A Beginner’s Guide To Online Stock Trading
It’s important to educate yourself before you consider any type of investment or investment strategy. This beginner’s guide to online stock trading will give you a starting point and walk you through several processes: choosing a discount broker, 12 types of stock trades you can make, how to select individual stocks, uncovering hidden fees, expenses, and commissions, and more.
Choosing a Broker for Your Online Trading
If you haven’t already opened a brokerage account with a respected online stock broker, do it now. Read our guide to choosing a low-cost stockbroker and open an account so you can begin trading stocks. Also, note that there is a difference between a prime brokerage and other brokers.
The 13 Types of Trades You Can Place with a Stock Broker
Thirteen types of trades are available when you begin online stock trading. They include the market trade, limit trade, stop loss, day orders, good-till-canceled trades, trailing stops, and bracket trades. Walk through this step-by-step guide to stock trading and find a definition and example for each of these terms.
Avoid Expenses That Can Destroy Your Stock Trading Profits
The biggest enemy of successful stock trading is expenses. They represent money you’re shredding without any benefit to you. Commissions and fees are good examples of these. Learn how to avoid them.
How to Trade Stock on Margin with Borrowed Money
If your stock trading brokerage account is for speculation and you want to roll the dice, you can actually borrow money from your brokerage firm. This is known as trading on margin. This approach to trading stocks has some big potential pitfalls you’ll have to guard against, however.
How to Short a Stock
When you’ve been approved for margin stock trading, you’re also eligible to short stock. Almost every successful stock trader has shorted stock at one time or another. When you short stock, you make money when the company’s shares fall—or, even better yet, when they crash. The problem is that you can expose yourself to unlimited liability when you do this.
Using ADRs to Trade Foreign Stocks in the United States
If you’re interested in stock trading and you want to buy or sell shares of foreign companies, it might be possible to do that right here at home if the corporation you’re considering has American Depositary Receipts (ADRs). It’s fairly simple to find out if a business has them and how they’re different from regular stock.
The Role of Market Makers in Stock Trading
Stock trading wouldn’t even be possible without market makers. Every time you buy or sell stock, the odds are good that your order is going to go through a market maker on one of the major stock exchanges.
Stock Trading and Investment Banks
Now that you’ve learned about market markers and the role they play, it’s time to go one step further and learn about the investment bank. You might trade directly with an investment bank if you’re extremely wealthy. Otherwise, your stockbroker trades on your behalf through an investment bank, whether you realize it or not.
Avoid the Dreaded Wash Sale Rule
If you trade stock regularly, you might find yourself accidentally violating the dreaded wash-sale rule. This means you’ve sold shares of stock and then bought the same or similar shares shortly thereafter. This can cost you huge tax penalties. With a little planning, you can avoid this fate and still enjoy trading stocks aggressively with a little planning.
How Stocks Can Affect Your Tax Bill
You have to know the tax rules for each of your positions if you’re going to be an active stock trader. The shorter you hold a stock, the more you’ll pay the IRS in taxes. This was designed to encourage long-term investment over short-term speculating.