Commodities The ultimate guide to trading shares - part 1 November 26, 2007 Adam Hamilton CPA, Zeal Research
Are you interested in trading in the stock markets? Do you have questions about getting started? You are certainly not alone. Almost weekly I hear from ordinary folks with basic questions about trading stocks. After addressing these on a consulting basis for years, I’ll outline some of the basics in this series.
The rewards of stock trading
Trading stocks is an incredibly rewarding journey. Everyone is intrigued by the stock markets because traders can make big money there. This is certainly true. But the potentially extraordinary financial winnings are not the most gratifying part of trading stocks. The best part is really the endless learning and personal growth that trading naturally generates. Trading is a most-fascinating voyage of discovery.
When you buy stocks, you can’t help but grow interested in what the companies you own are actually doing. You learn about their businesses, their markets, their competitors, and the economy in general. Everything in the markets is interconnected to some degree. So every piece of knowledge you glean, no matter how trivial it may seem at the time, helps you grow smarter and make better decisions in the future.
Learning is always fun and fulfilling. And trading stocks doesn’t just teach you about the business world around us, it illuminates your inner self like few other endeavors. To become successful in the stock markets, you have to master your own emotions. Trading stocks brings all of your emotional and character traits, both good and bad, to the surface where you are forced to deal with them. You can’t hide here.
Through trading stocks you’ll learn more about yourself than you ever thought possible. You’ll learn to recognize your unique God-given strengths and utilize them in the markets as well as other areas of your life. You’ll learn to work around your weaknesses too, and gain priceless emotional control that will greatly improve your life beyond trading. Curiously, stock trading is more of a mirror inward to your heart than a window outward to the world.
Stock trading is one of the last true meritocracies. All that matters for your success is your own decisions. If you make good decisions on balance, you will win on balance. It doesn’t matter what anyone else thinks of you. Anything in your life that others have used to classify or judge you is totally irrelevant in the markets. The markets are truly blind to everything but merit. Regardless of the hand you’ve been dealt in life, you can become an excellent stock trader if you apply yourself.
The stock markets also free us from the tyranny of time. Most of our lives we trade our time for money in the form of salaries and wages. But in the markets, instead of us working for our money our money works for us! Unlike everyday life, time on task is irrelevant in the stock markets. If you pick the right stocks, your capital will grow regardless of how your time is spent. So stock trading is incredibly liberating.
Who can trade stocks?
And you are never too young or old to start trading stocks. My father opened a brokerage account for me when I was 12. I had a little money from a summer of mowing lawns and retrieving golf balls from water traps, and he thought I might be interested in investing. Boy was he right! His seemingly tiny decision to help me start investing changed my life forever. So parents, consider getting your kids started young and their odds of being very successful as adults will multiply dramatically.
I also know investors who never bought a single individual stock before they formally retired. Yet even starting in their later years they’ve grown to become excellent traders and have been blessed with great success. If you are closer to this end of the age spectrum, your hard-won life wisdom will greatly aid your journey as a trader. And a big side benefit of trading stocks is it will help keep your mind razor-sharp.
All the usual factors that the world unjustly uses to limit people, such as age, sex, complexion, attractiveness, nationality, faith, and station in life are totally meaningless in the stock markets. To get started only one thing is necessary, a little bit of surplus capital. This is money you have saved by consuming less than you earn. Saving is hard work, no doubt. But you can do it. By cutting back a little in your entertainment budget, odds are it won’t take you too long to save enough to open a stock-trading account.
Opening your stock-trading account
And you really don’t need much. Minimum opening balances for new online brokerage accounts are typically just a few thousand dollars. In some cases, no minimum is required at all. (check out our comparison tables for a list of brokers) And you definitely do want to start trading even if it is on a small scale. The reason is stock-trading knowledge scales beautifully. If you can successfully grow $1k in the stock markets, then you can do the same thing with $1m later. All the priceless lessons you learn starting small will prevent you from losing big later as your capital grows.
From a practical standpoint, I would recommend starting with at least $1000. While you can trade with less, commissions become more onerous with smaller amounts. If it costs $10 flat each time you trade, and you are only trading $100, you are effectively paying your broker 10% for trading a stock which is far too high. But if you are trading $1000, and still paying the same $10 commission, then it works out to 1%. The bigger your initial balance you can save to start, the lower your effective commissions will become. Regardless of your starting capital, make sure it is money you can afford to lose as stock trading is risky!
Once you have saved some money to start trading stocks, you need to open a brokerage account. I highly recommend an online trading account that you can access over the Internet from your computer. Online trading is inexpensive, fast, and efficient. From the time you decide to buy a stock to when you actually own it is measured in seconds. And you never have to talk to a pushy broker on the telephone who will second-guess your trading decisions and try to steer you into stocks his firm wants to get rid of.
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