How does one get into stock trading?

[TylerH]

How does one go about buying stock in a company and how much money does it take to get started? I've got about $100 in birthday money and a few stocks that I'd like to buy shares of in small amounts. Can one buy in that small of quantities or is one require to buy large numbers of shares at once?

Thanks,
Tyler

 

[phoenix:\\]

$100 isn't enough. To buy 1 share generally costs $50, which definitely isn't enough to gain any money on. An e-trade account generally costs $500 (deposit) and then you begin investing/etc... on your own, so you might want to look there first. Brokers costs money as well for their own fees and you probably need more money than that so they can potentially cover your losses if they occur.

 

[OmCheeto]

How does one go about buying stock in a company and how much money does it take to get started? I've got about $100 in birthday money and a few stocks that I'd like to buy shares of in small amounts. Can one buy in that small of quantities or is one require to buy large numbers of shares at once?

Thanks,
Tyler

The company I trade through charges $10 per transaction, so it's kind of pointless for me to trade frequently, as like you, I only have $100 per month to invest. But there is no fee to open an account.

They do have an automatic purchase program that only costs $4. I look at what I want, then, on the first Tuesday of each month, they automatically steal $100 from my checking account, and buy me $96 worth of my chosen stock. It's nice because under the automatic buy program, you're allowed to buy fractional shares. You do have to pay attention though. It took me 3 months to figure out I was paying for each automatic purchase. They'd set me up with 2 per month for my $100. Which I thought would cost me $4, but instead cost me $8. So I lost $12 right up front. Grrrrr... But I learn from my mistakes.

If you see a good deal one day and want something immediately, you have to buy an integer number of stocks, and that will cost you $10.

It also costs me $10 each time I sell stocks. So far, over the last 4 years, I've only sold 3 sets of stocks, 2 of which they automatically set me up for while I scratched my head for 3 months deciding what to buy. (Those two were very boring. It was worse than watching paint dry following those stocks.)

So if you plan on buying and selling $100 worth of stocks on a daily basis, your stocks have to jump at least 20%, or you'll lose money. So unless your psychic, it's not a good idea, as stocks don't do that very often. Of the ten stocks I now own, over the last 4 years, I think I've seen it happen twice.

There are lots of http://www.brokerage-review.com/stock-brokers/list-stock-broker-firms.aspx. You just need to figure out which one is right for your budget.

ps. Don't ever ask me specifically which stocks to buy. If I were to sell everything today, I'd be out around $3000. But I'm old, and can wait for my stocks to turn around, such that I'll one day be a BILLIONAIRE! Or at least a break even.

 

[TylerH]

$100 isn't enough. To buy 1 share generally costs $50, which definitely isn't enough to gain any money on. An e-trade account generally costs $500 (deposit) and then you begin investing/etc... on your own, so you might want to look there first. Brokers costs money as well for their own fees and you probably need more money than that so they can potentially cover your losses if they occur.

The number that goes across the ticker, the number most emphasized on stock web pages (like Google Finance), is the (last traded) price right? The one I'm looking at is 28.17 and it has a +.23 after it. (ARM Holdings)

Can I usually buy the stock for that much? Rephrasing: How much does a stock price vary between purchases?

 

[OmCheeto]

The number that goes across the ticker, the number most emphasized on stock web pages (like Google Finance), is the (last traded) price right?

Yes.

The one I'm looking at is 28.17 and it has a +.23 after it. (ARM Holdings)

Can I usually buy the stock for that much?

Pretty close, as long as you buy stock when the market is open.

Rephrasing: How much does a stock price vary between purchases?

Do you mean the time lag between your order and the actual purchase?
Stocks prices can vary a little or a lot over short periods.

On Tuesday, the stock closed at $27.20.
If you'd put the order in after that, but before the market opened, you'd pay $28.11 per share on Wednesday morning.
Although almost a dollar difference, it's trivial when the stock price has been fluctuating 10 times that over the last year: 52 week 22.10 - 32.18

Did I mention that I never hold a stock for less than a year?

How long do you plan on holding your stocks?

 

[Vanadium 50]

The problem you have is transaction fees. It's $10-15 per transaction.

So if you have $100, you can buy 3 shares of ARM at $28.17 with $5.49 left over (assuming a $10 transaction fee). Now say it goes up to $31 - a 10% increase, which is pretty good. When you sell the 3 shares, which costs another $10, you'll have a total of $88.49. So even though the stock went up, you will have lost money.

 

[TylerH]

How long do you plan on holding your stocks?

I'm young (18), so there's no real strategy to it other than trying to make money; it's not my retirement or anything.

I think ARM is going to continue to grow for the next few years (and probably jump when Windows 8 comes out), so I plan on keeping it for a while. But if I were to come across anything that I thought would give me a nice gain in the short term but not too stable on the long, I would buy that too.

 

[TylerH]

The problem you have is transation fees. It's $10-15 per transaction.

So if you have $100, you can buy 3 shares of ARM at $28.17 with $5.49 left over (assuming a $10 transaction fee). Now say it goes up to $31 - a 10% increase, which is pretty good. When you sell the 3 shares, which costs another $10, you'll have a total of $88.49. So even though the stock went up, you will have lost money.

Are there any reasons to go with sites that charge $10-15 per transaction? What is it that separates expensive sites from cheap sites (I've found a few that are ~$5 per)? I don't really plan to use any tools, other than maybe automated trading; I get all my information from Google Finance.

 

[Containment]

Why not use the 100$ to buy some books on the subject of how to better invest your money. Then the next time you get some cash you'll know what to do with it instead of asking an internet forum for advice :) Actually what is up with that I always see people posting here asking for investment advice I thought this was a science type site or something?

 

[Pengwuino]

Why not use the 100$ to buy some books on the subject of how to better invest your money. Then the next time you get some cash you'll know what to do with it instead of asking an internet forum for advice :) Actually what is up with that I always see people posting here asking for investment advice I thought this was a science type site or something?

This.

'm young (18), so there's no real strategy to it other than trying to make money; it's not my retirement or anything.

I think ARM is going to continue to grow for the next few years (and probably jump when Windows 8 comes out), so I plan on keeping it for a while. But if I were to come across anything that I thought would give me a nice gain in the short term but not too stable on the long, I would buy that too.

And this is why. Most people lose money based off this kind of thinking. It sounds like you don't really know a thing about investments. You're essentially playing roulette because your thinking as to why a stock is going to go up is absolutely not the right way to be thinking. For example, a few years back when Bush and the country went gaga over ethanol, people poured money into ethanol companies. My father even invested in one based on thinking at a level similar to yours. A couple years ago the company nearly went bankrupt (or maybe it did, I don't remember). MANY other companies DID go bankrupt. Hell, the one my father invested in had government backing, one of the executives was a former California Comptroller or something, they had all sorts of backing... and they failed miserably.

That's not to say that you can't make money. Just don't expect it to be predictable or beyond maybe a 5-10% annual gain (ie your $100 turning to $150 in 5 years) if you even have gains at all (maybe your $100 will turn into $50 in 5 years). At your age, there are MUCH better investments one can make than stocks. However, if you really just want to have some fun and be exposed to stocks, which I am certainly not against, give it a shot. Look at sites such as TDAmeritrade. I've been with them for years and they do not have a minimum initial deposit requirement (if you deposit by check). I also don't think they even charge for up to a certain # of transactions (or this use to be the case).

A REALLY nice idea would be to check out a game like http://simulator.investopedia.com/ where you can simulate the stock market experience. I know we played something similar (although the internet wasn't really around back then) when I was younger in class. Apparently buying Disney was a stupid idea (we were kids, what other company did we know of?).

PS: As containment said, buy a real book on investment, but none of these "Make $$$ on Stocks!" garbage books you see at Barns & Nobel. You need real cut and dry texts or websites that tell you how investments work.

 

[TylerH]

Why not use the 100$ to buy some books on the subject of how to better invest your money. Then the next time you get some cash you'll know what to do with it instead of asking an internet forum for advice :) Actually what is up with that I always see people posting here asking for investment advice I thought this was a science type site or something?

I wasn't asking for advice about trading itself; I was asking about how to trade. :) There's enough on Wikipedia to get definitions of what everything is, and from there it seems pretty straight forward. It just happens that people here are very thorough.

I think the reason I want to get into might be the same as most other scientific-ly (qualitatively) minded people: it *seems* like it would be pretty easy to make small amounts of money over a 3-6 mo term.

 

[Containment]

Like if your really looking for a way to invest a small amount of money why not get into collectibles. There are all kinds of things people collect as a hobby and if your willing to spend some time finding the right ones and the right buyers / sellers you can make a bit of extra cash. It has risks like everything such examples as the buyer might back out or find it from someone else sooner but that's life. I'm only suggesting this because it was something I did when I was younger. Honesty just getting a good book to read would have been a better investment of my time at that age even though I wasn't really that into educational reading.

To answer your question more directly just go to a stock trading site and they will probably answer most of the questions for you in a video.

 

[TylerH]

Honesty just getting a good book to read would have been a better investment of my time at that age even though I wasn't really that into educational reading.

I'm the same way. There's no way I'd read more than a few pages for reference. I've already wasted money on a math library that I only use when I forget the axioms of some particular mathematical structure (and I could use Wikipedia for that). That's all I can foresee using a finance book for, just definitions. I'm quantitatively minded enough to be able to tell what good values are for most data points, one I know their basic definition.

I can see from what everyone is saying that I may be wasting my money, but it's okay. There's literally nothing else I would want to buy except for some video game. I'll probably just do that, and use that stock simulator that Pengwuino suggested.

 

[Pythagorean]

it *seems* like it would be pretty easy to make small amounts of money over a 3-6 mo term.

not with $100. Even with $1000 dollars, you're not going to diversify enough to guarantee returns in that short of a time. You really need 10's of thousands of dollars to even be competitive.

But you're always going to be competing against people that can have a lot of influence on the market with hundreds of thousands of dollars.

 

[rootX]

not with $100. Even with $1000 dollars, you're not going to diversify enough to guarantee returns in that short of a time. You really need 10's of thousands of dollars to even be competitive.

But you're always going to be competing against people that can have a lot of influence on the market with hundreds of thousands of dollars.

I think it's easy to make money in the short run, you just need to watch the stock news/prices 24 hours time a day. But, it doesn't last long.

My friends made good money for few months but then lost all like last year

Further, I believe big companies generally don't get into speculation business (I might be wrong here), they tend to be more into arbitrage or hedging. Small people who don't have any influence can still make money just by speculating, but I agree you can make good money going into options which require +10K investments.

OP like all others, I wouldn't advise to take stock returns seriously, just go into it with 500-1K for fun but don't hope that luck will last forever.

P.S. I took some finance courses, here's the books we used:
Ruppert, David, Statistics and Data Analysis for Financial Engineering
Hull, FUNDAMENTALS OF FUTURES AND OPTIONS MARKETS

You can also do few fun things in R:
http://www.r-project.org/
or even matlab.

 

[BWV]

remember stock trading is a zero-sum game relative to the market - your gains are someone else's losses - the sum of all investor returns is that of a broad market index. You have to ask yourself what is so special about your insights or trading methods that will allow you to beat the 1000s of professionals out there who themselves have an extremely difficult time adding any value.

 

[chiro]

Become a congressperson and trade on insider information.

 

[Pythagorean]

Become a banker and own a congressman or two.

 

[chiro]

Even Better: become a CEO of a huge bank, then go into government like Paulson did and convert all your shares to cash and save a killing on the fact that you don't have to pay taxes and other surcharges that are ordinarily incurred when stock is liquidated.

 

[feathermoon]

Don't forget the revolving door goes both ways; on your way back out you can catch some sweet highly paid positions at banks and lobbying firms.

 

[Vanadium 50]

Are there any reasons to go with sites that charge $10-15 per transaction?

Check their minimum balances/order sizes.

What is it that separates expensive sites from cheap sites (I've found a few that are ~$5 per)?

Check their minimum balances/order sizes.

I think ARM is going to continue to grow for the next few years (and probably jump when Windows 8 comes out), so I plan on keeping it for a while.

Are you the only person who thinks ARM will grow? If not, then the growth is already priced into the stock. You are essentially betting that ARMH's growth will be higher than the market consensus. That's a very different statement than that they will grow.

I think I agree - the $100 would be better spent on investing books.