How To Trade Stocks 2020

Welcome to Trading Brokers step by step guide to trading stocks in 2020. Here you will find an easy to understand explanation of stock trading. This includes how to trade stocks online, what you need to trade stocks and how to open a trading account with a stock broker so that you can start trading stocks online today.

Min $250 Deposit

IG offer traders around the globe over 16,000+ markets including Forex & CFDs. They have a good selection of trading platforms, tools & educational resources. Spreads are tight, commission is low & execution speeds are fast. IG are also regulated in many countries including FCA, ASIC & NFA regulation.

Terms & conditions apply
Spread bets and CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 76% of retail investor accounts lose money when trading spread bets and CFDs with this provider. You should consider whether you understand how spread bets and CFDs work, and whether you can afford to take the high risk of losing your money.
How To Trade Stocks

How To Trade Stocks

Perhaps there is a particular product or service that you have a keen interest in and would look to purchase stocks in the company. Maybe you have some spare change that you would like to speculate with and have always had an interest in the stock market. If you are looking to start trading stocks online, this guide can help you on your journey.

Introduction to stock trading

Stocks are a way for retail investors to own a share in some of the world’s largest companies. In turn, these companies can raise money from stock investors in order to fund their expansion, products and services.

When you purchase a stock, you are investing in the company and their success. Stock traders look to buy stocks in successful companies in order to make a return on their initial investment.

What are stocks and why invest in them?

When a retail trader buys stock of a particular company, they are basically purchasing a share of the company. Whilst this does not mean that you will be involved with the companies every day activities, share holders can have a right to vote at meetings if they wish.

However, the main purpose for investors to buy stocks is because they are looking to make a return on their investment. The primary ways in which this happens is when either:

  1. The price of the stock appreciates in value and the stock can be sold for a profit.
  2. The stock pays shareholder dividends which are payments made from the company’s revenue. These dividends are usually paid on a quarterly basis. It should be noted that not all stocks pay dividends.

The historical returns as an average from the S&P 500 which is a collection of approximately 500 of the biggest US stocks, is around 10%, This equates to around 7-8% annually once inflation has been accounted for. In theory, a stock investment of $2,000 30 years ago could be worth $16,000 today.

These numbers of course depend on numerous factors, including what stocks are purchased, the company’s success and the economic situation. Not all stocks will deliver this type or return, some could earn more whereas some could be a complete failure. Historical performance is no guarantee of future performance.

This is why many stock experts believe that it is important to not just buy stocks in one company but rather to build a well-rounded portfolio that includes various company stocks from different industries and locations.

How do stocks work?

When a company needs or wants to raise money, they can sell shares by putting their stock on the market. Most companies issue share via an initial public offering (IPO). An IPO or stock market launch is a type of public offering in which shares of a company are sold to institutional investors and usually also retail investors.

Once on the stock market, these company shares can be purchased and sold by investors. Stocks are often purchased from other investors who are selling a stock rather than from the company itself. If you are looking to sell a stock, chances are you will sell it to another investor looking to buy a stock in the company.

The company can then use the money that they have raised through a stock offering to expand the business, purchase new products, offer new services or to clear debt.

Stock trades are processed via a stock exchange, where a stock broker represents each investor. The majority of investors will nowadays use an online stock broker to buy and sell stocks through a stock trading platform which will enable them to connect to the stock exchange. You can see a selection of our best stock brokers below with whom you can open a trading account to buy and sell stocks online.

Broker
Rating
Regulated
Min. Deposit
Founded
Max. Leverage
1.

FCA, CFTC, NFA, BaFin, FINMA, ASIC, FMA, MAS, FSA, FSCA, DFSA, JFSA, METI, MAFF

Min $250 Deposit

1974

1:200

Review Open Account Open Account
Terms & conditions apply
Spread bets and CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 76% of retail investor accounts lose money when trading spread bets and CFDs with this provider. You should consider whether you understand how spread bets and CFDs work, and whether you can afford to take the high risk of losing your money.
2.

ASIC, FCA, DFSA, SCB

Min $200 Deposit

2010

1:500

Review Open Account Open Account
Terms & conditions apply
CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 78.6% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
3.

ASIC, CySEC, IFSC

Min $5 Deposit

2009

1:880

Review Open Account Open Account
Terms & conditions apply
CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 73.57% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
4.

ASIC, BVI, CBI, FFAJ, FSA, FSCA

Min $100 Deposit

2006

1:400

Review Open Account Open Account
Terms & conditions apply
CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 79% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
5.

ASIC

Min $200 Deposit

2007

1:500

Review Open Account Open Account
Terms & conditions apply
Between 74-89% of retail investor accounts lose money when trading CFDs. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

What is the stock market and how does it work?

The stock market is a place where investors can connect in order to buy and sell stocks, which are shares of ownership in a public company. You do not need any specific qualification or need to become a full-time investor in order to trade stocks online.

Anyone can access the stock market with a stock broker account and stock trading platform. It is however important to understand how the stock market works and to be aware of the risks involved.

What is the stock market?

In a nutshell, the “stock market” will usually refer to one of the major stock market indexes, such as the S&P 500, Dow Jones Industrial Average, and Nasdaq Composite. It can also refer to individual stocks that make up the stock market as a whole.

Stock market indexes consist of a section of the stock market and the performance of these stocks combined is viewed as representative of the entire market. Whilst individual stocks within an index can increase or decrease in value, the overall movement of these stocks combined is what determines if the stock market has moved up or down. Investors who buy and sell stocks hope to turn a profit through this movement in stock prices.

How does the stock market work?

The stock market operates via a network of exchanges including The New York Stock Exchange, The NASDAQ Stock Exchange and The London Stock Exchange. The stock market works in a similar way to an auction house where buyer and sellers can negotiate prices and trade stocks.

Companies can choose to list their stock on the stock market through an initial public offering (IPO). Investors purchase shares from a company’s stock which enables the listed company to raise capital and expand their business operations. Investors can then buy and sell these stocks among themselves, whilst the exchange tracks the supply and demand of each listed stock.

The supply and demand can help to determine the price for each company listed, or the levels at which participants in the stock market such as investors and traders are willing to buy or sell. The buy price is referred to as the “bid” whilst the sell price is referred to ask the “ask”. The difference between the bid and ask price is known as the “spread”.

When you buy or sell stocks through a broker, you will usually need to pay the spread and/or a small commission fee on top. Generally speaking, the lower the spreads and commissions, the more you could save on trading costs in the long-term.

It is much more convenient these days to trade stocks online due to the internet and choice of online stockbrokers. Before this, trading stocks would have commonly occurred in a physical marketplace.

Whilst each trade can happen on an individual stock basis, the overall stock prices frequently move together because of factors such as market news, political events, economic reports and other fundamentals. Investors will often track the stock market’s overall performance by looking at a broad market index like the S&P 500 or the Dow Jones Industrial Average.

What is stock market volatility?

Trading stocks will always have an element of risk due to the nature of the stock market. These risks can be minimised by implementing smart money management and the right investment strategies according to your own individual goals and preferences. There are day traders who will look to buy and sell stocks on a daily basis whereas long-term investors can hold a stock for years to come.

Whilst the S&P 500 does have a historical average that is annualized to a total return of approximately 10% before adjusting for inflation, that does not mean the market will provide that on a yearly basis. Some years could be down greatly and some could be up just as significantly. These swings are primarily due to market volatility, or periods when stock prices rise and fall unexpectedly.

When you trade stocks, there is a chance you will get it wrong which can results in a loss. It is therefore imperative to ensure that you are investing safely and follow the markets as a whole. Never risk more than you can afford to lose.

What happens when you own stocks?

The majority of investors will own what is widely referred to as “common stock”. This type of stock ownership includes voting rights and will possibly pay dividends out to investors on a quarterly basis.

There are also some other forms of stocks to be aware of such as preferred stocks. A preferred stock is a form of stock which may have any combination of features not possessed by common stock including properties of both an equity and a debt instrument, and is generally considered a hybrid instrument.

Owning a stock does not entail that you get to make the big business decisions or have conversations with the directors on a daily basis. It means that you own a share in the companies profits and losses. If the value of the company goes up, then so does the value of your stock. If the value of the company goes down, then the value of your stock would decrease.

Whilst owning stocks has historically shown to produce consistent returns, there is also significant risks involved and the value of stocks in your portfolio can decline. It is possible for stock prices to fluctuate for various reasons such as market volatility, company events, incidents, reports and more. This is why it is important to choose stocks wisely and try to keep as informed as possible with the latest stock market news.

There are long-term investors who can keep hold of stocks for a number of years and see them fluctuate over time. These investors may see individual stocks go up and down in value but the goal is for the overall value of their portfolio to increase in the longterm. Some of these investors will own a collection of stocks through a mutual fund or index fund, which basically pools different investment together into one collective investment. The S&P 500 for example enables investors to own a stake in all companies listed within that fund.

This differs slightly with stock CFDs (contract for differences) where you speculate on the price of a stock rising or falling without actually owning the stock. Many online brokers provide CFD stock trading.

What are stock CFDs?

A CFD is a contract to between two parties to pay the difference between the value of the current price and future price. Stock CFDs have become popular in recent times, primarily due to the increase in online trading brokers that have given investors access to quickly and easily buy and sell stocks online.

A stock CFD is a financial instrument that allows you to trade and try to take advantage of the movement in the price of stocks (e.g. Amazon, Facebook, Barclays, Vodafone, Tesla) without actually purchasing or owning the underlying asset.

When you buy or sell a stock CFD, you are speculating on the price movement, up or down. You just need to choose the stock you would like to trade and place your orders. Stock CFDs can be bought or sold at any time as they do not have an expiry date.

If you think the price of a company’s stock will increase in value then you could buy the stock. If you anticipated that the stock would drop in value, you could sell the stock. In both instances you are trying to make a profit from the difference between the price that you enter and exit the trade.

CFDs have become increasingly popular in recent years, especially for day traders who like to enter and exit positions on a frequent basis. The leverage that is available and low costs associated with trading stock CFDs online make them an attractive proposition to both retail and institutional traders alike.

In order to trade stock CFDs online, you will need to open a trading broker account. You can see a selection of our best stock brokers below with whom you can open a trading account to buy and sell stocks online.

Broker
Rating
Regulated
Min. Deposit
Founded
Max. Leverage
1.

FCA, CFTC, NFA, BaFin, FINMA, ASIC, FMA, MAS, FSA, FSCA, DFSA, JFSA, METI, MAFF

Min $250 Deposit

1974

1:200

Review Open Account Open Account
Terms & conditions apply
Spread bets and CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 76% of retail investor accounts lose money when trading spread bets and CFDs with this provider. You should consider whether you understand how spread bets and CFDs work, and whether you can afford to take the high risk of losing your money.
2.

ASIC, FCA, DFSA, SCB

Min $200 Deposit

2010

1:500

Review Open Account Open Account
Terms & conditions apply
CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 78.6% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
3.

ASIC, CySEC, IFSC

Min $5 Deposit

2009

1:880

Review Open Account Open Account
Terms & conditions apply
CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 73.57% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
4.

ASIC, BVI, CBI, FFAJ, FSA, FSCA

Min $100 Deposit

2006

1:400

Review Open Account Open Account
Terms & conditions apply
CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 79% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
5.

ASIC

Min $200 Deposit

2007

1:500

Review Open Account Open Account
Terms & conditions apply
Between 74-89% of retail investor accounts lose money when trading CFDs. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

How to trade stocks online?

If you have taken the time to read through the above, you should hopefully have an understanding of the stock market and how to trade stocks. Here is a summary of the key steps:

1.     Decide if stock trading is for you

Trading stocks online carries an element of risk and can take more time than other forms of investing. You will need to research stocks, manage your stock market positions, follow market news and decide how to react to them. It is important to understand the risks and dedication that comes with trading stocks online.

2.     Educate yourself

Before trading stocks, it is imperative to learn as much as possible about investing and the stock market. Any mistake could prove to be costly. There is an abundance of free educational materials provided by many online stock brokers that can help you to improve your trading skills and knowledge.

Most stock brokerages will also provide a free demo trading account so that you can practice trading stocks online with virtual funds in order to familiarise yourself with the trading platforms and practice your trading strategies until you feel confident enough to open a real trading account.

3.     Choose a stock broker

In order to trade stocks online, you will need a broker account and stock trading platform to execute your trade positions through to the stock market. When choosing a broker, there are a few important things to consider such as regulation, commission fees, platforms, tools, education, funding options and customer support.

If you do not have the time to research brokers, you can see a list of our best stock brokers that we have already prepared to help traders. If you would like to know more, you can also view our detailed guide on how to choose a trading broker.

4.     Research stocks

If you have made it this far then you may be ready to start trading stocks online! The next step is to research the different companies to discover which stocks you have an interest in trading. Perhaps there is a particular industry, product or service that is already of interest to you. Many brokers will allow you to filter stocks according to various criteria in order to narrow down your search if need be.

Many traders will begin by analysing different companies, studying public information such as finances, earnings and reports from professional analysts. The best brokers should have this information conveniently displayed for you within their trading platform.

5.     Have a stock trading plan

Some of the most important factors that can help determine stock trading performance can be the trading plan and discipline. It is important to have a solid trading plan personalised to your own needs that includes the money management and trading strategy that you will use. Most experts and professional traders would try to not let negative emotions such as fear, anger and greed affect their trading strategy.

6.     Buy and sell stocks

Once you know what stocks you want to trade online, you can analyse them to help decide if and when you will place your trades. After placing a stock trade, you will need to keep track of how it performs and manage it according to your stock trading plan. Some traders will keep hold of stocks for the long-term, whereas others may buy and sell stocks on a daily basis.

Is stock trading right for me?

Stock trading is a popular choice for active investors who would like to trade some of the biggest global brands. The wide range of stocks means that there is ample opportunity to look for trades. Stock trading can be suitable for scalping, day trading and swing trading. Traders who would usually trade forex, trade indices, trade commodities, trade cryptocurrency, trade futures or trade options, may look to diversify their portfolio.

However, it is important to understand the significant risks involved with trading stocks online, especially when using leveraged positions. Most experts would suggest trading on a demo account with virtual funds to begin with.

This can be a useful way to familiarise yourself with how to trade stocks and using trading platforms whilst allowing you to practice your trading strategies until you feel confident and produce consistent results. Most stock brokers provide unlimited demo accounts free of charge.

Not sure which stock broker to trade online with?

If you are still unsure which stock broker is the best for you to trade online with then you can use our free online broker comparison tool to quickly compare stock brokers based on trading platforms, trading instruments, minimum deposit, regulations, leverage, funding options and more. You can also read our broker reviews and choose from our best stock brokers, best trading platforms, best social trading platforms and best trading apps. If you would like to look for the best trading brokers in a particular country, we have pages dedicated to our best brokers USA, best brokers UK, best brokers Australia, best brokers South Africa and best brokers Canada.