Anyone have any experience with online stock trading?

Ok I don’t have a lot of money to play with only a few thousand but probably no more than 5-6k right now. I have always been interested in doing a little investing in the stock market but only with small money as I don’t have that much. Does anyone here have experience with online stock trading, such as what would be a good company, how the process works exactly, maybe even some kind of investment strategy? I don’t really have that much money so I’m guessing there is little point seeing an actual stock broker. Is there somewhere better that I could invest the money?

There are plenty of threads on the Dope about investing. The basic advice you’ll find in them comes down to this:

  1. What are you doing about retirement savings? The first place to save your money is in retirement accounts. If your employer offers a 401k match, you should be putting enough money there to receive the match. The 401k should have various options for investing in the market through mutual funds.

  2. If your employer is not offering a 401k and/or match, or you’re already meeting the match, your next step is to invest in a Roth IRA. You can set up a Roth at any of the major discount brokers such as Fidelity, ETrade or Charles Schwab.

There reason to do your investing within one of these retirement accounts is that you receive major tax advantages. With a 401k, the money you put in is pre-tax, and grows tax free. You pay no taxes until you take it out. With a Roth IRA, you put in after tax money, but you never have to pay taxes on it again.

Once you have your account set up, you should be investing your money in index funds, such as a fund that tracks the entire stock market, or the S&P 500. These types of funds are not susceptible to the things that can go very wrong with a single stock, or even with an entire sector. They will allow you to take advantage of the longterm growth in the market without subjecting you to the enormous risks of trading in individual stocks. You will still face general market risk, but you will have the best chance of ending up with investment gains.

The Motley Fool is a great site that will answer your specific questions and walk you through the process of opening an account and making investments.

I agree with all of the above except for index funds. I tend to invest in companies with solid fundamentals that return dividends rather than funds. But that’s my own preference. Do your own research before doing any investing.

Yeah, about 8 years ago. I saw where TD was offering like a thousand free trades in 90 days to new clients, so I popped for $3K and had fun. I was buying one share of stock, just to not have to wait 15 minutes lag to see the price. I went in with three stocks that related to things that I knew something about, so I had a certain confidence that they would perform well, and I increased my holdings by about 20% in the three months, even with the frivolous playing I was doing.

I think the key is to make sure you understand the industry or sector in which you are holding securities, and have a comprehension of the reasons why they would go up or down… If you have no understanding of why to be bullish, don’
t buy.

I would agree with most of this except the blanket recco of a Roth IRA. As with any advice, nothing is applicable to everyone and what type of IRA (Traditional or Roth) should be controlled by the situation of the individual investor. An investor might prefer the current tax break over the later one, for example. Without more information I couldn’t presume to make an actual reccommendation for someone. Ditto with the index funds. They’re appropriate for some and not for others depending on individual circumstances.

As for The Motley Fool? I spent about 9 months as an analyst for them. Some of it’s good and some bad, but the real issue I had was the constant pressure to produce reccomendations of the ‘stock of the day’ to encourage a lot of churn - and therefore commissions - in accounts. Today this is what you should buy…tomorrow it’ll be something else…and the next day something else. This runs counter to a proper ‘buy and hold’ strategy that should be focused on a combination of solid funds and individual equities designed for long-term growth.

Or, in short, everyone’s different and no single set of advice can apply to everyone, and may apply to no one.

I agree with Spoiler Virgin, including the index funds. Make sure you reinvest the dividends and use a low-cost provider like Vanguard. But, yeah, do some research, and The Motley Fool is an excellent site.

But, everyone’s financial situation is a little different. The above is just a paraphrase of Warren Buffet’s advice to the average investor, and it suits me well, and is relatively stress-free.

Here is the first question you must answer - Can you afford to lose every cent of that money right now?

If the answer is “no”, then do not do online, self directed stock trading. You should look toward a mutal fund for your stock investing. The risk of losing all your money is significantly less in a mutual fund, since they contain many different companies across many different economic sectors.

If “yes”, then you need to decide what level of risk you are comfortable with. As a rule, the more risky the investment the greater the potential reward - and the greater the chance of losing it all.
Low risk tolerance - established mutual fund(s)
Medium risk - split money between a mutual fund and 1-2 well known, blue chip stocks (sign up for dividend reinvestment)
Higher risk - invest in 1-2 blue chip stocks and throw in a “sleeper” - a company you think may do well, but is undervalued or very new.
Highest risk - roulette, all on double zero

Last thing - if you think you will need the money soon, don’t put it in stock. The market tends to perform well over long periods, but short term fluctuations can eat away at your principal initially.

Well, I agree with going in with the initial ‘I can afford to lose this money’ mentality, but realistically, unless you’re a complete fucking moron, that isn’t going to happen.

I made some pretty good money back in 2000-2001 before I cashed in, quit my job and went on the rollercoaster of life. I just started up another fund at the beginning of this year and I only own 3 stocks so far.

1> Don’t buy anything that is ‘hot’. It has already made its gains. At best you might make a little bit of money if you are able to time the peak and get out, but far more likely is that you’re the sucker who bought at the peak and now it’s on the down slope.
2> Don’t sell just because the stock is dropping. They do go up and down. If you sell after the stock has dropped, you just locked in your losses. Congrats, this is how the innocent and the stupid lose their money in the market.

Summary of the two: the idea is Buy Low, Sell High. Unfortunately, uneducated and/or simple folks listen to hucksters pimping stocks and end up buying high and selling low. Fool, Money, Sheep, Sheared.

To start out and build your portfolio, pick stocks that are long term stable, that you actually know something about. Don’t go hunting for odd stocks that might be winners. Buy things you know. Don’t buy things near the top of their 52 week price range. Yeah, you may really want a couple of shares in Tesla (as I do), but it was around 40 a year ago and it is 246 right now. It was 257 yesterday. Be patient, wait for the right price. Hell, I expected Target stock to blink hard after the credit mess, and it didn’t at first. It took a while. I finally bought some shares a couple of weeks back at $55-something. It is $62-something at the moment.

Don’t waste your time counting your paper gains. This goes along with the advice above. Yeah, I’ve made over $7 a share on my Target stock. Assuming I cared to sell it. But I didn’t buy it to turn it around in a couple of weeks. I bought it to hold for a long time - years. So really, I don’t give too much of a fuck what the price is now other than the satisfaction of not having a paper loss today. Dwelling too much on short term gains and losses gets you itchy to buy and sell when you shouldn’t be. Hell, if Target was down from where I bought it, all it would mean would be that I would be planning to buy more.

Look and P/E, but don’t rely on it. Historically, the market runs somewhere around 15, but this does vary, and today’s P/E can look awesome or terrible based only on short term numbers that mean jack in the long term. On the other hand, if the P/E of a company is 200, that stock is clearly, massively overpriced, and you should only buy it if you really believe the company will grow quite a lot.

I’ll leave it at that for now.

And if you get a mutual fund, for God’s sake get a low-cost index fund. There has been oodles of research showing that managed funds do not beat index funds in the long term, especially after the higher fees are accounted for.

In fact, that’s a strong reason to get an index fund over picking your own stocks. If the experts don’t beat the market in the long term, neither will you. Warren Buffett famously made a bet with a hedge fund manager that a low cost index fund will beat any of their hedge funds over a 10 year period (a hedge fund is a little different than a managed mutual fund, but the principle is similar). Right now, Buffett’s way ahead.

Of course, the situations do have some differences:
a. Picking stocks can be fun.
b. You don’t pay the manager a fee if you’re managing yourself. The research still tends to show that you won’t, in the long term (on average) beat the market, but it won’t be as significant as with a managed fund (if you don’t self destruct and follow a poor strategy, which many amateurs will)

But yeah, if you’re saving for retirement, the vast majority of it should be in a nice, safe index fund (probably some in a bond fund too, depending on how old you are).

As for Roth vs. Traditional IRA: I think most people prefer the Roth, especially if you’re not making a ton of money right now. Both are fine options, and both give a significant tax advantage over not using one.

Story time.

Back in 2000, I bought 100 shares of a small mining stock at $17 a share. Within about 3 months, there were threats of Asbestos lawsuits against the company (which repeatedly stated they never were involved with) and the stock plunged to about $2 a share. Did I panic and sell? No. The stock muddled along and eventually dropped as low as $0.37. Fucking idiot, I should have bought 1,000 shares for a mere $370 just because I could afford to lose that without issue, but I didn’t. Anyway, I just mentally parked my shares in my ‘long term hold’ bucket.

About six months later, they were cleared, and the stock rebounded. I finally sold at $21 a share, making $400 on my small investment.

Because I didn’t panic and unload them when it tanked.

Of course, the preamble to SpoilerVirgin’s advice is to pay down your debt first. I would also add an addendum that you don’t just rely on this $4-5k statically. Sock away a few hundred every month.

Also, I just saw: www.robinhood.com, a broker service that doesn’t require any transaction fees. Transaction fees are pretty hefty - between $7-$12 per trade.

A final note about dividends: dividends are payments that a company pays back to its stockholders as a “thank you.” So if you bought something like say… Verizon. The stock itself didn’t grow very much in the last calendar year. However they do give out very attractive dividends. The Div/yield is 053/4.45% meaning that annually paid out dividends equalling 4.45% of the stock’s value in 53-cent increments. So even though the stock didn’t grow any, you still got money for it and the best part is there isn’t any transaction fees. You could set up (usually without transaction fees) to reinvest this money into buying the stock meaning if you got 53 cents worth of dividend, you put it back in and buy 53 cents worth of the stock every… 3 months or so. Some companies issue monthly dividends. Others annually. Most quarterly.

  1. Vanguard (there are others but why bother?)
  2. Index Funds

As others have mentioned you have no realistic hope of beating the market. I have most years, and I’d like to think it is skill, but I know it isn’t. I have most of my money in index funds, but keep a portion to play around with. I don’t mind taking the risk, and am fully aware of it.

Also:

Don’t believe anyone that tells you they can beat the market. It is impossible for them to know if it is skill or luck. And impossible for you to verify what they are doing (or leaving out). Lots of fund companies will close down their funds that are doing poorly - making it look like they are doing better than average. There are lots of tricks out there, but read:

A Random Walk down Wall Street

Or

One of John Bogle’s books (Vanguard founder)

If you want to learn more about why index investing will almost certainly beat out everything else over the long term.

Realize there will always be things that are “doing better”. Don’t chase performance - it doesn’t work - and in fact is a worse than average strategy.