How To Trade Stocks: Step-by-Step Guide to Buy Individual Stocks

Daniel Penzing
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If you want to buy a specific stock, it's important to understand what you are getting into.

There are so many investing platforms available to the average investor, and they all have different plans and services.

So how do you know which is best for you?

Well, we have some good news for you. In this article, we’ll talk about how to trade stocks.

We’ll also explain what it means to trade stocks on your own.

TIP: If you are investing with a stock broker, learn how to trade stocks the right way to avoid costly mistakes.

The Top Two Ways to Trade Stocks

When you’re trading stocks, you want to make sure you have a plan in mind.

Not having a plan in mind can lead to some pretty major mistakes.

Even when you have a plan, it’s not always easy to stay disciplined.

So how do you know if you are going to stick to your plan?

Let’s run through some of the ways you could trade stocks.

The Systematic Investor Portfolio (or “SIP”)

A systematic investor portfolio is a strategy designed to help you reach your long-term investment goals. The strategy is similar to buying stocks, ETFs, or other securities piece-by-piece.

In This Article:

  • Step 1. How do I find a stock to buy?
  • Step 2. How do I buy a stock?
  • Step 3. What is a stock trade?
  • Step 4. Is the stock market safe?
  • Step 5. Can I short stocks?
  • Step 6. Should I invest in penny stocks?
  • Step 7. How do I know where the stock market is right now?
  • Step 8. How do I know what the stock market is doing?
  • Step 9. How do I know the value of a stock?
  • Step 10. How is the price of stock determined?
  • Step 11. How do I know what a stock is worth?
  • Step 12. Is there a stock that I can invest in?
  • Step 13. Can I take my stocks for a spin?
  • Step 14. How do I buy stocks online?
  • Step 15. Where do I find recipes for stocks?
  • Step 16. How can I trade stocks without a broker?
  • Step 17. How do I buy stock options?
  • Step 18. What is a stock option?
  • Step 19. What is an equity swap?
  • Step 20. What are bonds?
  • Step 21. How do I know if bonds are a good investment?
  • Step 22.

What is Stock Trading?

Stock trading is the buying and selling of stocks in companies by investors. This trading can either be short-term or long-term, depending on the investor's intentions.

Trading can be done on a variety of exchanges or by investors through Over-the-Counter (OTC) trades. There are some simplified rules to follow when trading stocks. One of those rules is, buy low and sell high. It's as simple as that.

It can be difficult to be profitable in stocks if you don't follow some type of trading strategy. There are a lot of different technical indicators that can help you with that. Among them are moving averages, Fibonacci levels, Bollinger Bands and stochastic oscillators.

You can also trade with the help of charts. Every stock has its own set of rules that you need to learn in order to trade it.

As with stocks, options are based on the value of an underlying security. An option is a contract that gives you the right, but not the obligation, to buy (call option) or sell (put option) a stock at a specific price on or before a particular date.

You can either exercise your option to buy or sell shares, if the stock's price is higher than the strike price, or sell your option to another investor, if it's trading at a lower price than the strike price.

Step 1. Decide Which Platform You Want to Buy Stocks With

When you want to trade stocks, the very first thing you have to do is go online and look into the various platforms you can use. There are many different trading platforms you can choose from, the most popular being Etrade, ShareBuilder, and TDAmeritrade, but you also have options like LendingClub, Thinkorswim, and E*Trade.

Your first consideration should be cost. You need to determine which of the different platforms offer you the best cost to trade stocks. Most of the platforms claim to have no commissions, but that is usually just a gimmick since they make up for it in other ways.

The next thing that you have to worry about is efficiency. If you’re going to buy individual stocks, it is best that you do it all online. You want to be able to do it on your computer or mobile device without any issues. You need to be able to initiate a trade, to have access to a live account representative, and to get up-to-date information. You also want a platform that will work well with your preferred settings like having access to market and news information.

Why learn a step by step guide to trade stocks?

If you are just starting out investing in stocks, then you must learn the best way to invest based on your goals and objectives.

You have to get to the specific stocks to buy, use stop losses, know when to sell, and more. The process is not as easy as it sounds like! To learn the best way to trade stocks always start with taking some time to research.

Is your stock broker reliable?

Even though there are hundreds of online stock brokers to choose from, some of them are not reliable and can disappear after taking your hard earned money.

If you are investing on a regular basis, you do not want to see your money disappear. Therefore, you have to be sure that your stock broker is trustworthy before you send them any money.

This is why you should always choose to work with a stock broker that is regulated by a proper organization. By being regulated, that means that the stock broker has to abide by the rules and regulations set by the organization.

Even if the organization can have a bad day, it will likely not make this broker disappear. Look for a stock broker that is regulated at the country level rather than just the state level. You do not want to deal with another regulator halfway around the world that you have never heard of.

Ally Invest

Review: Investing Made Simple

A Winning Approach

A successful investor doesn’t play it safe.

They would rather lose money than miss out on the big moves, and as a result they’re more likely to hold quality stocks for longer periods of time.

This attitude is complemented by a healthy appetite for risk, and that’s why the majority of successful investors are professional traders.

Even though they’re highly experienced in the stock market, they don’t take unnecessary risks. They generally avoid highly speculative stocks, and instead invest in high quality companies with clear business models and positive growth prospects.

They don’t invest in bonds or use futures, and they also avoid leverage, market timing, and contract-for-difference betting.

In essence, they’re in it for the long run, and they’re ready to take advantage of the long-term benefits of being mostly fully invested and regularly taking profits.

Cut Your Losses… Fast

As a beginner, it’s impossible to tell which of your stock picks will be winners and which will be losers.

Merrill Edge

One of the best places for someone serious about stock trading to start is with Merrill Edge. It is a free trading application for iPhone and iPad. The Android version of the free app is also available. Merrill Edge offers a range of stockbroking services.

E*TRADE

When you trade online, you will be charged two types of fee: the trade commission and the maintenance margin. The commission is charged every time a trade is placed; typically, it is a flat commission with a small amount added depending on how much money is being invested. The margin, on the other hand, is charged as a percentage of the assets to be invested, so it would be more expensive for you if your investment grows.

In regards to E*TRADE, the tiered commission fee is based on the amount you invest. As for the margin, it is calculated based on the maintenance margin rate (MMR) of the exchange. Most brokerages will require that you deposit at least 50% of the shares you want to buy as margin. E*TRADE, however, requires a margin of 15% instead of the usual 50% since it is a discount brokerage. While this is lower than the standard 50%, it is recommended that you still set aside a bigger amount than what is strictly required. The maintenance margin is usually not charged on the stocks and options you want to buy; you will have to pay it when you sell your assets or when you want to close your account.

Robinhood

Account (Free Stocks):

Robinhood is a trading platform for individuals.

Robinhood will allow you to invest in stocks and crypto-currencies with no commission fees.

The only fees involved will be those charge by your broker.

Robinhood will provide you with a virtual trading account to begin investing in the stock market.

To signup you will need to enter your name, email, government id number, and mobile number.

Your password and user name will be generated based on your email address and phone number.

You will be required to provide a valid email address and government ID number.

It will also ask for your bank account information so you can purchase stocks using either your debit or credit card.

It can take an hour or two for Robinhood to verify your account.

Once verified you can login and login to trade.

Zacks Trade

Our review of Zacks Trade Reviews explains the pros and cons, and shares a Zacks Trade Review pricing model.

Zacks Trade Reviews Introduction

ZacksTrade is a provider of stock market research tools and stock market education for both individual and professional investors.

Zacks opened in November 29, 2001, as a division of Zacks Investment Research with the goal of bringing together the best ideas in the stock market and bringing them to individual investors (that means you!). They've done this by developing some of the leading tools and resources available to individual investors for the world of stock trading.

As a member of ZacksTrade, you get access to everything. You can track stock quotes and market trends to follow and research securities to help you make a decision on whether a company is worth investing in. You can also use their investment research tools to help you look for stocks that have already performed well and you can stay informed about what the market is saying about the businesses you follow. If this all sounds too complicated to you, that's okay… it's really not.

Public.com

There are a ton of great companies out there and are reliable investments for the future, including many with a long history of growth and profit potential. As a stock trader, you need to learn how to invest in individual stocks to have access to the best in the market.

Investing in stocks can be a very lucrative business to get into. Moreover, it can be very profitable to understand the methods that professional investors and even well-known institutions use.

Investing in individual stocks is quite different than investing in mutual funds. Mutual funds represent a piece of ownership in a company, but they also include the different risks and rewards that are baked into that ownership. Because of this, you’ll get just as much reward with yourself as a part-owner of a company as you will by directly owning a piece of the company itself.

Buying and selling individual stocks is a completely different ballgame compared to mutual funds. While there are some definite tradeoffs, there are also several top benefits that you get by investing on a stock by stock basis. This puts you directly in the game as an owner of the company, which means that you also get the chance to get rewarded with the potential of that company directly.

Step 2. Make Sure You Have Your “Financial Ducks in a Row”

Before you commit to buying a stock, you need to make sure that your financial ducks are in a row. That means you need to have rainy day savings in place and a plan for long-term savings, either a retirement plan (like an IRA or Roth IRA) or the cash to fund your future.

It is also a good idea to keep a substantial amount of cash in a checking account for immediate use.

Here is a quick checklist that you should use to make sure the rest of your financial house is in order before you start investing.

  • Emergency funds: Ideally, this would be three-to-six months’ worth of expenses. Start with three months and build up as you can;
  • Long-term savings account: When looking at your long-term savings account, you want to make sure that you are clearly defining your goals and how the money should be used. Hopefully your account is already established in either a retirement plan or the money necessary to fund your goals.
  • Savings account for your business: This is the account where you keep your take-home money so it’s available for expenses or debt payments. If you are not a business owner, you may skip this account;
  • Checking account: It’s not ideal, but having some cash in your checking account is a must-have when starting to trade stocks.

Step 3. Set a Budget

If you don’t have a budget set in place, this would be the perfect time to do so. Set aside a reasonable amount of money that you can afford to lose and don’t risk anything more. If the stock falls below your purchase price, you stand to break even. Above that, you’re hoping that it will go much higher. You need to be prepared to accept this very real possibility.

That said, you can keep risks manageable by sticking to low-risk, high-reward options. Start by considering the following criteria, and then do some research into the stocks.

Value Vs. Growth

Dividend Vs. Non- dividend

Step 4. Learn To Do a Proper Research of a Stock

To Buy.

~If you are a novice stock trader, you should buy stocks in low priced stocks. Why? First, low priced stocks are easy to buy and you can afford them with little money, and second, if the stocks increase in value and you decide to sell them, you will earn more money. For more details, I suggest you to read ~If you are a novice stock trader, you should buy stocks in low priced stocks. Why? First, low priced stocks are easy to buy and you can afford them with little money, and second, if the stocks increase in value and you decide to sell them, you will earn more money. For more details, I suggest you to read this article

~Stock investing is all about doing a research about a company, its management, its growth opportunities and prospects etc. and then deciding if it’s a suitable stock for you with a potential to earn returns. For doing research, I suggest you to go through the following website’s and do your own research:

~Investing in stocks is best suited for people who have time and patience. Don’t try to beat the markets or jump in haphazardly. Time and patience is the key to long term gains in stock market. Have a look at these three investment quotes to know the true essence of the stock market:

Evaluate the Company's Competitors

In order to find undervalued companies, you must be able to determine which stocks are currently overvalued and find stocks that have better prospects for the future.

Checking a company's competitors provides critical information about its future prospects.

For example, if a stock is undervalued but its competitors are valued higher you can probably assume that the stock is valued too low. In this situation, ask yourself if you believe that competitors are more undervalued than this particular company or if there is some fundamental marketing reason why it's valued so low.

Alternatively, if a stock's competitors are all valued less than that stock, you might want to ask yourself why that stock is valued higher than its competitors. There is probably some reason this stock is overvalued. Investigate the company's financial statements, you might discover some red flags.

Another example: Let's say there is a company that produces a proprietary technology for the automotive industry and its stock is trading at a large discount to its competitors. In this situation you should consider if the company has some unique competitive advantage.

If the company has a competitive advantage, you might want to consider buying as long as the undervaluation is large enough in relation to the company's competitive advantage, as no stock will be perfectly undervalued. In this case, the company's competitors might be overvalued, which means they are probably in decline or soon will be.

Use an Investment Research Service

In the process of deciding on a company to invest in, it is best to use a research service to find information. This is a great aid for most types of stocks and investment opportunities, including individual stocks.

You can have this information delivered to your email inbox or obtain an online version and access it anytime from the web.

A research service can let you know when a stock has been updated, where you can find more information, the current financials and earnings, as well as upcoming news.

This information is all very valuable to an investor and will save him or her time from having to search for the most up to date data.

Step 5. Practice Trading with a Simulator

Once you’ve completed steps 1–4, you’re ready to start trading with a simulator, which will give you a chance to perfect your investing strategy before making actual trades.

To get started with a stock simulator like Bplans, do your research to find a stock that you want to invest in.

When you’re evaluating a company, look at its financial statements and projections to get an idea of how much it’s worth and whether it’s a good investment.

When you’re building your portfolio, don’t just buy the stocks you know. Diversifying your portfolio will help ensure that you don’t lose all your money if one stock crashes.

Step 6. How to Buy a Stock

Making Your First Trade

Now’s the time to put all of your studying and analysis to the test. Now’s your moment of truth.

You’ve selected a company to invest in, and you have a plan for when you’re going to sell. You may have even created an investment portfolio of companies that share similar attributes, in order to spread your risk.

Sure. Diversifying can keep you from losing everything if one company tanks. But have you ever thought about what it could do for you, if one of your stocks quadrupled in price? You could have your retirement fund set up in no time.

Anyway, you’re at the point where you’re ready to actually buy some stock. It’s time to actually take the plunge.

Why Should You Buy Stocks?

People buy stocks for one of two reasons. Some investors trade stocks like a trader or speculator, buying and selling based only on the short-term (like days or even hours) price fluctuations. That’s a huge risk, but the rewards can be substantial.

Step 7. How to Sell a Stock

The most common mistake that investors make is to sell their shares too soon.

Selling shares before you should is a huge waste of money.

Never sell your shares without a good reason – the ones listed below. Even better is to never sell at all!

You need to accurately track the buying and selling decisions that give you the greatest returns.

Here are the top reasons to sell:

When your stocks go below a certain price to where you are willing to sell them.

When you think your stocks are going to go lower.

When the company announces bad news.

When the company announces good news.

When you need the money for something else.

When you desire a different investment vehicle.

When you reach an ideal target return.

The first thing you need to do when you sell a stock is to double-check your math.

You don’t want to sell too early, and you certainly don’t want to forget to sell altogether.

Once you’ve verified the math, you need to transfer your shares to your broker.

Then the broker confirms the trade.

This all typically takes about one business day.

You want to sell for the best available price. There are a few things you can do to ensure this:

Stock Trading Terms You Need to Know

First thing you must learn about stocks, before you even think of buying one, is that many people do not act like serious investors. It is common to see someone invest in his first stock and then see that same individual act more like a gambler instead of a serious trader.

Due to the nature of trading stocks, it is important to consider some aspects before you start trading. If you are trading stocks in your brokerage account, you will need to open a brokerage account to start trading.

You must also have a general understanding about trading, investing, and the general stock market.

You will not be a successful investor if you do not have the determination to learn how to trade stocks.

You must have determination and patience, these are both important for the successful trader, you must have the determination to learn how to trade stocks. You must also have the patience to wait for the right time to execute your next trade.

It is important to stress the importance of learning how to buy and sell stocks. You might not always be right on your predictions on when to buy and when to sell, however to be a successful investor, you must have the knowledge on how to buy and sell stocks.

One of the most common ways of buying and selling stocks is through online stock brokers. You will need to learn more about stock brokerages before you sign up and learn how to trade stocks.

Bottom Line: How to Survive (and Thrive) With Stock Trading

Trading stocks is a zero-sum game. Somebody has to win, and somebody has to lose. If you want to win at stock trading over the long-term, give yourself the best chance for staying profitable for as long as possible.

The investing principles to follow when trading stocks are as follows:

  • Test your strategies. Start small.
  • Take advantage of market inefficiencies.
  • Set clear objectives for decision-making.
  • Demand higher returns for higher risks.
  • Trade stockpiling for stock picking.
  • Consider your investment style.
  • Use simple strategies that have proven themselves over time.
  • Stay in the game. Get up after losses.
  • Stay involved. Never turn your back on your investments.

In this guide, you’ll learn the ins and outs of different strategies for buying individual stocks, including active trading, passive trading, and investing.