A Beginner’s Guide to Recreational Stock Trading and Some Simple Tips & Tricks  

For an inexperienced investor, investing in the stock market and specifically trading stock might be a bit intimidating.  You’re probably aware of your retirement plan and know how much of your paycheck goes into your 401K and/or IRA each month and even what stock or mutual funds your investment is going towards, but likely not much more than that. You’re paying (or your employer is paying) a full-service brokerage firm and sometimes a dedicated broker to manage your account and your retirement plan.  They’re the experts, so you don’t have to be. But, have you ever thought about trading and investing for fun, as a hobby?

Trading stocks can be a fun and rewarding hobby. But before we dive into some of the basics, I’m not a financial advisor nor expert on stock trading, so these are just simple tips and general advice. You should definitely do additional research and talk to an expert before you start. Secondly, if you haven’t touched your 401K/IRA in over two years, you should contact your brokerage firm immediately for an account overview. Make sure your retirement accounts are set before you start investing money in other areas. You should be saving 15-20% of your paycheck for retirement. Consider putting 15% towards your 401K/IRA (bonus if your employer matches) and 5% towards a rainy day savings account.

Easy Rule to Follow: Spend 75%, Save 20%, Donate 5% (Donating money to charities is not only socially good, but it is also tax deductible.)

Now, once you’ve allocated the appropriate percentage to your retirement plan and have a better understanding of how your dollars are being invested, it’s now time to consider setting-up an account for fun!

Let’s Start with the Basics:

The stock market allows individuals (like you!) the ability to own a portion of a publically traded company (through shares of stock), so you are technically an owner of that company, granted you will own a very small portion of a company… but you’re still an owner!

• What is a Stock? A stock is a security that represents an ownership (equity) share in a corporation. Keyword is ownership. As an owner, you have a claim on the assets and earnings of a company as well as voting rights.
• What is the Stock Market? The stock market is the market in which shares of publicly held companies are issued and traded. The NYSE and the NASDAQ are the most important exchanges in the United States.
• How are stocks priced? The initial stock price is based on anticipated demand for the stock, but stock prices rise and fall based on the supply and demand for shares of stock. There are many factors that influence price, but the desire for individuals to own a portion of a company is key.

What you’ll need to get started:

• Disposable Cash – don’t invest any $’s that you can’t afford to lose ($500-$1000 is a good range to start)
• A Brokerage Firm – someone to buy & sell shares for you
• Curiosity, Positivity & Patience – the key to success and making trading enjoyable 

Picking a Brokerage Firm

In order to buy and sell stock on a stock exchange you will need a broker, which is an individual or firm that charges a fee for executing your buy and sell orders. Fortunately, with the introduction of online brokerage firms, trading has gotten easier and less expensive. But firms offer different fees, resources, spending minimums, etc.

Online Brokerage Firms Comparable Rates for Stock Trades (these rates can change):

• Ally Invest: $4.95
• Schwab: $4.95
• TD Ameritrade: $6.95
• E*Trade: $6.95
• Capital One: $6.95

Note: a trade is an order to purchase shares in one company, so if you want to purchase stock from three different companies, it would count as three separate trades, which means you will be charged for each company you want to purchase or sell stock from. Which can add-up fast!

Purchasing Individual Stocks

Start out by purchasing stock in 2-3 companies, so you can spend time on a little background research, watch how they perform, read their press releases and learn a bit before increasing to a larger portfolio.  Experts spend a lot of time tracking trends, reading through quarterly reports, and checking financial statements, but for a recreational investor, it’s significantly more fun to invest in companies that you know and products and services that you use. So be on the lookout for any company that recently wowed you with their product or service, they might be a diamond in the rough, then do a little research:

• How long have then been in the market?
• Any significant spikes in their stock price (increases or decreases)
• Do a google search for news on the company
• How do they compare to their competitors?
• Do you think their stock price is undervalued compared to similar companies?

A Few Tips to Remember:

• Don’t Put All of Your Eggs in One Basket. Diversification is key, so if you’ve decided to purchase stock in a new health food chain that you’re in love with, make sure your other stock purchases are in different industries.
• Set Aside Dedicated Time. Like any other hobby, set aside time every week, to review your portfolio, check the news for mentions about your companies, and read their press releases.
• Purchase More Stock in Companies Doing Well. If things are going well with one of your companies, purchase more stock in it, yes, you want to diversify, but you also want to re-invest in companies that are doing well and you’re familiar with.
• Re-Invest Profits. Since this is for entertainment purposes, don’t cash out on any profits, re-invest them in other areas. Or, if you’ve made enough, consider taking out your initial investment, and only investing your remaining profits.
• Don’t Pay for Training Classes. There’s so much available on the internet and most online brokerage firms offer resources, tools and communities to curate advice.
• Start a Trading Club with Friends. Take Wine Wednesday’s to a whole new level by putting together a trading club to share advice and lessons learned.

You’re going to have some failures and some success, but the key is to have fun doing it and learn along the way!