How to start
A great advantage nowadays is that the cost of trading has been reduced significantly, and this activity, usually reserved for the very wealthy individuals or financial institutions, is now available to the regular person, with some savings in the bank.
If you are willing to start in the stock market trading, we assume you already did some research and have some basic knowledge on the subject. Anyway, we will indicate some useful links, as we deem it needed, throughout this site.
In this page, you will find all what you need to start trading with confidence in the stock market.
What is needed
There are some basic requirements that you will need to start:
| 1 |
Internet connection. A continuous connection, not necessarily ultra-high speed. You may work fine with an 128 or 256 Kbps ADSL connection. What is very advisable is to have a continuous connection to the internet. Modem based connections it’s a definitive no-no.
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| 2 | Computer equipment. Nothing specially strong or fancy is needed. A Pentium IV may work fine for you, provided that you use the proper operating system level for the hardware. Don’t try to run Windows Vista in a Pentium IV + 256 K of RAM. Generally speaking, using the original software provided with the PC is advisable. Also, as for the OS, you will need Windows. Unfortunately, Linux or Mac offer in software is very limited right now. Some traders suggest to use big screens (19″+) or even more than one screen. It can be a good idea for intensive day-trading, but for a starter it’s not necessary. Save your money for the trading capital. |
| 3 | Trading capital. Minimal required to start is US$ 5,000. Although some brokers may require less to open an account, this is the minimal amount that will provide you a maneuver margin to work. |
| 4 | Brokerage account. This is a key decision. As a small trader, you want to minimize the natural handicap that you have. It is a must to contract a brokerage company that charges tiny commissions and has a reduced maintenance fee. We will go into details in a separated page, but the election of choice is Interactive Brokers. They charges 0.005 per share (minimum US$ 1.00), and for options is US$ 0.75 per contract (again, minimum US$ 1.00). The maintenance fee is US$ 10 (if you make less that US$ 30 in commissions), or US$ 20 if your account goes below US$ 2,000. |
| 5 | Knowledge. This is also a key factor. You need to acquire knowledge fast and at the minimum cost possible. We will provide some advise and useful links, but you need to commit with yourself in devote some time to assimilate useful information, and, even more important, to apply it. |
Typical errors
There are two possible errors you may do, and both cost money when trading:
(a) Errors selecting an entry or exit of a trade. That is normal and you will do some will you learn, and even after you have learned a lot. As you will see later, this is part of the cost of business in trading. Nobody, and I mean nobody, is error free in trading.
(b) Errors operating a trade. Stuff like buying more when you intended to sell do happens, specially when you are starting. This is the kind of errors that you should ensure not happens at all. This is achieved by mastering the trading tool you use, and establish automatic double-check routines to ensure that you don’t do this kind of errors.
Key decision
Of all the above I think that choosing the right broker is most important thing, and a mistake here may make you start with a big handicap. Some so-called discount brokers charges you up to US$19.00 per trade. Compare it against the US$ 1.00 of Interactive Brokers. A high commission means that in any trade, you need to profit enough first to pay the broker’s commission, and then you got your profit. That makes most of your trades losers, even if the stock moves in your favor.
For example: You invest US$ 1400 buying 50 MSFT shares (price US$ 28.00), plus US$ 19 of commission. To sell it, you need other US$ 19, so the total cost for the trade is US$ 38. With 50 shares, the price must climb up to US$ 28.76, just to pay your brokerage commission, ie, to not lose in the trade. This is 2.7% movement, which is very significant.
With Interactive Brokers, the total cost of the trade is US$ 2, not US$ 19. The share must go up to US$ 28.04, or 0.1% to make the trade profitable.
Note: By the way, we are not part of Interactive Brokers, nor receive affiliate commissions from them. We are recommending them based on our actual experience as small traders.