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How to make your first stock trade

GOBankingRates logo GOBankingRates 9/29/2015 Barbara Friedberg

The stock market can be a scary place. One day you are up, the next you see your gains vanish right before your eyes.

People who hate to see their hard-earned money vaporize might be afraid to dip their toes into the investing pool. But those who are willing to take on a little risk can reap some handsome rewards.

From 1928 to 2014, investors earned a 9.6 percent annualized investment return on money invested in the S&P 500, according to the NYU Stern School of Business. Investors earned 7.6 percent during the more recent 2005-2014 period.

Click ahead for a start-to-finish guide for making your first trade.

Step 1: Open a Brokerage Account

TD Ameritrade discount brokerage office. © John Greim/LightRocket via Getty Images TD Ameritrade discount brokerage office. Think of a brokerage account as a marketplace for buying and selling stocks, bonds, mutual funds, exchange-traded funds (ETFs) and a wealth of other types of investments. E*Trade, Charles Schwab, Fidelity, Vanguard, TD Ameritrade and Scottrade are a few of the more popular investment brokerage firms.

Opening an account is straightforward and involves completing paperwork online or in person. DIY investors might open the account on their own and use the online or phone company contacts. Simply follow the online guidance and call or e-chat with any questions. For those who prefer in-person assistance, visit a local branch office to speak with a live investment adviser.

Step 2: Fund the Account

US Currency: Wads of US bills fastened with rubber bands, close-up © Getty Images US Currency: Wads of US bills fastened with rubber bands, close-up Before you make your first trade, you need some cash in the account. Transfer money into your brokerage account with a check or Automatic Clearing House (ACH) bank transfer. The fund website or company representative can give you the specifics. Once your money is in the newly opened account, you’re ready to trade.

But before you buy a stock, bond, mutual fund or ETF, educate yourself about investing. That way, you will set yourself up for greater investing success.

Step 3: Learn About Investing

Man reading stocknews © Getty Images/Maskot Man reading stocknews Do not be in a hurry to make your first trade. In fact, waiting until you’re ready will give you more confidence when you begin investing your own money.

Jim Wang is a personal finance expert and founder of both and He suggests paper trading before actually buying your first stock. Paper trading is a simulated form of stock picking where investors pretend to buy and sell stocks without actually using real money.

“Buying stocks can be fun but is and should be a lot of work reading and studying,” said Wang. “I recommend paper trading for a while, using that time studying and analyzing company financials and reports. You can learn a lot about a company from those required documents, and the rigor you develop from studying them can be useful when you go to invest for real.”

There are many sites that offer education courses and virtual trading. They include Wall Street Survivor and many major investment brokerage websites.

If you prefer learning in book form, two of my favorite investing books are “The Elements of Investing” by Burton Malkiel and Charles Ellis, and my own “Invest and Beat the Pros — Create and Manage a Successful Investing Portfolio.”

If you decide to invest in an individual stock, make sure you do your research. Realize that picking individual stocks is much riskier than investing in a diversified mutual fund.

Step 4: Make a Trade

Screen shot of Add to cart button for online shopping © Getty Images/Tetra images RF Screen shot of Add to cart button for online shopping When I first started investing many decades ago, my dad said that the best way to really understand investing is to put your own money in the markets. All the paper trading in the world doesn’t feel the same as watching your first stock pick drop in price the day after you purchase it.

Whether you decide to buy an individual stock or mutual fund, you can place the order on your own from the “trade” screen of your investment brokerage account. You might be more comfortable buying a diversified mutual fund for your first trade that invests in many stocks, such as an S&P 500 Index fund. Various investment companies offer this type of mutual fund or ETF.

Each stock or fund is represented by a ticker symbol. Search Yahoo Finance or other financial websites to learn the ticker symbol. Let’s assume you decide to buy the Vanguard Total Stock Market ETF with the ticker symbol VTI. Before you purchase:

• Decide how many shares to buy. If you have $1,000 and VTI is priced at $100 per share, you can buy 10 shares.

• Choose your order type, and the amount of time that the order will remain active.

• Review your order, and then click “place order.”

• Go to the “confirmations” screen to see if the trade was placed.

It could take a few days for the final order to be completed, and the shares transferred into your account. Remember to call a financial adviser at the investment brokerage company with any questions.

How Much Does It Cost to Invest?

Man checking stocks on computer © Getty Images Man checking stocks on computer Buying and selling individual stocks and ETFs is not free. In most cases, each trade costs a commission. Most discount brokers offer low-commission trades in the range of $10 or less. Additionally, there are firms that allow you to invest in certain ETFs commission-free.

Investing in “no load” mutual funds is free. If you buy a load mutual fund, you will pay a commission when you trade. This is an important issue to check out before you begin investing. Some full-service investment brokers offer expensive loaded mutual funds. In general, no-load mutual funds outperform their higher-fee counterparts, according to the Motley Fool.

To understand the fees and expenses of trading, make sure to read the fine print.

What to Expect After Making Your First Trade

Fund performance review © Getty Images/iStockphoto Fund performance review The value of your investment will go up and down. Don’t be surprised when the stock you paid $35 per share for yesterday is worth $33 per share next week. That type of price volatility is normal.

If you are skittish, you might want to set a stop limit order on the stock so that if it falls in price past a certain limit, it will automatically trigger a sell order.

When to Trade and When to Hold

Thoughtful mid adult man looking away at desk © Getty Images/Brand X Thoughtful mid adult man looking away at desk Just because you can trade, that does not mean you should. More frequent traders typically have lower overall investment returns, according to the American Association of Individual Investors website.

Buying and selling stocks, bonds and funds should be part of a well-planned investment strategy. Even the best company can be a poor stock buy if you pay too high a price, so always be mindful of the security’s valuation.

Finally, don’t get overly greedy or confident. Todd Tresidder, former hedge fund manager and owner of, said, “Don’t mistake brains with a bull market just because you happened to be in the right place at the right time and made some good money through sheer luck.”

The first trade and those that follow should be completed only after thorough research and a basic understanding of the investment markets. Investing isn’t a game; it’s an approach to building wealth for your future.

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