Many people like to practice stock trading using paper money or virtual money first. That is a fun way to learn how the market works without losing your shirt. After becoming comfortable with virtual trading, you may be ready to trade in real life with real money. It is a scary concept, but it can be a rewarding one if done properly.
What You Will Need
What you will need to do first is find a good online stock brokerage. There are many of them out there, with a variety of features, benefits, and requirements for joining. It would be wise to comparison shop before choosing one. One of the best ways to do that is to ask friends and family if they use any and how they like them. Some of the important things to look for are:
- Commissions charged per trade ($5 to $25 is common)
- Monthly or annual fees (no fees is common)
- Services provided for free (real-time streaming charts are nice to have)
- Local branch offices available (nice to have but not necessary)
- Minimum cash required
- Age restrictions
Applying for a brokerage account is a lot like applying for a bank account. They are going to ask you many questions about yourself, your employment, and your trading history. Once approved, you will be able to transfer money into your account and begin trading shortly after that.
Virtual versus Real Trading
The biggest difference you will probably experience with real-life trading is the emotional factor. When you put hard-earned cash on the line, you will start to watch those prices and charts like a hawk. And when prices start to drop, you may feel the urge to panic and sell everything, whether it is a good idea or not. That is the emotion of fear, and it causes many, many investors to lose a lot of money, especially beginners. You cannot practice getting over this fear factor with fake money, so it is best to start with a small amount of real money, say five hundred dollars, and be prepared to lose a good chunk of it for the purposes of education. That should limit the emotional impact on your trading decisions.
Another good piece of advice is to follow the saying, "Plan Your Trade and Trade Your Plan." This means that before you place your buy order, you need to decide when or where you are going to sell. That includes how much profit you want to get out of the trade and also when to get out if the price drops a certain percentage. It may help to write the plan down on paper or use automatic limit or stop orders to execute your plan for you. Having a solid plan in place before trading should help limit the emotional impact on your decisions. Just tell yourself to wait and stick with the plan.
Nicholas Swezey is the creator of fantasy trading on his site, http://www.howthemarketworks.com/.
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