StockStartingPoint.com

Introduction: The Very Basics of Stocks

First of all, what is a stock? A stock is a fractional ownership interest in a company: when you own a stock, you own a small part of a company. Most stocks come with voting rights: typically, each share of stock gives you one vote on company decisions that affect your stock ownership, such as who is on the board of directors, decisions on company mergers, and so on. As the company grows and the value of the company increases, then the price of the company's stock typically rises as well. There are many things that can affect the price of a stock, however, both in the short term and in the long term. Learning what things can affect the price of a stock, both good and bad, can help you take advantage of these price fluctuations and possibly make more profit from them.

Imagine that you own a vending machine. You buy a candy bar for 40 cents, and then you put it in the vending machine to sell for one dollar. If someone buys the candy bar for one dollar, then you just made 60 cents: $1.00 sales price, minus the $0.40 that you paid for it originally, equals $0.60 profit for you. Stocks work exactly the same way, except that the sales price of the stock goes up and down over time. If you sell stocks for more than you paid for them, then you make the difference. If you sell stocks for less than you paid for them, however, then you lose the difference.

It's important to choose the right companies and/or the right stocks to invest in, and it's important to buy and sell them at the right times so that you can make a good difference. You can make a lot of money if you choose the right stocks at the right time. Let me give you some real-world examples (based on actual data at the time that this article was written on February 14, 2021). Please note that these stocks are not financial advice, but are merely educational examples:

If you had bought $100 worth of Apple stock five years ago, then your Apple stock would be worth $581.81 today, making you a profit of $481.81 for every $100 that you invested.
If you had bought $100 worth of Amazon stock five years ago, then your Amazon stock would be worth $677.63 today, making you a profit of $577.63 for every $100 that you invested.
If you had bought $100 worth of Tesla stock five years ago, then your Tesla stock would be worth $2,603.04 today, making you a profit of $2,503.04 for every $100 that you invested.

Those examples were over a five-year period; occasionally, however, you might see certain stocks go up over 100% in a single day! Those investments are much riskier, however, and those stocks can often drop just as quickly as they go up, so you have to be careful to be on the right side of the trade.

As part of the process, you will need to learn how to choose good stocks to invest in and how to manage your risk wisely. Risk management will be an important part of your skillset, so that you can take just enough risk to earn money, yet limit your risk enough so that you can keep most of the money you earned. No investment is guaranteed, and you will have trades where you lose money; everyone does. However, by managing your risk wisely, you can earn much more than you lose and come out ahead. Remember, we want to get rich slow!

Step 1: Getting a Brokerage Account

In order to buy and sell stocks, you need to have a brokerage account. A brokerage account is similar to an ordinary bank account, in that you can deposit and withdraw money from it, but a brokerage account allows you to use that deposited money to buy and sell stocks. When you buy stocks, your cash balance is decreased by the purchase price of your stocks, and you receive the stocks in your brokerage account. When you sell stocks, your cash balance is increased by the sales price of your stocks, and the stocks you sold are removed from your brokerage account. The idea is to choose stocks whose value will increase over time, so that you can buy them at a lower price and then later sell them at a higher price. This way, you will earn the difference between the low price you bought them for and the higher price that you sold them for.

To get a brokerage account, you will need to go online and apply for one. The process is similar to opening a bank account, but they will also ask you questions about your investment experience and investment goals. Some brokerage accounts can be opened without depositing any money at all, though they won't be useful to you until you deposit at least some money into them so that you can buy stocks with that money.

There are two main types of brokerage accounts: cash accounts, and margin accounts. Cash accounts sound exactly like what they are; you can buy stocks with whatever cash balance that you have available in your account. When your cash balance runs out, then you can't buy any more stock until you increase your cash balance, either by depositing more money or by selling any stock that you own in the account. Margin accounts, however, allow you to buy stocks on credit in certain circumstances. This credit that they let you use is called the "margin". The broker charges interest on any margin that you use. As a beginner, I highly recommend that you start with a cash account. I don't think it's wise to use credit when you are first starting out, where you could possibly lose more money than you even started out with. You want to start small, because you will be learning as you go, and you don't want to make a mistake that could wipe out a large amount of money. If you start with a large amount of money, that could add undue stress to you while you are learning. Start small with an amount that you can afford to lose, and develop your skills as you go. As you gain experience and knowledge, then you will be more comfortable to add additional money to invest later. When you have gained enough experience, you could then always convert your cash account into a margin account if you wish to. A margin account does provide more flexibility, especially when you are trading options instead of stocks; however, if you are just starting out, then you probably shouldn't be trading options yet. Options are far more complex than stocks and are much riskier, and learning about options takes far more time and energy, but you can also earn much more if you trade options wisely. When you are ready, I will eventually have a sister website OptionStartingPoint.com for teaching options trading. For now, however, as a beginner, I think you should stick with a cash account trading stocks and not worry about options yet.

There are a number of brokerages that you can open an account with. Here is a list of brokerages that I personally use and recommend:

Which one should you use as a beginner? There are pluses and minuses to each one. Let me go over some of them with you:

Recommended Brokerages

Webull

In my opinion, this may be the best to start with as a beginner, though it's not the best overall. With Webull, you can trade stocks before and after the normal market hours, so you have the opportunity to make trades when big news about a company comes out before or after normal trading hours. This can be a huge advantage sometimes. The charting software is pretty good, so it can help you study your stock picks and identify trends and buying opportunities.

Zero commissions on stock, options, and ETF trades.
Zero contract fee when you trade options.
Zero minimum deposit requirements for brokerage accounts and IRAs.
Pre-market (4:00 AM - 9:30 AM ET) and after hours (4:00 PM - 8:00 PM ET) trading sessions.
Available on mobile, desktop, tablet and web platforms.
Over 50 technical indicators and 12 charting tools.
Test out your trading skills with the Paper Trading feature.
Sift through the market swiftly and concisely with Webull’s stock screener.
Trading in OTC (over-the-counter) stocks is not available.
If you click on the referral link above and open an account with $100 or more, you'll get two free stocks worth a guaranteed minimum total of $10.50 and a chance at a maximum total of $1,850.00. Why not start your account with two free stocks? By using my referral link, you get two free stocks, and I get one free stock to help support this website, so it's a win/win for us both.

Robinhood

Robinhood is very popular among stock beginners. It's by far the simplest trading interface to start using, but it's also the least powerful and the slowest. The charting software is minimal compared to the technical indicators and charting tools available on the other picks. If you're not technical minded and you want to keep things very simple, then Robinhood may be your choice. When you get more advanced in your trading, however, then you may want to choose a platform that gives you the tools that you need to make better trades. One advantage that Robinhood does have over the other picks, however, is that with Robinhood you can buy fractional shares of stock. For example, let's pretend that you want to invest in Google or in Berkshire Hathaway. At the time this article was written (February 14, 2021), a single share of Google stock would cost you $2,087.96, and a single share of Berkshire Hathaway stock would cost you $365,000.00. Most brokerages limit you to buying only whole shares of stock, so with most brokerages you would have to invest at least $2,087.96 if you wanted to invest in Google or at least $365,000.00 if you wanted to invest in Berkshire Hathaway. Robinhood, however, lets you buy fractions of a share of stock (down to 1/1,000,000 of a share), so you could invest as little as $1 in Google or Berkshire Hathaway if you wanted to (as well as any other stocks you wish to buy which are otherwise too large for your budget). Robinhood also has pre-market and after hours trading, but it's not available for as many hours as Webull.

Zero commissions on stock and options trades.
Zero contract fee when you trade options.
Zero minimum deposit requirements for brokerage accounts.
Pre-market (9:00 AM - 9:30 AM ET) and after hours (4:00 PM - 6:00 PM ET) trading sessions.
Available on mobile and web platforms.
Only 5 technical indicators, on the web platform only.
No paper trading feature available.
Robinhood offers lists of popular stocks in certain sectors, but it doesn't have a true stock screener.
Trading in OTC (over-the-counter) stocks is not available.
If you click on the referral link above and open an account with $100 or more, you'll get one free stock worth between $2.50 and $10.00, with a chance of receiving one free stock worth up to $225.00. Why not start your account with one free stock? By using my referral link, you get one free stock, and I get one free stock to help support this website, so it's a win/win for us both.

TD Ameritrade

TD Ameritrade is my favorite of these picks. They offer a platform called ThinkOrSwim that is available on desktop or mobile. ThinkOrSwim Desktop has by far the best charting tools available for these picks. They have over 300 technical indicators that you can use to guide your trading decisions. The platform is powerful and fast, it can display the most data points for your trades, and it's the most customizable of these picks. It's also the most complex platform of the four, and there is a bit of a learning curve to get started. If you're not technical minded, then the interface may be intimidating to you. You will want to put in the time necessary to learn how things work. If you don't want to do that, then you may be better off with Webull or Robinhood. If you're willing to put in the time and effort, however, then you will be very happy with your results. ThinkOrSwim also offers the best paper trading platform, that features the ability to go back in time and pretend to trade stocks in the past using real data from that time, as well as paper trading with live market data.

Zero commissions on stock, options, and ETF trades.
$0.65 contract fee when you trade options.
Zero minimum deposit requirements for brokerage accounts and IRAs.
Pre-market (4:00 AM - 9:30 AM ET) and after hours (4:00 PM - 8:00 PM ET) trading sessions on some stocks, and selected stocks are available to trade 24 hours a day, 5 days a week.
Available on mobile and desktop platforms.
Over 300 technical indicators and numerous charting tools, the most by far of these picks
Paper Trading feature available for live data and for past market data, making this feature extremely powerful
Excellent stock and options screeners
OTC (over-the-counter) stock trading is available, $6.95 commission for OTC stocks.
Generic referral links for TD Ameritrade are not available. If you want a custom referral link, you can request one from me; however, you would have to deposit at least $50,000 to get a $150 referral credit (going up to a $1,000 credit if you deposit $500,000 or more), so I don't anticipate many requests for the referral. The link above is a link to the normal signup page, without any referral.

TastyWorks

I mainly use my TastyWorks account for selling options. Again, trading options is far more complicated than trading stocks, and there is a far higher learning curve. When you are ready, I will eventually have a sister website OptionStartingPoint.com for teaching options trading. The platform is magnificent for trading options, as it offers some advanced options strategies, but it also works fine for stock trades too. Extended hours trading for stocks is only available for one hour before market open and one hour after market close. TastyWorks also has a YouTube channel called TastyTrade where you can learn a ton about options trading and how to use their platform.

Zero commissions on stock trades.
$1.00 contract fee when you open options trades ($10 per leg maximum), $0.00 contract fee when you close options trades.
Zero minimum deposit requirements for brokerage accounts and IRAs.
Pre-market (8:30 AM - 9:30 AM ET) and after hours (4:00 PM - 5:00 PM ET) trading sessions.
Available on mobile and desktop platforms.
Over 100 technical indicators and charting tools.
No paper trading feature available.
No stock screener available.
Trading in OTC (over-the-counter) stocks is not available.
I have a referral link for TastyWorks, but in this case it's best that you not use it. If you want to open an account with TastyWorks, they currently have an offer where if you open an account and fund it with $2,000, you can receive either 100 free stocks or 10 free options worth a total value of approximately $200. I think that's a really good deal. I get no credit for that, but it's clearly the best deal for you. The link above points to the details of this offer, and you will need to enter the referral code "STOCK_AWARD_21" to receive the offer when opening your account. If you were to use my referral code instead, then you wouldn't be able to get that offer, so it's best to use the offer code above.