This article discusses the best way to get started trading stocks online and how to setup your online stock trading account.
Technically, we don't trade stocks (because the probability of profit is much lower and there is little strategy involved in day trading stocks or using technical analysis).
Instead, we focus on options trading.
If you're new to options trading and would like to get started, then this blog post will help you.
Remember that it's important to not get overwhelmed.
I've had countless people express interest in learning how to trade options, but some of them fail to get started.
They always have an excuse.
Yet time continues to pass...and they continue to complain about how they wish that they could make more money.
Don't be like them.
Get started!
Online Stock Trading Key Points
- - You need at least $2,000 to trade options with an online trading account
- - I recommend Tastytrade for accounts under $20,000 and E*Trade, or any other brokerage that provides sign up promotions, for accounts over $20,000 (learn about the best online brokerage)
- - You should request the ability to trade naked options (even though you're primarily going to trade spreads)
- - Accounts with $100,000+ should request portfolio margin
Choose the Best Trading Strategy
Selling option premium is the best way to make extra money and increase your income (although you need to proactively hedge as well).
You do not want to day trade, use technical analysis, trade penny stocks or forex because it doesn't work and is filled with criminals and scam artists.
It's important to have realistic expectation when trading.
Some of the most successful hedge fund managers barely earn 10% a year, and managers like Bill Ackman and David Einhorn have had years of losses.
The reason I bring this up is because... if you're not satisfied with earning ~3% a month, then you likely won't be wealthy because you'll fall for "get rich quick schemes" where you'll lose your money.
Patience and discipline are extremely important. Don't make financial mistakes that will cost you money in the future.
Sell Vertical Credit Spreads and Naked Options (But Buy Options Too)
Ask your broker to allow you to sell naked options in your online trading account.
Naked options are not capital efficient, and they also have substantial tail-risk.
In general, I primarily trade spreads, unless I want to take ownership of the stock - in which case I'll sell a naked option (so that I can participate in the upside of the stock).
There are a few reasons why I prefer trading spreads, when compared to naked options:
1) Selling vertical credit spreads is more capital efficient when compared to naked options
2) Selling a credit spread neutralizes the volatility component since you're long a put
3) Selling spreads eliminates tail risk because it's a defined risk trade - the biggest reason options traders fail is that they trade too many contracts and get caught during a crash
During periods of LOW VOLATILITY, when the VIX is trading around 15, or below, it's very important to buy options to hedge your portfolio.
This will protect you during times when the expected volatility is less than the actual volatility.
By purchasing options during periods of low volatility, you will significantly decrease your portfolio volatility.
Minimum Account Size & Other Online Stock Trading Tips
- You Need at Least $2,000 to Trade Options – The goal is to learn a skill. If you try to turn $2,000 into $5 million then you're going to lose all your money; instead, focus on learning how to sell options, which is a valuable skill that you can use for life.
- Create a Watch List – I only trade ~10 stocks and I have positions on ~4 - 5 underlying stocks at one time. I keep things incredibly simple and ignore everything else. I highly recommend that you narrow the amount of stocks that you trade. If you have an account size of $20,000, you should only trade 1 - 2 stocks at one time.
- Trade from Your Phone – Ever see those losers with 8 monitors? Yeah, it's all for marketing purposes or to scam innocent people. I make all trades from my phone and have never used any charting software. Keep things simple because if you complicate things, it'll negatively impact your returns.
- Portfolio Margin – If your account size is $100,000+, you should always request portfolio margin. It provides more flexibility and provides more buying power.
- Trade Vertical Credit Spreads Options – As discussed before, trading spreads is safer and eliminates tail risk while also being more capital efficient.
- Sign up for Trade Alerts – Receive real-time, live, trade alerts so that you maximize your profits and minimize your mistakes. We have a trial offer of $19 for 7 days.
Learn to Be a Successful & Profitable Trader
Follow My Trades with Real-Time Trade Alerts
The stock market doesn't reward your knowledge, it rewards good decisions. Oftentimes the "research" you conduct negatively affects your decisions.
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What to Expect When Selling Options
With online stock trading, your strategy and discipline will determine your success.
If you try to trade penny stocks, forex, use technical analysis or day trade, you're likely going to lose all your money.
The best strategy is to sell option premium and have realistic expectations.
Trading can be stressful.
Despite winning ~90%+ of trades, there will be times when things go against you.
Selling option premium is the best way to make money.
But even the best traders experience volatility.
The returns from online stock trading are better than virtually any other investment.
Stay the course and think long-term.
Best Trading Platform
I wrote an article on the best online trading platform / best online brokerage
In general, I recommend either Tastytrade or E*TRADE.
I have used E*TRADE for years, and pay .10 cents per contract.
Tastytrade is more expensive, however it's much easier to get approved for margin when enrolling in their "The Works" account.
Overall, the cost of trading is significantly less than it was just a few years ago.
I would also consider enrolling in the best trading platform that is providing the largest introductory signup bonus.
You can simply Google, "Online Brokerage Sign Up Bonus" to see who's offering the best promotion.
Think long-term. Slow & steady wins the race. If you try to hit home runs when investing, you'll strike out.
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Online Stock Trading Conclusion
The most important action you should take is to get started.
Open a brokerage account.
Request the ability to sell naked options.
Read blog posts on BestStockStrategy.com because it's the best stock trading site for beginners and will teach you how to be a profitable trader.
Sign up for the trade alerts or take the education course.
Learn a skill and get started!
Learning how to trade online is an incredibly valuable skill.
Frequently Asked Questions (FAQs)
What's the best online stock trading strategy?
The best online stock trading strategy includes selling options, buying options and taking ownership of stocks or ETFs that are oversold.
What is the best trading platform?
Most of the trading platforms are similar, however I prefer E*Trade. Tastytrade is also solid but it's very expensive.
How much money do I need to trade naked options?
You need a minimum of $2,000 to trade naked options using Regulation T margin.
How much money can I make by trading options?
You should target a return of around 3% a month. Remember that the more money you seek to make, the more risk you assume.
I've found that targeting a return of ~3% a month, while also being fully hedged, is best.
Is option trading better than stock trading?
If done correctly, then yes, option trading is better than stock trading.
