWatch
HowTheMarketWorks
Bear Bull Traders Simulator
ThinkorSwim
Moomoo
Yahoo! Finance
StockFetcher
ChartMill
Zack
Stock Rover
Finviz

I first used the Investopedia simulator in 2004, and the interface was friendly to learn to trade stocks for beginners like you. You should find a suitable one from the list. At the same time, you can also open an account with a real stockbroker.

International investors from various countries can have skin in the game trading US stocks also. This article also helps you learn to trade stocks for beginners like you in your home country’s stock market. Lookup the Securities and Exchange Commission (SEC) website in your location and find information that is country-specific.

The SEC is usually a national regulatory body set up to monitor and regulates activities of publicly traded securities. The investor’s protection is also a core responsibility of the governing body.

A typical online stock broker would require the same kind of sign up details as a bank account. A proof of identification, tax information, and tax exemption provisions for some international investors. You will have account funding options listed and explained as well.

Sage Tips:

STEP #2: Research and Analyze Stocks

Researching and analyzing stocks will form a central part of your investment activities. Some people like to skip this all important process by jumping into the picking their stocks.

The intelligent way or cautious approach is to limit your exposure to stocks by say 10%; then allocating 90% into a safe diversified mutual fund, or index fund perhaps. While your money is safely parked, you can use a simulator to learn to trade stocks for beginners just like you.

The absence of research on your selected individual stock will have little impact in your overall portfolio if equity is limited to fewer than 10% of asset allocation for beginners. However, the basics of investing do not require sophisticated research.

To start the research process, sign into a new or existing brokerage account. You could also do the research in a stock simulator account’s stock screener page. The interface and tools available are nearly the same. A broker on the other hand will give you an extensive investor options with professional support if you ever need one.

2.1: Stock Screener

A Stock Screener is your personal research lab. It will be your primary tool to learn to trade stocks for beginners by screening individual stocks for a long time to come. Learn about stocks you want to buy by checking their financial health. Looking at the basic numbers that make sense is a must.

View an example with a list of features in this video. For further reading on Stock Screeners, see this guide on Getting Started With Stock Screeners.

2.2 When To Buy (Timing)

When investing in stocks, entry opportunities might be different.

From fundamental analysis (investing by analyzing the company’s financial reports ), and technical analysis (investing by observing market trends, trading volumes and short-term moves) perspectives respectively.

You’ll narrow down the list of stocks from thousands to just a couple of dozen using the stock screener to sort based on a set of criteria.

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STEP #3: Place a Trade With Your Broker

Now that we are satisfied with our selection(s), we can place or first live trade. This is where we determine the quantity of stocks we want to purchase, along with the type of order.

Depending on your location or time zone, keep in mind that all stock exchanges in the world have an opening time, and a closing time. If you live in the US it’s from 9:30am to 4:00pm (ET). It is also important to note this while you learn to trade stocks for beginners like you using a trading platform.

You may place buy or sell trades at anytime, but the institution will fill the order at the next official trading day of the market (varies various brokers locally and internationally). Your broker’s website can give you more info on this arrangement.

3.1 Now Let’s Begin To Execute A Typical Trade

These are a few basic elements worth noting as you learn about stocks. There are more advanced ones out there, but we shall restrict ourselves to the following:

Ticker Symbol

Enter the ticker symbol of the stock you want to purchase. These are the letters that are uniquely used to identify each stock on a stock exchange. For example: Apple’s ticker symbol is AAPL This is important to note as you learn to trade stocks for beginners like you starting out. Keep this in mind in order not to buy stocks of a look-alike company on the platform with similar letters. (Apple probably reserves the right to modify their stock ticker symbol in the future if they so desire. Symbols are unique but not eternal.) Always inspect the company name that pops up as you type in ticker symbols.

Quantity

Next, set the quantity of shares you want. A minimum of one share. But it is standard practice for experienced investors to load stocks in lots. A round lot is 100 share units. But today it is also a common practice to purchase fractional shares of a given stock. This allows a small amount of money to be spread between a few stocks of your choice.

Share Price

Enter the preferred entry price. Realistically, shares are available at the prevailing market prices at any given time. The broker has a better chance of fulfilling your order if you buy at market price. However, you can enter your figure.

Type of Order

Next, enter your order type. Keep things simple as you roll along. The commonest order type is the market order. This is a buy or sell request to be executed at the current market price or better.

Limit Order

A limit order is a buy (or sell) request with the strict limit on the execution price. Here, as you learn to trade stocks for beginners like you who want a limit to price risk. You can tell your broker that you don’t want to pay anything higher than the dollar price of the underlying stock, even if market prices naturally inch above a little.

Stop Loss

A stop loss is a fixed price limit to force sell a stock to avoid it from dropping lower.

Preview The Trade

Preview your trade. Return and make adjustment to the details if you like. Then pull the trigger. Upon execution, expect a trade confirmation afterwards. You will receive details for the transaction completed sent to you for your records.

STEP #4: Manage Your Portfolio

You are now a shareholder of a real company. Let’s keep it that way for a while. The stock market is suited for long-term investing. A good holding period would be above one year. It is recommended to hold tight and sit still for an average of 5 years actually. Not many can endure for that long unfortunately. On the other hand, you can sell your position at any time. Yes, you can sell your stock the same day or same hour of your initial purchase.

The reason for lack of long-term commitment can be traced to skill. I mentioned early that there is help available if you want a comprehensive guide. Get this beginner stock investing guide as your manual for effective research, trades, and overall portfolio management. Read the full list of benefits and FAQ here.

4.1: Adding More Stocks

There will come a time that you may need to buy new shares or even top up existing positions. You may even need to sell for one reason or the other. Bear in mind that you can make transactions as frequently as you like. On the other hand, you could also trade less often. These activities are entirely at your own discretion as you learn to trade stocks for beginners such as yourself.

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4.2 Expect Volatility

Warren Buffett once said the best way to invest is to switch off the stock market. The markets are nearly always alive with volatility from time to time. While you learn to trade stocks for beginners like you, keep your emotions bottled up and trust in your own judgment and quality of research.

Constantly following the latest news on the stocks you own is not always the best. The news items could have short-term shock effects on the price. But the overall weight of the progress of your investments would be tied to the strong fundamentals of the company.

4.3 Diversification

Diversification addresses volatility quite effectively. A portfolio of stocks that are spread between a few companies from a variety of industries, or sectors (but not too wide) will resolve the impact of shocks overtime. How many you say? This depends entirely on different factors such as your investment saving sum.

Seven (7) stocks are a fair minimum for some beginners learning to invest in stocks for the first time. You can grow the list to twenty (20). Doing fifty to a hundred stocks would be a strategy that big fund management firms may employ to spread risk. You can also load up on existing stocks periodically.

4.4 Portfolio Re-Balancing

Portfolio re-balancing is the act of performing periodic buying or selling to restore a stock portfolio’s initial allocation strategy. This is helpful if the portfolio has deviated from its original composition or format plan.

Re-balancing optimizes risk levels. It is quite normal for one asset class or security to outshine another within the same portfolio, throwing off the original format outlined in the investment plan or objectives. This is note-worthy as you learn to trade stocks for beginners like yourself seeking safety.

Here is an example of an intelligent balancing act used by some of the world’s greatest value investors like Warren Buffett: If the stock market peaks with very high valuations, Buffett would hold fewer stocks, and keep more cash parked for later. And he reverses this strategy when the market tumbles.

4.5 Selling Your Stocks

Selling a position should be infrequent if you want to learn to trade stocks for beginners with limited trading skills. Consider the reasons for the sale, if they are consistent with your investment objectives. However, you may use the same process in selling a stock as you used in buying it.

Issue a sell trade from your broker’s platform and fill in the details; regarding share price, quantity, and order type. Expect the trade to be filled in a short time while conditions of liquidity remain favorable.

4.6 Taxation

Taxation is also another important aspect of stock investing. Your capital gains are subject to taxes and so are your dividends. A capital gain is the difference between the price a stock is bought, and the price at which it was sold. If you are profitable as you learn to trade stocks for beginners seeking an exit, your profit is referred to as a capital gain. On the other hand, a loss in the value of a stock price is called a capital loss.

All stock fluctuations may create paper gains and paper losses. But taxes come due when capital gains are actualized upon exiting the position entirely. You are looking at rates between 15% to 20% depending on your holding period and your income determinants. Check this with your government if you reside outside the United States.

Other territories outside the US may have their respective tax rates, or exemptions; according to outstanding treaties established between the US and those countries with regard to international investors buying US stocks.

Sage Tip: Why am I Always Struggling Financially? 6 Steps to Fix It

The Afterthought: Learn To Trade Stocks for Beginners

As you learn to trade stocks for beginners like you, you’ll have a great advantage over yesterday’s learners. There has never been more information on trading stocks than these modern times. Try not to be overwhelmed by the sheer amount of information out there about the subject. Stick to an investment plan. Treat the stock market with respect and stop seeing it as a casino. Remember that every single listed stock represents a real business, with real assets and employees. Don’t forget also to get help. Use the Road to Success beginners guide to get yourself off to a great start. I’m including the link because I’ve the results for myself.

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Finally, when trying to learn to trade stocks for beginners like you who’re new to the game, keep your trading activities to a minimum. You can practice a thousand trade moves using a stock simulator. There are no risks or financial consequences involved. But when your hard earned money is at stake, invest wisely over the long-term and achieve your financial freedom goals.

Have you made your first trade yet? Did you screen your initial stock selection from your broker’s stock screener, or did you begin with a stock simulator. Let us know in the comments below.