Technology

There’s really not a lot more to it. I did it a really long time ago so I don’t remember everything, and some things may have changed, but it went kind of like this.

First, you have to open an account at a broker. Let’s say you choose E*Trade. They’re pretty much all the same these days. Then you fund your account. You can transfer in $1000 or $5000. Once the account is open and the money is in it, you can buy and sell stocks using their app or web ui.

With the basic account like this, you’re using your own money to buy and sell. If there’s a company ABC that’s trading for $10/share, you can buy 100 shares for $1000. Let’s say it goes up to $15 in a year. You can then sell it for a 50% profit (minus some small brokerage fees).

A margin account is meant for people who have more experience in trading, but you indicate that by self-certifying. With a margin account, you can still trade in cash transactions, but you can also borrow money to trade with. If all of your cash is tied up in investments (for instance) you can use those investments as collateral to borrow funds to make additional trades. You’re paying interest on what you borrow, which will subtract from your profits. If your investments drop in value, you may be forced into a position where you get a margin call and are forced to sell off some stock or deposit more money.

Anyway, at that point you can start to do things like shorting a stock. Shorting is where you think a share price is going to go down. Let’s say I’m not invested in ABC, but I think they’re going to go down. I can sell 100 shares of ABC at $10 per share by borrowing them from someone else’s account (the broker handles all of this). That gives me an immediate $1000 cash in my account, against a debt of $1000. If ABC goes down to $5, then I can close out the position by buying the 100 shares at $5, leaving me again a $500 profit. If on the other hand ABC goes up to $15, then I’ll close out the position and lose $500.

With all of that said, you shouldn’t worry about investing like that if you’re not funding your 401k or retirement account first, and you should have an emergency fund put aside before that. If you have those covered, the best first step is to open the brokerage account and get into an index fund, like the Vanguard fund that tracks the S&P. After that, you can get to learning about what your next steps should be.