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Investing in the stock market can be both intimidating and foreign, fulfilling and lucrative. Of course, both extremes are part of the experience for beginners, but learning more about the process of investing can ensure you meet your investment goals. Ready to ride the waves of the market? Learn how to start investing in stocks now.
Step 1: Identify your goals.
The first step in investing is to identify your long-term goals and which approach to take. There are limitless choices, and everyone has different goals and risk tolerance.
Here are a few basic questions to guide your plan of action:
- Do I want to invest myself or utilize services offered by licensed professionals?
- Do I invest in stocks for the long-term (years) or do I prefer a shorter-term approach?
- Am I comfortable picking stocks myself (active investing) or does the passive approach suit me better?
- What is my financial situation and how much money should I allocate for investments?
- What are my long-term goals and how will I handle risks associated with investing?
There is no one correct answer to any of those questions. But contemplating your investing style will help you create a plan before moving forward to the next steps.
Historically, the stock market has provided an annualized return of just under 10% per year over the last 100 years. This is generally better than other asset classes like real estate and fixed income.
But the stock market can be volatile and go through periods of negative returns anywhere from short-term pullbacks to long-term bear markets when prices decline significantly.
If you just want to participate but don’t have time or desire to do the work yourself, there are thousands of professional investment companies to create and manage your stock portfolio for a fee. In this case, your next step is to research those companies and find the one that fits your investment style.
Some examples are:
Mutual funds are a professionally-managed investment fund that pools money from many investors to purchase and manage securities (you can start with a small amount).
A registered investment advisor is a firm that provides advice and manages securities (usually for higher net worth clients).
Robo-advisors are digital platforms that provide automated, algorithm-driven financial planning services with little human involvement.
On the other hand, if you want to do stock investing yourself, you need to open a brokerage account.
Step 2: Open your investment account.
To buy and sell stocks, you need to open an investment account with a broker. This is an easy online process, and there are countless reputable brokerage firms you can choose from.
You might also consider digital banks that feature investment accounts. MoneyLion is a digital bank that offers several unique options outside of your typical checking account. You can build your credit with a small loan or take out a cash advance. You can also open an Auto Investing or MoneyLion Crypto account. If you prefer an integrated experience, you might try such an account.
In any case, walk through the following questions to help you narrow your search for the right firm:
- What are the commissions (how much do they charge you for a stock transaction)? Commissions have been declining over the last decade, and several brokerage firms in the United States do not charge commissions.
- What kind of online trading platform is offered? Is it easy and intuitive to place a buy or sell order? Is there a mobile app for trading?
- Does the broker provide research, education, stock news and insights? Are those features free?
- Is charting software available and how user-friendly is it? Is it free?
- Are there charges if you aren’t trading actively?
- Does the platform provide friendly and patient customer service (important for beginners)? Can you talk to someone over the phone?
- What kind of security does the broker use to keep your account safe?
- How long has the service been in business?
- Does it allow retirement accounts and what are the options?
- What is the minimum account size?
- Can you expect user-friendly account management features where you can see your transactions, balances, history and cost?
- Does the firm offer advisory services, and how much is the charge?
Most brokers have answers to these questions right on their websites, but it’s always good to call directly and have a conversation with their representative. Explain your goals and objectives to learn more about the best options for your needs.
It’s common for brokers to offer a simulated account (no real money deposited in your account). It’s worth it to go through the opening process and test-drive services and get comfortable before investing real capital. Simulated trading can also help you practice the process of specifying types of orders, number of shares and other features.
Every professional stock trader has clicked “buy” instead of “sell” or typed 1,000 shares instead of 100 at least once in their lives by accident. So don’t be in a hurry. Make sure the order you are placing is exactly what you want it to do.
Here are some of the types of orders:
Market order is an order to buy or sell a stock immediately. This type of order guarantees that the order will be executed (filled) but does not guarantee the execution price.
Limit order is an order to buy or sell a stock at a specific price or better. A buy limit order can only be executed at the limit price or lower, and a sell limit order can only be executed at the limit price or higher.
Stop order is an order to buy or sell a stock once the price of the stock reaches the specified price, known as the stop price. When the stop price is reached, a stop order becomes a market order.
Day order is an order which will expire at the end of the day (daily trading hours) if not executed.
Good Til’ Canceled order is an order that will remain active until executed or canceled by you.
Here is an example of a typical stock order:
Limit (type of order) Day (duration) order to Buy (action) 100 Shares (number of shares) of MSFT (ticker symbol for Microsoft Corporation) at $210.50 (price).
In plain English, the above order means that you want to buy 100 shares of Microsoft Corporation if it trades at the price of $210.50 today. It will either be filled if MSFT trades below $210.50 or it will expire at the end of the day.
Step 3: Identify your investment strategy.
After determining whether the do-it-yourself or professionally assisted approach is better for you, the next step is to learn some of the most common investment strategies to identify what will work well for your goals and personality.
While there are millions of different stock strategies on Wall Street, the most important issue on the road to successful investing is psychology. You must be honest with yourself and understand your strengths and weaknesses when investing your money. Your stock investing must fit your personality. Trying to blindly replicate what someone else is doing in the stock market rarely works. Instead, learn different techniques and apply the ones that suit you.
For example, investing in ETFs may be a good place to start if you want to adopt a passive approach. An ETF (exchange traded fund) is a basket of stocks that usually tracks a particular index, but trades like a stock. For example, if you would like to be invested in the S&P 500 index, buying SPY (SPDR S&P 500 ETF) will give you a nearly identical return to the index.
There are hundreds of ETFs out there. You can choose which index, sector, industry or region you want to be invested in by selecting an appropriate ETF.
If you prefer researching and picking individual stocks, consider learning the following concepts:
Growth or Value
Growth stocks tend to increase in value rather than provide dividend income.
Value stocks tend to have solid fundamentals, higher dividends and are considered underpriced.
Fundamental or Technical
The fundamental approach is analyzing stocks based on their financial statements and valuations.
The technical approach is analyzing stocks based on chart patterns and sentiment.
It’s always a good idea to be diversified (invest in multiple stocks from different industries and sectors). And try not to forget about volatility. Most investors have a hard time handling big swings in their investments, so try to invest in stocks or ETFs that you are comfortable with.
How Much Do I Need to Start Investing?
While there is no exact formula for how much money is needed to start investing in stocks, treat your account as a serious investment, regardless of whether you start with a few hundred dollars or hundreds of thousands.
Does it Cost Money to Invest in Stocks?
Investors need to be aware of the cost associated with buying and selling securities. Every time you make a transaction, your broker charges you commissions. Over the last several years, however, commissions cost have been trending down.
There are some brokers who don’t charge commissions at all, but investors have to be aware of potential hidden costs when it comes to buying and selling stocks. Unless you are an active trader, the overall commissions cost is minimal.
Best Online Stock Brokers
There are numerous online brokers that can accommodate all your investment and trading needs. Here is the list of some of the most prominent and reputable brokers.
Webull, founded in 2017, is a mobile app-based brokerage that features commission-free stock and exchange-traded fund (ETF) trading. It’s regulated by the Securities and Exchange Commission (SEC) and the Financial Industry Regulatory Authority (FINRA).
Webull offers active traders technical indicators, economic calendars, ratings from research agencies, margin trading and short-selling. Webull’s trading platform is designed for intermediate and experienced traders, although beginning traders can also benefit.
Webull is widely considered one of the best Robinhood alternatives.
- Active traders
- Intermediate traders
- Advanced traders
- No account maintenance fees or software platform fees
- No charges to open and maintain an account
- Intuitive trading platform with technical and fundamental analysis tools
- Does not support trading in mutual funds, bonds or OTC stocks
Moomoo is a commission-free mobile trading app available on Apple, Google and Windows devices. A subsidiary of Futu Holdings Ltd., it’s backed by venture capital affiliates of Matrix, Sequoia, and Tencent (NASDAQ: FUTU). Securities offered by Futu Inc., regulated by the Securities and Exchange Commission (SEC) and the Financial Industry Regulatory Authority (FINRA).
Moomoo is another great alternative for Robinhood. This is an outstanding trading platform if you want to dive deep into smart trading. It offers impressive trading tools and opportunities for both new and advanced traders, including advanced charting, pre and post-market trading, international trading, research and analysis tools, and most popular of all, free Level 2 quotes.
Get started right away by downloading Moomoo to your phone, tablet or another mobile device.
- Cost-conscious traders
- Active and Advanced traders
- Over 8,000 different stocks that can be sold short
- Access trading and quotes in pre-market (4 a.m. to 9:30 a.m. ET) and post-market hours (4 p.m. to 8 p.m. ET)
- No minimum deposit to open an account.
- No chat support
E*TRADE is an online discount trading house that offers brokerage and banking services to individuals and businesses. One of the first brokers to embrace online trading, E*TRADE not only survived both the dot-com bubble and Recession — it thrived. You can choose from two different platforms (one basic, one advanced). E*TRADE is a suitable broker for traders of most skill levels, whether you want to buy mutual funds and hold them for decades or dabble in options swing trading. E*TRADE offers a library of research and education materials to help you out.
- Active traders
- Derivatives traders
- Retirement savers
- Sophisticated trading platforms
- Wide range of tradable assets
- Exceptional customer service
- Limited currency trading
- Higher margin rates than competitors
- No paper trading on its standard platform
This latest groundbreaking technology is IBKR GlobalAnalyst, a new trading tool that helps investors compare the rate of PEG or price-earnings growth valuations and provide more immediate and comprehensive financial metrics of stocks, globally.
Recognizing that stock selection can be challenging for investors to compare the valuations of domestic and international stocks, Interactive Brokers created GlobalAnalyst to offer investors a simple, yet powerful tool to easily evaluate investment opportunities around the world.
Using GlobalAnalyst, investors can search for stocks by region, country, industry, market capitalization and currency to uncover undervalued stocks worldwide. The resulting table displays the current market and financial metrics, including the PEG Ratio. The PEG Ratio is the PE ratio divided by the three-year compound earnings growth rate, and smaller PEG Ratios typically indicate undervalued companies.
- Price earnings growth valuations
- Easily evaluate investment opportunities
CenterPoint Securities is ideal for active traders who demand access to advanced tools and services. While investors and casual traders are likely to be content with the basic offerings of traditional online brokerages, active traders will benefit from CenterPoint’s suite of advanced trading tools. If you value execution quality, access to short inventory, advanced trading platforms, and accessible customer service, CenterPoint is an excellent choice.
- Intermediate to Advanced traders
- High-volume traders
- Momentum traders
- Short sellers
- Unrivaled access to short inventory
- Flexible order routing for improved executions
- Discounts for active traders
- Advanced platform with fast executions
- Reliable customer service
- Not designed for beginner or low-volume traders
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Invest in Stocks Today
The stock market is an excellent wealth builder and a never-ending chess match. Learn the basics, read as much as you can, learn the strategies and techniques and avoid being a gambler.
Do your research, run from “hot tips” and know how to handle risk. Learn first, invest later.