Introduction to Investing
Investing in the stock market is a scary thought for many. Luckily, it is pretty easy to get started. The hardest part of investing is to make money, but that becomes a lot easier once you know the basics. In this post, I will teach basic knowledge for first-time investors with limited money.
Getting Started
In order to start investing, you will need a brokerage account. Popular ones include E*TRADE, Scottrade, TradeKing, and TD Ameritrade. It is important to research and understand which ones best fit your needs. I personally use TradeKing and Robinhood. TradeKing has amongst the cheapest transaction costs at $4.95, and great customer support. I’ve heard great things about the others, but their higher transaction costs were not to my liking. For those with a modern smartphone, I’d recommend using Robinhood, a transaction-free stock trading app. With Robinhood you can dip your toes into the market for free. Once you have a brokerage account, you need to deposit money into it from your checking account.
Buying and Selling Common Stock
With a funded brokerage account, you are ready to invest. Pretty easy right? Now, in order to buy and sell stock, you need to be aware of 2 basic types of orders:
- (1) Market Order
If Apple stock was at $116.22, and you didn’t care if it went up or down a couple pennies, you’d place a market order which would buy you Apple stock at the best possible price at the time of the order.
- (2) Limit Order
A limit order on the other hand details the specific price you’d like to buy it at. If you placed a limit order for Apple stock at $116.00, then a market order will be issued as soon as Apple stock reaches or goes below $116.00. If Apple stock never reaches $116.00, then your limit order will not execute and will be cancelled at the end of the day unless specified. When you’re ready to sell, you can sell at the market price or set a limit order to protect against losses.
Shorting Common Stock
In addition to buying stock, you can also short stock (currently unavailable in Robinhood). Shorting a stock means you borrow the stock from someone and immediately sell it in the hopes of buying it back later at a lower price. For example, if Apple stock was at $120 and you thought it was too high, you would short the stock at $120. If it falls to $110, you can buy it back at $110, give the stock back, and keep the $10 profit you’ve made. Unfortunately, if your short goes bad (Apple stock goes up), you will have to pay the difference. For beginner investors with limited funds, it is often easier to focus only on simple buying and selling instead of riskier actions like shorting.
And that’s investing 101!
Disclaimer: As of February 9th, I do not own Apple stock nor do I plan on purchasing or shorting Apple stock within the next 2 weeks.
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