Online Trading How-To


Online tradingOnline trading is an industry with a wide range of products for achieving a wide range of financial goals. People trade online in tax-qualified retirement accounts like an IRA of 401K to preserve wealth, in low cost diversified funds to mitigate potential risks, in high risk strategies to grow wealth, or some combination of all of the above. Below is a step-by-step guide to determine whether online trading is suitable for you and how best to go about investing in financial securities like stocks and bonds.


Step 1 – Create A List Of Long-Term Goals

The best way to invest is to do so with a goal in mind. This will help you understand your risk tolerance and the necessary steps to achieve your goals. Write down a list of goals so that they are tangible and can be referenced back to as you invest over the long-term. Goals can be anything from paying to college, buying a vacation home, creating retirement income or making investments in causes you are passionate about. Once these goals are expressed on paper, you can go about setting up a plan to make these goals a reality.

Online trading


Step 2 – Evaluate Your Process For Achieving Those Goals

First, take a look at any investments you may already have, which include any IRAs, 401Ks or 403Bs, stocks, bonds, mutual funds, life insurance, assets like an owned house or car, a business, or any other investment or any asset you own, even partially. Once you have all of these documents you can create a plan to set aside payments into your savings vehicles in an amount and frequency necessary for meeting those goals. This can be a difficult process and it therefore recommended to meet with a professional financial advisor. Most financial advisors at brokerages and banks or insurance representatives will meet with you personally to work out a long-term financial plan without a fee. 

Step 3 – Exhaust Tax Qualified Accounts

Once you have an idea of what steps you need to take to reach your financial goals, make sure that you are employing all possible advantages. Tax qualified accounts are a fantastic opportunity for individuals to improve returns from their investment funds. 

401K and 403B plans are employer sponsored investment vehicles that allow employees to put pre-taxed income into an account so more money goes into the account up front and returns can compound faster. Additionally, some employers will match contributions up to a point, which also helps compound returns. 

An IRA is an individual account that also uses pre-tax income to invest so returns can compound. When you eventually withdraw money out of these retirement accounts they are taxed as income, but since they are for retirement, you will most likely not have other income streams, so income taxes will be substantially less than if you withdraw the returns while working and receiving an income. 

A Roth IRA lets people put in post tax income that grows in the account tax free. This is an incredible savings vehicle for anyone who has a long investing horizon for their retirement account. These two types of accounts should be maxed out before other investments are made, as they provide the tax advantages that give them the best returns. 

Life insurance is a third tax qualified vehicle that can be an integral part of a long term investing plan. Consider speaking to a life insurance agent about the advantages of that product if you haven’t already done so. Once those options are exhausted, the best form of investment for most people is investing in stocks and bonds, which requires having a brokerage account.

Step 4 – Research Brokerage Options

Large brokerages have traditionally structured their services for clients that generate the most revenue for them, which is typically institutions and wealthy individuals. With the advent of the internet, there has been a renaissance in affordable investing and online trading thanks to the efficiencies technology has afforded brokerages. There are several companies in the online trading industry that cater to investors of all knowledge levels and activity levels. Each company has different specialties, whether its access to advisors, customized portfolios, unique fund options, or access to sophisticated financial securities such as derivatives. In order to discover which option is best for you, check out this list of online trading companies (link to online trading list).

Step 5 – Set Up a Brokerage Account

Setting up a brokerage account with an online trading house usually takes between a couple of days and weeks depending on compliance systems in place. There will be several forms with personal information to send, as well as an initial deposit. Some brokerages do not have a minimum deposit, but others have minimums that can range from a few hundred dollars to a few thousand dollars. This will not be an issue for you, as you have a plan for your financial goals and have saved enough money to invest accordingly. 

In addition to a brokerage account for trading, it may be wise to bring all the accounts under one roof so it is easier to access and manage. If you are comfortable managing your own accounts and have the capability to do so, you can tell your online trading firm you want to transfer accounts to them and they will take you through the appropriate steps. One you have your account(s) set up, you can begin trading to start working on fulfilling your investment plan and reaching those financial goals!

Step 6 – Make a Plan to Reevaluate Goal Progress Periodically

You may be familiar with the saying “the best laid plans of mice and men often go awry.” This is especially relevant when discussing investments. Investments have to offer potential returns to compensate for the risks being taken. Therefore, it is critical that you make time to asses your financial plan and make sure you pivot if you are not heading in the right direction. 

For individual stocks you can set alerts to know if there are big moves in the stock prices. If you are invested in high risk-high return securities, you definitely want to track those investments daily or weekly, but for most long-term investments, it is appropriate to check your investments every one to three depending on what types of financial assets you are invested in. Consider creating a relationship with an advisor at your brokerage to make sure that as the financial landscape changes, you can maintain your path towards financial security.

After taking these steps, you will be well on your way to using an online trading brokerage as a part of your successful long-term financial planning, congratulations!

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