Intro To Mobile Trading (feat. Robinhood)
Good news! You can now trade stocks by whipping out your cell phone and pressing a button.
What’s even more impressive than the speed is not having to pay a fee for your trade.
We are talking about Robinhood. The iPhone app that started with the youngins and is working its way into all age groups.
Stock trading used to be a very complicated endeavor, but now a baby could totally do it. Would they be good at it? Probably not. But here’s how you can be...
How much should you invest?
You should probably have a rough idea before you even download the app. How much you invest will depend on your income and expenses.
If you have an average U.S. income, you might be able to invest around $500 each month. Maybe it’s less for you, maybe it’s more for you. The important thing is making a plan and sticking to it!
Decide how much you want to allocate to investments each month. Next, we recommend using Robinhood’s “Automatic Deposit” feature. This will help you stay disciplined with the amount you invest!
The saying “don’t put all your eggs in one basket” applies here. We recommend following a “position sizing” discipline that works for you and using stops to protect your principal and your profits.
Make sure you don’t have any more than 5% of your risk capital exposed to any single investment. This will keep risk manageable, while still allowing you to build a portfolio capable of great performance over time.
One thing to keep in mind with Robinhood: it has some limited features compared to more complex trading software. It won’t let you trade futures or set up complex trade conditions (like trailing stop losses). If you need those things, you might need to use a different tool.
Robinhood will take you through a really simple process to verify your identity and get your bank account information. We were able to get through the process in about 1 minute. So it’s pretty easy.
Buy the rumor (and lots of research)
An irrational market reaction bad news or a miss on earnings can drive a company's price down. If you think the business fundamentals are there, it might be a good time to buy.
Your decision will hinge on the duration of time you want to sit on the investment. While Robinhood is well suited for short-term trading strategies, long-term horizons can be less stressful and just as profitable.
Perhaps the best advice out there: buy what you understand. If you can’t explain to someone how cryptocurrency generates value, you might want to avoid investing in it. Otherwise, save yourself some time and just take your money to Vegas.
If you are interested in VR investing specifically, see our article “How to Invest in Virtual Reality.”
The gritty details
Assuming you have a rough understanding of how your target stock makes money, you can now add another level of depth to your knowledge by looking at financial performance and reports.
One of the best documents you can look at is the 10-K, which is available for all publicly traded companies (as mandated by the SEC). We like the “Risks” section a lot.
Just Google “Insert Company Name 10k” and it should be darn close to the top. Other than that, you can get a lot of solid info on Yahoo and Google Finance. Just search the company ticker 👍
Income from investments is taxable, and you can bet that Uncle Sam is going to come for a piece of that pie.
Before purchasing your first shares you need to consider the tax implications of a gain or a loss. Gains made on stock transactions which lasted less than a year are taxed at your normal tax rate, whereas shares you’ve held for more than a year are taxed at the 15% rate—this is why good ol’ Mitt Romney is in a lower tax bracket than his secretary.
Losses on transactions offset gains tax-wise, which is good, and offset an additional $3,000/year of regular income if you lost big. The rest carries over to future years. Another important thing to think about is something called a wash sale. This is a corner case where somebody sells shares at a loss and buys shares of the same company within 30 days (before or after).
So say Bob owns 10 shares of Tesla. He buys 5 more and then two weeks later he sells his initial 10 shares at a loss (remember, first in first out!). The wash sale rule kicks in here and his loss is not tax deductible. Instead, the loss is added to the cost basis of his new position, and so counts towards the gain or loss when he sells shares from that new position.
We recommend using the limit buy feature on Robinhood as opposed to the market buy feature. Have a price point in mind for the stock you want to buy. If the price is suddenly climbing, we recommend not to chase it. Let it come to you. Nine times out of ten, it does. Remember, you did your research ahead of time. Similarly, we recommend using the limit sell feature as well. This means that you set what price you want for your shares. Using the market sell option has the potential to satisfy your order below the value you currently see it ticking at.
If you have some cash sitting in your account, don’t go out and buy some random stock. That is your hard earned money, and it is a building block for your future investment portfolio- your freedom. You want that $500 to be $10,000 or $100,000 one day. Do not execute your orders before you’ve completely done your research. We can also help you with our free research right here.
We also recommend setting stop loss orders. If your stock falls below a certain value, the stop loss will trigger and sell your shares at market value. The market can move fast and you can’t always be watching it- especially if you have a job and kids, or do anything besides stare at charts from 9:30 to 4:00 every day. A stop loss order can give you some confidence that chunk of your portfolio won’t disappear due to your lack of attention.
21% of Americans have nothing at all saved for the future. Another 10% have less than $5,000 in savings for retirement. Those are not good stats.
Use tools like Robinhood to carve out a good future for yourself 💪
Remember, So Profit can help you save when you are tech investing: Join our free updates here.