ABC Stock Investing

• Stock Investing Basics
  
• How the Stock Market Works
  
• Stock Investment Research
  
• Stock Valuation Methods
• Competitive Analysis
  
• How and Where to Open a Stock Account
  
• How Much Risk to Take
  
• Which Stock Types to Pick
  
• Building Your Stock Portfolio
  
• What Returns to Expect
  
• Stock Investment Strategies
  
• Analyzing Mutual Funds
• Compounding Effect of Investing
• Investing Online
• Penny Stocks
• Ways to Invest
• Investing Money in Retirement
• Basics of Mutual Funds
• Find Stocks to Invest In
• Online Day Trading
  
  

• Investing Calculators
• Retirement Planning
• Frequently Asked Questions (FAQ)
• Recommended Reading
• Disclaimer

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Choose An Online Brokerage.  There are many things to look for in an online broker, but these are the most important.

• Reliability.  Most online brokerages have strong reliability ratings, but to make sure, check out the reviews of each brokerage by third parties.  You can find ratings in many money and consumer related magazines, including their online versions.  Do a search for "online brokerage reviews".
• Execution.  It is very important that when you place a trade order, that it is executed in an extremely timely manner.  To find out how fast different brokerages execute trades, you can also read reviews, or visit their site and see their execution guarantees.
• Breadth of Investments.  Perhaps one of the most important aspects is the breadth of investing options that your online brokerage provides.  Before you sign up, browse through the broker's site and view all of the different investments that you can purchase.  Look specifically at the choice in mutual funds.  Some brokers only provide limited options and others allow access to almost any mutual fund out there.  Typically, the larger the brokerage, the more investing options they can provide.  Also, the more discounted the broker is, the less options they provide.  Besides mutual funds, look to see what they offer for bond investments, options and money market funds.
• Diversity of Products.  Similar to breadth of investments, you want to make sure that your online brokerage offers all the products you'll need in the future.  Look to see that they offer investing in stocks, bonds, mutual funds, options, exchange traded funds (ETF) and money market accounts.  On top of that, see if they also offer checks and atm/debit cards related to your account (easy ways to get money out).  Some online brokers even offer separate bank accounts that can be tied to your brokerage account, and some even offer mortgages or home equity lines of credit.  If you use all or several of the products, many brokerages offer discounts.
• Pricing.  Although pricing is important, unless you're a day trader the actual cost of doing a trade really shouldn't be your final decision maker.  That's because a typical long-term investor only makes a few trades a month or year.  And if you need to spend an extra few dollars for your trades but get better service and more investment options, then I would recommend paying for the better options.
• Account Minimums.  Check the account minimums for each online broker you're investigating.  Some are as low as $100 and some are $10,000.  Check to see the minimum amount before you are charged a maintenance fee (fee charged if your balance is below a certain dollar value).
• Rates.  Look at the interest rates offered by the brokerage for their money market accounts.  If you are planning to hold a lot of cash in your account, this rate is very important.  They can vary dramatically, but typically the more money you have invested, the higher the rate paid.  Also, look at the margin interest rates (the rate charged on money you borrow from the brokerage).  These rates can be astronomical for some brokerages.
• Fees.  Look for any fees that the brokerage may charge.  A good brokerage should not charge any annual fees, maintenance fees or sales loads.  Look closely at the website for any hidden fees and make sure you avoid them.
• Investment Research.  Look for online investing companies that offer free or reduced price research.  Although you don't need this research, and it is often tainted by the person or firm who wrote it, it is often helpful to see the information from another perspective.

Open Online Investing Account.  Once you've chosen the brokerage you desire, open the account. You can usually do this online by filling out a form and then submitting it electronically.  However, at some point you will have to sign a few forms and either mail or fax them back to the brokerage.  We suggest that when you open an account, that you get all of the account options that you can.  For example, instead of just opening a cash investing account, we suggest that you open a margin account with option trading capability that has checks and an atm/debit card.  That way, as you become a better investor and grow into the account you'll already have all the tools you need at your disposal.

Make Initial Deposit.  Before you can trade you'll need to fund your account.  You can do this by sending in a check, doing a direct transfer from a checking or savings account, or by wiring your money (fast but expensive).  Make sure you deposit more than the initial amount so that if you lose some money, you will not trigger any maintenance fees.

Select Investments.  Now that you've got a funded account, it's time to select your investments.  Take your time!!  Don't rush into finding investments just because you're account is funded.  And don't feel like you have to invest all of the money at once.  Use the other resources on this site to help you find stocks and funds to purchase.

Execute Trades.  Once you select your investments, place your order.  You can do this with many different types of orders.  Here are the most basic:

• market order.  This is the simplest order and is simply an order to buy or sell a stock or mutual fund at the current price.
• limit order.  This is an order to buy or sell a stock at a given price or better.  For example, you could put in a $20 limit order to buy a stock that is currently trading at $20.25.  Your order will only execute if the stock hits or falls below the $20 price.  These orders can be used to get a better price for stocks that are volatile, but they sometimes backfire and the price moves up before they execute.  You can also use a limit order to lock in a profit.  For example, if you bought your stock at $20 and put in a limit order to sell at $25, then the next time the stock hits $25 your order will be executed and you will have locked in a gain.
• stop order.  Although more complicated, this is like a limit order except that it is used to protect your investments.  For example, you may have a stock that you hold at $25 that has already given you a nice return.  To protect the gain, you could put in a stop order at $22.  When the stock hits $22 the order will turn into a market order to sell the stock.  Whereas the limit order at $22 would have executed immediately, the stop order executes only when the trigger price is met.
• stop limit order.  Similar to a stop order, this trade turns into a limit order once the stop price is met.  For example, if you put in a stop limit order at $22 and your stock hit $22, the order would be triggered but the stock would then only sell at prices greater than or equal to $22.  This type of order is commonly used to lock in gains and to ensure that one does not sell at a loss.  However, this type of order could backfire terribly if the stock price keeps dropping.
• short sale.  This is an order where you sell a stock that you do not own, by borrowing the stock from the brokerage and then selling it.  Short sales are very risky and are used to make bets that a stock will go down.  They are risky because there is no downside limit to your risk.  For example, you could short a stock that seemed overpriced at $50 and the stock could go up to $200, thereby losing 3 times the stock price.  When you short stock, you are required to keep a percentage of the stock price in your account at all times, and you are charged interest on the amount of stock you shorted.  If the price goes up too much, you will get margin calls and be required to deposit more money or to close your short position at a loss.
• good till canceled (gtc).  This is one of the two timing options.  It means that your order will stay active until it is filled in whole.  In other words, you could place a GTC order to sell a $20 stock at $30 and it would stay active until the stock hit $30, which could be months or even years.
• day order.  This order will only be active the day in which it is placed.  It will expire at the end of normal trading.
• all or none.  This is an option whereby you can decide if you want your order split up or not.  Normally, orders are executed in small lots.  For example, if you buy 1,000 shares, it typically takes several small trades to accumulate that many shares.  However, in an all or none order, the broker will only execute the trade if they can get all 1,000 shares at once.

Monitor Portfolio. Now that you've bought your investments sit back and don't watch them too closely (it's often frustrating).  However, once a year, or even twice a year, look at your investments and decide whether or not they are still meeting your goals.  As your goals change, and as your investments go up and down, change your portfolio to meet your current needs.  For example, you may have one stock that moves from 10% to 25% of your portfolio.  You should reduce your exposure to this stock by selling some of it and buying something else.  This is also known as rebalancing your portfolio.  Also, if any investments are doing poorly because of bad management, change in their competitive position, etc. -- you should sell them immediately.  Use the rest of the tools on this website to monitor and optimize your online investing portfolio.