So this is going to be everything you need to know as far as how to set up a trading account, and then we’re gonna go over how to actually buy a stock, what you need to know in order to find a stock market on a trading platform, and then we’re gonna go over how to sell a stock, as well, and go over the different order types because when you buy and sell stocks, there are different order types, and you should be familiar with those you make sure you are using the right one.
That’s what we’re gonna cover in this article, But first of all, in order to buy or sell a stock, you need a broker, which gives you access to a trading platform. In order to go out there and buy a stock, you need to go through a stockbroker.
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You can’t just go out there directly and go buy a stock, you need to pick a stockbroker, and you have a couple different options out there. The first one is the one that people have been using for years. Well, I guess people have been using online discount brokers for years, as well, but many people still use in person brokers.
You find yourself a stockbroker, and this is going to be a more expensive approach because obviously it’s person to person. It’s going to be slower order execution because basically you’re gonna call up your broker on the phone, and you’re gonna go, « Hey, why don’t you go ahead and buy 300 shares of this stock market at the market price? » And then if you want to sell, you’re gonna have to call them up and go, « Hey, why don’t you go ahead and sell this many shares for me? »
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It’s slower order execution because it’s person to person. You can’t just jump on your computer or jump on your phone and execute your trading orders. You have to call up your broker, and then he has to go ahead and execute the orders, it adds an extra step to the process, but the other thing is, though, you may get better advice from a broker.
You may want somebody who you can talk to and get their feedback and get their advice as far as what’s going on with the market, so if you’re someone who wants someone to kind of talk to, you may want to use an in person broker because you want to talk to someone about your trades and ask them questions and have someone to be there for you.
That does come at a price, so like I said, it’s more expensive to have an in person broker. Your next option is what most people are still using, but many people are shying away from this, as well. This is the online discount brokers.
This would be like your Scott Trade. This would be your Fidelity. Trying to think of a couple other ones out there. There’s a ton of them. These are basically the online discount brokers that are charging a set rate per trade. Some charge anywhere from 5 to $7.
I know that for a while I was using Scott Trade, and they charge $7 per trade with a $500 minimum account balance, this is basically an online discount broker. They charge a smaller amount for commission, and they are less expensive than an in person broker.
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You have faster order execution, and many of them offers specific trading tools and specific trading platforms that they’re trying to entice you in with, but the truth is, usually what they’re offering, you can find it for free somewhere else, but they pretty much put it all under the same roof, they have it all in one location, if you’re someone who wants a really sophisticated trading platform.
You may want to look into an online discount broker, or if you’re looking for very uncommon order types or order types that the beginner won’t use but a more advanced trader would want, you may have to go through an online discount broker, but for the rest of us, for those of us who don’t want an in person broker that we have to call on the phone and for those of us who have no interest in paying for our trades, then we have the third option, which is a free broker because now Robinhood offers commission-free trading with no minimum account balance, so they’re really a game changer, guys.
I’ve had a lot of people ask me about Stash, and I just want to clear this up. I did some research. As far as Stash goes, they’re another option as far as these trading apps, but Stash actually charges $1 per month for under $5,000, if you have $5,000 in there, they’re gonna charge you $1 per month to have that money invested, and if you have over $5,000, they’re gonna charge you 0.25% of everything you have invested per year, you are paying a significant amount of fees with Stash.
With Robinhood, the only fees you’re paying are the mandated fees, and I’m gonna explain what those are right here, and these fees are passed right along to the SEC and FINRA, Robinhood is not getting a cut of this at all. The way Robinhood makes money, we’re gonna explained that in a second, but they basically have a tiered membership, where you can pay a set dollar amount per month in order to have access to margin.
That way you can buy on margin, which we’ll explain that in a second. Robinhood is not a nonprofit. They’re not doing it for free, but they are offering pretty much free trading for anyone out there who wants the bare basics of trading, but here are the two mandated fees that Robinhood has to pay.
Number one, the SEC charges $23.10 per $1 million of principle in sell orders only. if you sold $1 million worth of a security, you’d pay $23.10 as a fee, obviously, that is a very small fee, and then we have the FINRA trading activity fee, which is a little over 1/100th of a penny per share, and this is on sell orders only with a cap of $5.95.
That FINRA trading activity fee will never exceed $5.95. If you trade through the app Robinhood, these are the only two fees that you are going to pay. They are mandated fees. You have to pay these fees no matter what broker you go through, but if you’re looking to have the cheapest trading, the commission-free trading, and no-minimum account balance where you could go open an account for as little as a dollar, then I would say Robinhood is your way to go.
I do have a link in the description. It’s an affiliate link, if you guys want to sign up. I actually haven’t gotten any kind of kickback for it. Occasionally, they run promotions where if I refer someone I may get a free share of a stock market.
I’ve never been involved in one of those promotions, but I just strongly believe in Robinhood, and this is the trading platform I use. I’m happy to recommend them. You don’t have to use that link. I just know occasionally you do get either a free credit or a free share of a stock market, you may want to use that link just in case they’re running a promotion.
Okay, once you decide on a broker and you open up your trading account, there’s gonna be two options that are given to you. You have the option of opening a margin account or the option of opening a cash account. 99% of us want to open a cash account, but I want to explain to you what a margin account is just so you know.
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A margin account allows investors to purchase securities with borrowed funds. Essentially, your broker gives you a loan that you pay interest on if you use that money, and they usually match you dollar for dollar with what you put in your trading account.
If you put $50,000 in your margin account, your broker would likely extend you $50,000 of credit, giving you $100,000 of buying power. you could invest $100,000 in securities instead of just the 50,000 that you had deposited in cash, but if you do use the money extended to you, you do pay interest on that, most of us are not looking to buy stocks on margin.
We just want to buy stocks with the cash that we deposit, we want to open a cash account. This is a regular brokerage account where securities are paid in full, when you invest in a stock market, when you buy a stock, you’re gonna pay for that stock in full.
You’re not buying anything on margin. Once you’ve decided on what you’re going to do here, and do understand if you want a margin account through Robinhood, they have the Robinhood Gold, I believe it’s called. I don’t use it because I don’t trade on margin, but that’s basically how Robinhood makes their money.
They make their money by offering margin to their investors and some other bonus and add-on features for a paid membership, so they’re not a charity by any means. They make their money through their tiered memberships that they offer. Once you’ve decided on what broker you want to go with, you need to open up your account.
In order to do that, you have to provide some documentation. The basic stuff they need is proof of address they know where you live, as well as proof of identity, and they’re going to need your Social Security number or your tax ID number because they have to report your earnings and your stock transactions to the IRS because you do have to pay taxes on those, which I’m sure you guys know, but they do report those because those are things you had to pay taxes on at the end of the year. Then you’re going to fund the trading account. With Robinhood, it’s pretty simple.
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You just select your bank account from the list. However, if you’re someone who does want to deposit cash to your account, or you’re someone who wants to do Western Union or send a check, you may want to go with an online discount broker because, as far as I can tell, the only way you can fund an account with Robinhood is with a bank account.
If you’re looking to do it in a different way, you may have to use an online discount broker because that’s one of the ways that Robinhood saves money, is they don’t have offices, you can’t drive to a Robinhood office and bring in money or give them a check and deposit it into your account.
You have to do it online, and that way it’s electronic, and there’s no expenses on their part as far as funding your account. Once you’ve done that, you need to decide on an investment. what you
need to do is do your research about what you’re looking to invest in and then find the symbol of what it is you’re looking to invest in.
Let’s say, for example, you wanted to invest in a blue-chip stock market. let’s say you picked Coca-Cola. Well, Coca-Cola stock market trades under the symbol KO, you would go into Robinhood, into the search bar after you’ve funded your account. You would type in KO or whatever trading account you use. Maybe you call up your broker and say, « Hey, I want to invest in Coca-Cola. Here’s the symbol. » You’ll give him the symbol.
You’ll type it in or whatever you do. You’ll find it on your trading platform, and then you’re going to click the buy button. Now before you do that, we’re gonna cover order types, as far as buying and selling just you know those basics.
You would type in KO in order to get Coca-Cola stock, but let’s say you wanted to invest in an exchange traded fund. This is basically a fund of different stocks or different securities that trades on the stock market, basically, it would be like investing in a fund, like a mutual fund, but you’re actually investing in it through the stock market.
If you wanted to invest in the Vanguard Total Stock Market ETF, you would just type in VTI into that search bar, and that would come up on your screen, as well, but let’s say you wanted to invest in some investment grade bonds if you’re looking for a good bond fund. Maybe you wanted to look for the Vanguard Total Bond Stock Market ETF, You would just type in BND. not only can you invest in stocks through a trading platform, you can invest in exchange traded funds. You can invest in REITs, which is a real estate investment trust.
There are many different things you can invest in outside of stocks, that’s why it’s important to do your research and figure out what it is you want to invest in. Okay, the last thing we’re gonna cover here is buy and sell orders.
Now I know this may look confusing, but trust me, once we go through the examples, you guys are going to understand this, and you’re not going to be afraid to use these orders because these allow you to do a lot of different things. They also allow you to automate some of your tradings, let’s say you go on vacation, and you have a certain price in mind that you’re looking to buy a stock for or a certain price you’re looking to sell at, and you don’t want to monitor stock charts, you can set some of these orders to do that for you.
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Now all of these orders are available through Robinhood. These are the basic orders that people should use and understand. There are a ton of different ones out there, and obviously, if you use a more sophisticated trading platform, there are additional order types, but these are the four that you should be familiar with.
Number one for buy orders is a market order. This is very simple. This is the one most people use. Let’s say you wanted to buy Coca-Cola stock market. We’re on market hours, it’s during trading hours while the market is open. This would execute a buy order at the current market price. if Coca-Cola stock was… I don’t know what the stock is.
If it was $72.10 a share, you execute a buy, and they’re going to buy you that stock, the number of shares you want at the best possible price, and it will be somewhere around that $72.10 price mark because you’re buying at the market price. Then we have a limit order. This is the maximum prize you will pay for a stock market. let’s use XYZ stock, which is a fictitious stock market, for example. I don’t know if it actually exists.
I’m actually… Now that I said that, maybe there is a symbol XYZ out there, but let’s say you’re buying XYZ stock market. It’s currently at $30 a share. You have your eye on the stock, and you want to buy in at $25.
You could set a limit order to buy the stock no higher than $25, you would do a limit order with the price of 25, and if that stock market fell to $25 or below, it would execute that order, and you would buy shares of XYZ stock for no higher than $25.
Then we have a stop loss order. This is basically an order that executes a buy order when the set price is reached. Let’s use ABC stock, for example. This would be where ABC stock is $20. You’re waiting for it to break a certain price level. You want to buy ABC stock market no lower than $25. So if it went above $25, then you would automatically execute that order, and you would by ABC stock.
There is a big problem with this, guys. With stop loss orders for buy and sell, there’s no gap protection, and what I mean by this is let’s say ABC stock was acquired by a bigger company, and all a sudden the stock went from $20 a share to $40 a share. Your order would still be good, and your order would be executed at $40 a share. Maybe you wanted to pay $25 a share, and you didn’t realize that you set a stop loss order, and the next thing you know, you just bought shares at $40 a share, if you want to make sure that you don’t pay a certain price that exceeds a set value, then you need a stop limit order, and that’s what this is right here.
This triggers a limit order when the set price is reached. for this, we’re using DEF stock, which I’m sure these are actually real stocks, at least some of these probably, but let’s say DEF stock is $50 a share.
You want to buy no higher than $51.10 after the stock market reaches $51. So if the stock comes above $51 a share, you will pay anywhere from 51 to 51.10 for shares of that stock market, but if that stock exceeds 51.10, you don’t buy, this gives you gap protection, where if the stock gaps open, and what I mean by that is off trading hours if there are a large number of orders in the queue, then the stock market will open at a much higher price, and if you have a stop loss order, it may execute your buy order at a much higher price than anticipated, but if you use a stop limit order.
You have gap protection, where if it gaps well above what you’re willing to pay for that stock market, the order is no good, and the order is not executed. Many people confuse these two, and many people make the unfortunate mistake of setting a stop loss buy or sell order, and they end up buying or selling much higher or much lower than anticipated because the stock either gaps up or gaps down upon opening.
That’s something to consider if you’re looking to set a stop loss. You might want to actually set a stop limit order instead. So now we’ll go over the sell orders. They’re called the same thing, but we’re just gonna do an example you guys get the picture here. Once you’ve bought a stock market and, let’s say, you want to sell that stock.
Here are the different orders available to you as far as selling a stock. There’s a market order, which like we said we’ll just execute a sell order at the current market price, they’re gonna go out there and find you the best possible price they can at the current market value. Limit orders is the minimum price you will sell at, let’s say XYZ stock is $25 a share, and you will sell at any value above $30.
You would set a limit order for 30, and if XYZ stock market exceeds $30 a share, it will execute that sell order, and you will sell your position. Then we have a stop loss order. This executes a sell order when the set price is reached. Let’s say ABC stock is $40 a share, but you will sell below $35.
Now again, there’s no gap protection here, if all of a sudden ABC stock market went from $40 to $20 a share, your stop loss order would be executed, and you would sell at 20 a share, if you don’t want to have that open ended selling, you might want to have a stop limit order, which would trigger a limit order when the set price is reached.
Let’s say DEF stock is $15 a share, and you’ll sell no lower than 11.90 after the stock reaches $12 a share. If the stock market falls in value to $12 a share and then it falls somewhere between 12 and 11.90 a share, your order is good, and your order will close out, and you will sell that position, but if DEF stock market all of a sudden falls when it opens to $10 a share, your order is no good because it never fell between 12 and 11.10, that stop limit order is no good, and you didn’t sell without anticipating it to be a sell.
Those are two orders that are very helpful for people looking to automate their trading, and many people unfortunately make that mistake of doing stop loss orders, and they get in trouble when there’s a gap in the price movement.
The only other order that is useful, and it’s not available through Robinhood, is a trailing stop order. This is basically an order where if a stock has a certain percentage or certain dollar amount price movement, it executes a buy or sell order, you could set a trailing stop of 10%, which means if that stock market falls more than 10% within a trading day you automatically sell, or if that stock rises 10% within this trading day, you automatically buy, or you can set it for a dollar amount, if that stock market falls 10 cents in one day, you’ll buy it, or if that stock goes up 10 cents in value, you’ll sell it, something like that.
That’s the only other order that I have found to be useful, but these are good enough for most people looking to get invested, to get involved in the stock market. That’s pretty much it. Those are the basics, so once you decide the stock market you want to buy, and you have your symbol, and you figure out your buy order, you just go ahead and buy that stock.
If you’re looking to just buy that stock at market price, you’ll just do a market order, or if you have a set price in mind, you’ll do a limit order, and then at that point, if you’re holding that stock market for a long time, you really don’t have to have a sell order in place, but if there’s a certain dollar amount you’re looking to get for that stock and you want to sell in the short term, you might set up some kind of sell order, but this is basically everything you need to know to actually go out there and buy a stock market and then sell a stock, I kind of covered a little bonus information there for you, but I just thought it was important to explain both sides of these order types. Anyways, guys, that’s pretty much all I got for this video. If you are new to my channel, please consider subscribing. I make videos like this every single day, educating you guys market and investing and all kinds of financial topics.