Advice for a beginner investor interested in trading stocks and derivatives online?

Question

I wanted to start an E-Trade account more or less just to fool around with. The goal is always to make money obviously, but at first I just kind of want to experiment and get familiar with the industry and hone my talents.

What type of resources should I look into to learn more about how to trade stocks – and more, but that's the first thing that came to mind?

Not just stocks either, I'd be up for learning about how to make money on derivatives, etc, but I'm kind of clueless on the whole thing.

Thanks.

Answer 1

See Solid reading/literature for investment/retirement/income taxes? – not exactly the same question, but a great reading list for you.

You are putting the cart before the horse here, first, you learn, then you invest. There's a large danger in confusing intelligent investing with "fooling around". The idea that you think you'd like to use derivatives without knowing how or why is a tough one.

I suggest you go to Yahoo! Finance and set yourself up with a portfolio (click on the "My Portfolios" tab), in effect, creating your own simulated account. Assume you are starting with some reasonable amount of money, say $10,000, but not $1M, as part of real investing is to learn how to asset allocate the funds you have. Learning that way for a time is the smarter way to start.

That said, individual stocks are not for everyone. Most investors can lead a successful investing life by using ETFs or mutual funds of one type or another. Learning to pick individual stocks can be a life's work, and if you put too little time into it, are likely to be disappointed. But learning by 'paper trading' can be a good learning experience nonetheless.

Answer 2

My feeling is that you're basically agreeing to throw away a bucket of money for a lesson that doesn't have to cost a penny. Like another commenter said, you're putting the cart before the horse.

I once asked a similar question to a seasoned investor, though I wasn't in the position to toss my hard-earned cash into the well yet. He told me that the difference between the winners and losers is that the winners don't need the money. I'm not trying to say that there's a "rich keep getting richer ..." component here, while schlubs like me get nada.

The real nugget of wisdom he offered was that if anyone wants to do well as investors, we must invest in a way that we're not dependent on the money we have in the market. Instead, manage risk carefully so that you don’t get swept up in the emotional highs and lows.

For you, what I applaud is that you're willing to do your research first. And part of that should be anticipating how you will handle the anxiety when you put your money in at the wrong time or get out a little later than you should.

What I understand now is that you don’t need to be wealthy to “not need the money.” You just need to invest smartly and leave your emotions out of it.