| How to
trade stocks?
You don't need INS'
approval to trade stocks. You can reap all the profits that you can make.
It is the place to realize your American dream--money. It is the ultimate
battle field to test your intelligence, knowledge as well as luck....
STEP-BY-STEP ON-LINE STOCK TRADING AND INVESTMENT METHODOLOGY
-
HOW TO DO ON-LINE STOCK TRADING
Step 1. What do you need to do on-line stock trading?
You need a computer with the Internet connection to do
on-line trading. There are no particular requirements for the computer
except it has to be able to run web browser Netscape 4.0 or higher or Internet
Explorer 4.0 or higher. Any internet service provider is OK as long as
it provide fast connection (at least 33.6kps) and can let you log-on anytime
you want. If you rely on e-mail for stock information, you should be also
aware that some internet service providers have substantial delay is e-mail
delivery. Making money from stock trading is nothing but timing.
Step 2. Contact the on-line brokers
There are about 150 on-line brokers now. Here is a partial
list of online brokers and discount brokers in alphabetical order:
A.B. Watley ( http://www.abwatley.com
)(1-888-ABWATLEY): $9.95 per trade up to 5,000 shares. Unlimited, free
real-time data. Offers after-hours trading; trade from 9-4:45. $3,000 account
minimum for Web-based trading. Mutual funds available.
Accutrade ( http://www.accutrade.com
) (1-800-494-8939): $29.95 per trade up to 1,000 shares, then 2 cents per
share. $5,000 account minimum. Offers 7,000 mutual funds. Unlimited real-time
quotes $20 a month or 100 free real-time quotes per Internet trade.
AFTrader (http://www.aftrader.com)
(1-800-OTC-NYSE) : $14.95 per trade. No account minimum. Broker-assisted
trade and touch-tone telephone trade available.
American Century, http://www.americancentury.com,
1-888-345-2071, $24.95 per trade.
American Express, http://www.americanexpress.com
. 1-800-658-4677, $24.95 per trade.
Ameritrade (http://www.ameritrade.com
) (1-800-669-3900): $8 trades; $13 for limit and stop orders; touch-tone
and broker assisted trades cost more. Offers Canadian and penny stocks.
Account minimum $2,000. 100 free real-time quotes per online trade. Offers
bonds and mutual funds.
Banc of America Investment Services, Inc., http://www.bancofamerica.com,
1-800-926-1111.
Banc One, http://www.oneinvest.com,
1-888-843-6382. $19.95 per trade.
BCL, http://www.bclnet.com,
1-800-621-0392. $13 per trade.
Bidwell, http://www.bidwell.com,
1-800-547-6337. $12 per trade.
Brown & Co. (http://www.brownco.com
) (1-800-822-2021): $5 for market orders, $10 for limit orders; add 1 cent
per share for orders over 5,000. Broker-assisted equity trades cost $7
more. Account minimum $15,000. 100 free real-time quotes per day. Other
requirements on investors to open an account.
Bull & Bear, http://www.ebullbear.com.
1-800-285-5232. $19.95 per trade.
Castle Online (http://www.castleonline.com
) (1-800-661-5133): $19.95 plus 1 cent per share for listed stocks; NASDAQ
$19.95 for up to 10,000 shares. Offers after-hours trading; trade from
9-5. Account minimum $5,000.
Citicorp Investments, http://www.citibank.com,
1-800-275-2484. $19.95 per trade.
Computel, http://www.computel.com,
1-800-432-0327. $9 per trade.
Datek (http://www.datek.com
) (1-888-GO-DATEK): $9.99 per trade; $25 broker-assisted. Free unlimited
real time quotes. Account minimum $2,000. Free charts and news.
Discover Direct (http://lombard.com
) (1-800-58 INVEST): Market orders $14.95; limit orders $19.95; broker
assisted $34. Mutual funds. Account minimum $2,000 online.
DLJ Direct (formerly PCFN) (http://www.dljdirect.com
) (1-800-825-5723): $20 for up to 1,000 shares, then 2 cents per share.
Offers Zacks analyst reports, DLJ research and S&P reports. No account
minimum. Offers after-hours trading in some listed stocks.
Dreyfus, http://www.edreyfus.com.
1-800-421-8395. $15 per trade.
E*Trade (http://www.etrade.com
) (1-800-STOCKS5): $14.95 for listed market orders. $19.95 for limit and
unlisted orders. Touch-tone rates the same, plus 27 cent-per-minute charge;
12 free minutes per trade. Add $15 for broker-assisted trades. Offers Canadian
and penny stocks, mutual funds. $1,000 minimum for cash account, $2,000
for margin. Free real-time quotes.
Empire, http://www.empirenow.com,
1-800-900-8101. $6.95 per trade.
FBR.com, http://www.fbr.com,
1-888-200-4350. $24.95 per trade.
Fidelity Web Xpress (http://www.fidelity.com
) (1-800-544-3063): Market orders $19.95 for up to 1,000 shares, then 3
cents per share up to 5,000 shares; for orders over 5,000 shares, add 2
cents for each share above 1,000. A $3 premium for limit and stop orders.
$5,000 account minimum. Rates $5 lower for $20,000 accounts with more than
36 trades per year. Offers more than 3,300 mutual funds.
Firstrade, http://www.firstrade.com
. 1-888-988-6168. $6.95 per trade.
ForbesNet (http://www.forbesnet.com
) (1-800-754-7687): $9.95 per on-line trade; $44.95 broker-assisted. $5,000
account minimum. Free real-time quotes by touch-tone phone. Offers mutual
funds, news and charts.
Freeman Welwood, http://www.freemanwelwood.com,
1-800-729-7585. $14.95 per trade.
InvesTrade (http://www.investrade.com
) (1-800-498-7120): Online and touch-tone market orders $7.95. Limit orders
$11.95. Add $15 for broker-assisted trades. Offers penny stocks, no-load
mutual funds, no fee IRAs. 50 free real-time quotes per trade. Account
minimum $2,000.
Mr.Stock, http://www.mrstock.com.
1-800-470-1896. $14.95 per trade.
My Discount Broker, http://www.mydiscountbroker.com.
1-888-882-5600. $12 per trade.
NDB Online - National Discount Brokers (http://www.ndb.com
) (1-800-888-3999): Market orders $14.75; limit orders $19.75; touch-tone
and broker-assisted trades cost more. Account minimum $2,000. Offers bonds
and mutual funds. Free real-time quotes, news and charts.
Jack White, http://www.jackwhiteco.com.
$12 per trade.
J.B. Oxford (http://www.jboxford.com
) (1-800-468-1876): Trades start at $10 (via Internet) for equity market
orders up to 3,000 shares. More if broker-assisted. Account minimum $5,000.
Offers news services, reports and charts. Offers after-hours trading; trade
from 8:45-4:45. Brokers offer assistance in after-hours trading.
Peremel, http://www.peremel.com,
1-877-737-3635. $18 for market order. $20 for limit order.
Quick and Reilly (http://www.quick-reilly.com
) (1-800-453-2517): Market orders $14.95 and limit orders $19.95 for up
to 5,000 shares, plus 2 cents for each share above 5,000. No account minimum.
Free news and charts. Offers telephone trading.
Regal Security, http://www.eregal.com,
1-800-927-3425. $14.95 per trade.
Schwab (http://www.schwab.com
) (1-800-ESCHWAB): $29.95 for up to 1,000 shares, then add 3 cents per
share. Higher rates for broker-assisted trades. Online account minimum
$2,500. 100 free real-time quotes per trade. More than 1,300 mutual funds.
Free research, news and charts. Offers limited after-hours trading.
Scottsdale (http://www.scottrade.com
) (1-800-619-SAVE): $7 for market orders, $12 for limit orders. Broker-assisted
and touch-tone trades cost more. 100 free real-time quotes with each trade.
Online account minimum $2,000. Free charts and news.
Muriel Siebert (http://www.msiebert.com
) (1-800-USA-0711): Trade online for $14.95 for up to 1,000 shares, market
or limit, then add 2 cents per share. Broker-assisted trades begin at $37.50.
No account minimum. More than 7,000 mutual funds, plus bonds, new issues.
Offers after-hours trading; trade from 8:30-5. Free real-time quotes, research,
news and charts.
Suretrade (http://www.suretrade.com
) (1-401-642-6900): $7.95 for online market orders, $9.95 for limit orders,
up to 5,000 shares; then 1 cent a share. Offers penny, Canadian and foreign
stocks and mutual funds. No account minimum for cash, $2,000 for margin.
100 free real-time quotes per day.
T.D. Waterhouse (http://www.waterhouse.com
) (1-800-934-4410): $12 trades; $35 for touch-tone and $45 for broker-assisted
trades. 100 free real time quotes per trade. More than 2,000 shares, then
2 cents per share. $500 account minimum. More than 6,000 mutual funds.
Offers after-hours trading.
The Net Investor, http://www.netinvestor.com,
1-800-638-4250. $19.95 plus one cent per share per trade.
Trading Direct, http://www.tradingdirect.com,
1-800-925-8566.
UMC, http://www.umcbd.com,
1-888-862-7862.
US Rica Financial, http://www.usrica.com,
1-888-887-7422. $4.95 for market or limit orders. Other fees may be involved.
Some conditions apply.
Vision Trade, http://www.visiontrade.com,
1-800-374-1940. $14.95 per trade.
WallStreet Electronica, http://www.wallstreete.com,
1-888-925-5783. $14.95 per trade.
Wang, http://www.wangvest.com,
1-800-353-9264. $5 for market orders. $8 for limit orders. Chinese language
assistance available.
Web Street, http://www.webstreetsecurities.com,
1-800-932-8723. $14.95 per trade.
Wells Trade, http://www.wellsfargo.com,
1-800-872-3377. $29.95 per trade.
Wingspan, http://www.wingspan.com,
$19.95 per trade.
Wit Capital, http://www.witcapital.com,
1-888-594-8227. $14.95 per trade.
Worldtrade, http://www.worldtradefinancial.com,
1-888-459-8883. $29 per trade.
Wyse, http://www.wise-sec.com,
1-800-640-8668. $7.95 per trade.
Commission fees are based on market order unless otherwise
stated. Limit or stop orders are usually $5 higher. Most brokers offer
some kind of research, or telephone assistance. Market order means you
buy or sell a stock at whatever the current price is. Limit order means
you give a specific price for the stock, if the stock price falls below
the price you give, you buy it in, or if the stock price goes over the
price you give, you sell it out if the order is to sell. Stop order is
just the opposite to limit order. For your buy order, if the price goes
above the price you specified, you will have bought it in, for your sell
order, if the price falls below the price you specified, you will have
sold it out. Once an order is given, it will be executed automatically.
Choosing an on-line broker, one needs to consider the
following factors. Trading fee is certainly an important factor in your
decision making. The more you trade, or the smaller amount your invest,
the higher the percentage of your profit will be taken away by the trading
fee. Trading fee will also influence your buy and sell decision in many
cases. Another factor you should consider is the broker’s capacity. Is
the system powerful enough to let you log-on any time you want, for an
example, 9:30 in the morning and 4:00 in the afternoon (Eastern time).
Also, you need to know if the broker has a technical support to answer
your questions should you decided to call. You will for sure encounter
some kind of problems that you need talk to somebody at the broker. Furthermore,
the reliability of a broker is very important. You do not want to sign
up with a broker that will go out of business tomorrow. Most news or research
services provided by a broker are available somewhere else free or at a
price.
A word of caution for after-hour trading: stocks can fluctuate
wildly between their closing and opening prices. A stock could falter even
the firm reported positive earning surprise.
Step 3. Fill-out the application form and send a check
to the on-line broker.
Contact one of the brokerage firms above. They will send
you an application. Just fill-out the application and transfer some money
to the company, after your application is processed, you will receive an
account number and a password. Now you are ready to go to the web and log
onto your account. Usually, you can change your password follow the instructions
provided by the company. Most companies provide two types of account: cash
account and margin account. Cash account means that you use all your money
to buy and sell stock. Margin account means you can borrow some money from
the brokerage firm to buy and sell stock. Certainly you need to pay interest
for the money you borrow, we will explain margin account in more detail
later. Some companies even provide short account. We will explain short
sell later, also. Usually, such a short account has very high maintenance
requirement when you do short sell, for an example, $5 per share.
Step 4. Buy and sell on the web.
Buy or sell stocks on-line is now with your fingertips.
Even the stock market has been doing exceptionally well, nobody can guarantee
you will make money. Stock trading is appealing, rewarding, and risky.
Technically, when you are trading, make sure your order goes through, always
check the status of your order, do not send duplicate orders.
2. Fundamentals of Stock
Introduction
Stock is a kind of ownership of a corporation, which is
determined by shares that represent a piece of the corporation’s assets
and earnings. When you buy stock, you actually become a part owner of the
company and earn the right to share in the company's profits. There is
no guarantee that you will be able to sell the stock in the future for
at least the amount you paid for it. Nor are dividend payments assured.
It all depends on how business goes. Over the long run, however, history
has proven that investors are rewarded for taking such risks, for stocks
eventually tend to outperform other types of investments.
Some of the company's profits will be paid out to shareholders
in the form of dividends. But the company does not have to pay a dividend
at all even it has made a profit. Profits can be retained by the company
for reinvestment, perhaps to spend on developing a new or improved product
or to build a new plant in the hope that such capital expenditures will
produce even larger profits down the road.
Stock Price
The fundamentals behind the stock price can be explained
as follows. Let’s say the interest yield is 5% per year (interest rate
is lower because there are 12 months in a year), i.e., for 100 dollar deposit,
after one year you will get 5 dollar interest, now if a company’s stock
will provide a $5-dividend per share per year and we assume the situation
is going to stay the same in the future, i.e., you have no problem to sell
the stock at the same price, certainly you will be willing to pay $100
for the share. Over the time, things become more complicated than that.
The price of everything is ultimately determined by supply and demand.
So is stock price.
Stock prices are influenced by many factors. The strongest
influence is a company's future earnings, which reflect a potential of
how much dividend the company can pay. (Remember the company does not have
to transfer these earnings into dividends at all, so they are just a potential.)
Companies are required by law to report the earnings to investors constantly,
usually, quarterly. It is reported in the form of earning per share. Therefore,
the price-to-earning ratio is a very important indicator of a stock value.
But other factors as well jerk the price of a stock around,
such as the nation's economic outlook. If economic prospects are promising,
then stock prices will likely be bid up in the hope that sales and earnings
will grow. If investors foresee a slowdown in the economy, demand for stock
is weaken, they will bid down prices fearing that sales and earnings will
suffer. During a slow-down, people and businesses buy fewer computers,
widgets, and stereo systems; consume less energy; and travel less.
Interest rate levels can also be a strong influence on
stock prices. If interest rates surge, money tends to evacuate the stock
market in order to take advantage of the high guaranteed yields in the
bond market, which results in weaker demand in stock. When interest rates
fall and investors feel they are not being adequately rewarded for their
money, stocks become relatively more attractive again.
Obviously, a takeover of a company by another will give
the stock price a instant boost. Even rumors or speculation that a bid
will be made is sufficient to push up the stock of the takeover target.
However, at the time of a formal acquisition bid is made by a suitor, the
price of the stock of the takeover target, may not reach the actual price
of the offer. So don't rush out to buy shares on the presumption that the
market has failed to account adequately for the full price. The market
may be holding short of the bid price because of uncertainty over whether
the deal will eventually be completed.
Indeed, stock prices are not always rationally set by
the market. Keep in mind that rationality does eventually prevail. Although
many factors can influence the price of a stock, if a company's earnings
continue to grow, stock prices will go up and the stockholders will eventually
benefit.
Stock Exchange
The epicenter of the U.S. stock market is the New York
Stock Exchange, where all but a few of the largest corporations' shares
are listed. The "Big Board," as it is often called, has about two thousand
stocks listed. The second largest exchange is the nearby American Stock
Exchange (merged with NASDAQ). The companies listed on the American Stock
Exchange, sometimes referred to as the Amex, are generally smaller and
younger than their Big Board counterparts. However, some of the Nasdaq-Amex
listed companies have chosen to remain with Nasdaq-Amex even though they
could qualify for listing on the Big Board.
There are also smaller regional exchanges, including the
Boston Stock Exchange, the Philadelphia Stock Exchange, the Cincinnati
Stock Exchange, the Pacific Stock Exchange, and the Midwest Stock Exchange.
Although each exchange has a sprinkling of stocks that are not listed on
the Big Board or Amex, most of their activity involves trading shares of
stocks listed on the Big Board or Amex. Most of the trading is done through
smaller brokers who may not be members of the New York Stock Exchange or
the American Stock Exchange.
The over-the-counter market is the place to buy and sell
thousands of stocks not listed on one of the major or regional stock exchanges.
This is the haven for stocks of companies that, with few exceptions, are
too small to qualify for listings on an exchange.
Stock market investors have about twenty thousand publicly
owned companies in the United States to choose from. These range from well-established
giants, such as Microsoft, Exxon, General Electric, and IBM, to fledgling
companies starting out with nothing more than a marketing plan.
Invest on Margin
Most people buy stocks for cash. But there is a way to
buy stocks on credit. You can pay cash for only part of the cost of the
stock and borrow the rest from their brokers. This is known as buying on
"margin." The advantage is that when you are not playing with all your
own money, you have leverage. And leverage can magnify your gains.
As an example, say you buy 100 shares of stock for $10
each-a total investment of $1,000. If the price of the stock goes up to
$15, you have just made $500. If you paid all cash, that is a 50 percent
return on your $1,000 investment. If you bought on margin, you put up only
$500 in cash and borrowed the other $500 from the broker, then the $500
profit represents a return of 100 percent on your $500 investment (minus
commissions and the interest costs on the amount you borrowed).
Of course, leverage works both ways. If the price of the
stock goes down, your losses would be magnified. So if the $10 stock went
down $5, instead of up $5, you would have a 50 percent loss if you bought
the stock entirely for cash. But if you bought on margin, you would have
a 100 percent loss.
Certainly, when the stock price drops, you don’t have
to sell it. However, if you wanted to hold on to the stock in hopes that
the price would go back up, you will receive a call from your broker asking
you for more money. The reason for that is that the Federal Reserve Board
sets limits on how much an investor can borrow against the market value
of securities. Since 1974, the level has been 50 percent. So, if the market
value of the stock drops far enough, you will have to come up with more
funds to bring the margin back up to required levels. When this happens,
your broker will call you or send you a letter asking you to send in more
money. This is known as the dreaded "margin call." If you don't comply,
the broker will sell the stock at a loss in order to recover his loan and
give you whatever is left.
Consider the above example of the $10-a-share stock on
which you borrowed $500 for the $1,000 purchase. If the stock fell to $7.50
a share, you will receive a call from your broker. Because under margin
requirements, you can borrow only 50 percent of the market value. And at
$7.50 a share, you cannot borrow more than $3.75 a share, or a total of
$375 for the 100 shares. Since you have borrowed $500, the broker will
inform you that you will have to send in an additional $125 to maintain
margin requirements. If you don't come up with the money, he will have
no choice but to sell your stock at a loss of $2.50 a share.
Short Sell
If you bought a stock and its price keeps going up, you
make money. You can also make money when a stock price keeps going down
by selling the stock "short." When you sell a stock short, you actually
borrow shares from someone who owns them with the promise of returning
the same number of shares to the owner at a later date. The broker arranges
all the details for a maintenance fee so you do not worry about who you
borrow from and how you borrow. The way it works is that you sell the shares
you do not own at the current market price. Because you believe the price
is about to sink, so you sell at what you think is the best price-the current
price. Say the stock is selling at $50 a share. You think the stock is
going to plunge. So you sell the shares at $50 each. If your bet proves
correct and the stock plunges to $40, you have just made $10 per share.
You return the stock you borrowed by buying up shares in the open market
at $40. What happens if you were wrong and the stock went up to $60? You
would lose $10 on each share plus the maintenance fee and the commissions.
While you received $50 at the beginning by selling the borrowed shares,
you now have to go out and pay $60 to replace those borrowed shares. You
also have to cover dividends that were paid by the company while you borrowed
the shares during this period, if any.
How to Make Money by Trading Stocks
There are two ways that you can make money in stock trading.
One is to buy stock and to receive the cash dividends from the stock. A
more significant way is to buy a stock at lower price and sell it at higher
price. A stock that pays regular dividends is called an "income stock."
Stock that does not pay dividend is called a "growth stock." The stock
price may not grow at all, it is just people’s hope. People always say:
buy low and sell high. This obvious bit of advice is easier recommended
than followed. No one knows how low is low and how high is high.
3. Dos and Don’ts in Stock Trading
--Set a goal. Even though nobody can predict the future
of the market, you need to set a goal for your entire fund, how much growth
you expect. With this goal in mind, you can review various kinds of investment
options and make a wise decision. You will not be biased by making some
money on this stock and losing some money on that stock. When you buy an
individual stock, you should also set a goal for the stock based on your
research and experience. Ask yourself these questions: is the current price
profitable? what are the target prices of the stock short term and long
term? What would be the percentage price gain if I buy it now? By asking
these questions every time you buy or sell, you can avoid lots of regrets
for making a wrong decision.
--Trade rather than invest. A famous misleading concept
is that: if you bought $1000 of Coke-Cola stock 100 years ago, it would
worth a million dollars now, or if you had 100 shares of Microsoft stock
20 years ago, you are a millionaire now, so buy and hold forever. The question
is: how do you know a company will survive next 100 years, how did you
know 20 years ago that Microsoft would be the biggest company in the world.
During the course of the 100 years, the number of companies that went bankrupt
or were taken over by other companies is more than 100 times that the number
of companies that survived 100 years. Besides, how many of us can live
100 years. Some people say, if I buy a big company, no matter what happens,
eventually, the stock price will go up after 10 or 20 years. 80 percent
of the cases, this is right. But have you thought about what percentage
the growth would be? The point is: buy a stock at the price you think it
will be profitable, when it reaches your goal, sell it. By doing so, you
can reduce your risk and maximize your profit; also, you can protect yourself
from market crash.
Is trade also a kind of invest? Sure it is. It is a short
term investment. You put your money in the bank, you can use the money,
you do not have to put your money for your lifetime without touch it. At
the same time, the bank can also use the money. Invest short term or long
term, once the money is in the market, it will help the economy.
--Do not plunge into the market all at once. Spread out
your investments over time, since you can never be sure that you are buying
at the best price. Buy or sell at different times, you will have the chance
to catch the market up and down swings.
--Diversify your stock. Buy different companies. This
will help limit your exposure to risk. The price of one company goes down,
others may go up, overall, the total value of your portfolio may still
be up. The less companies you buy, the more gambling contents you have
in your investment.
--Don’t rely on luck. Don’t gamble. Luck may allow you
to make some money on one deal. But if you want to grow your wealth continuously,
luck will not do that, if you gamble, for sure you will be the loser.
--Be patient. Don’t be panic. Almost every stock price
is in cyclic movement, up and down, since the ask and bid process is a
cyclic process. If the stock does not come to the price you want to buy,
just wait. When the market goes into a downturn, the price of the stock
will come down to what you wanted so that you can rip a bigger profit.
It may never come to the price, so what, there are many other stocks that
are good and waiting for you to explore. How about the stock price goes
down right after you bought it? Don’t panic. It is quite normal for the
cyclic movement of stock price. Be sure to wait for your target price to
be reached to sell unless the fundamentals of the stock has changed.
--Don’t pursue perfection. Don’t be greedy. Don’t be jealous.
Some people say: I want to buy at lowest point and sell at highest point.
You know the lowest point and highest point of a stock’s past. None knows
the lowest point and highest point of the stock’s future. If you want to
pursue perfection, you will be afraid of buying anything at all. Sell at
your target price. When the stock reaches your target, don’t be greedy,
sell it. Don’t regret it may go up even more tomorrow. It may go up, but
there are plenty of opportunities around. By selling at target price, you
can prevent big drop that may take months even years to recover. When you
saw so many stocks go up and you have not bought one yet, do not be jealous.
You will have your turn. Prematurely jump in will only bring you quick
loss.
Well, talk is cheap. Stock trading is an art. Don’t rely
on luck, but we wish good luck to you.
|