5 Steps to Start Trading Stocks Online

Maybe there's a product you use so much that friends or relatives say you should buy stock in the company. Or perhaps you have extra money and want to invest a sliver of it in the market for fun and, if all goes well, profit.

To trade stocks online you'll need to open an online brokerage account. Once you open your account and add money to it you can start purchasing, or trading, stocks.

If you’re itching to get hands-on with some active online trading, this guide will help get you started.

» Check out the best stock brokers for beginners

You might consider trading stocks if:

• You've maxed out 401(k) matching dollars from your employer. Most 401(k) plans don't allow participants to purchase individual stocks — instead, investors choose from a selection of mutual and index funds. But you can typically buy and trade stocks within an individual retirement account. Trading within an IRA can be beneficial: Because these accounts are tax-advantaged, taxes on capital gains may be deferred or avoided completely.

• You've contributed the annual maximums to a 401(k) and an IRA and are likely on track to meet retirement goals. You're also willing and able to take on more risk by stock trading. In this case, you might want to open a taxable brokerage account with an online broker and trade within that account.

If you’re not yet steadily saving for retirement, you’ll want to start doing so before you start trading online. Maxing out a 401(k) and contributing what you can to an IRA is one of the most effective ways to build long-term wealth. Learn how to open an IRA.

Trading individual stock not only carries more risk, it requires more effort than investing in mutual or index funds. You need to actively watch your positions and understand whether and how to react to market moves. (Read more about the basics of buying stocks here.) This is not the kind of risk most retirement investors want to take on.

» Learn more: How stock trading works

If you'd rather stay largely hands-off after all, then investing in a portfolio managed by a robo-advisor might be a better fit than trading individual stocks.

Before you trade anything, learn everything you can about investing and the markets. Mistakes can be costly.

There are a lot of free educational resources that teach how to trade through an online broker. Consider Morningstar’s Investing Classroom or one of the investing courses on Udemy.com.

Also, most stock brokers offer their own educational centers and a staff of former traders or investment advisors who can guide you. Some brokers offer their clients paper trading, a simulation of trading that is a great way to practice without money or risk involved.

» Check out the best brokers for paper trading

Choose an online broker with the tools and support to match your needs. In general, beginner traders should prioritize customer support, educational resources, and account and trade minimums. In addition, consider the online broker's stock trading software. New traders will want a platform that is streamlined, easy to navigate, and incorporates how-to advice and a trader community of peers to help answer questions.

» See NerdWallet’s ranking of the best stock brokers for beginners

Your account is open, and you’re ready to start investing. What’s next? Picking stocks, of course, and that’s the hairy part.

Most traders start by doing a thorough analysis of a company, looking at public information including earnings reports, financial filings and SEC reports, as well as outside research reports from professional analysts. Much of this should be provided by your broker, along with recent company news and risk ratings.

Start slowly, picking one or two stocks and investing a set amount of money that you are prepared to lose. You can plow gains back into the stock — or into other companies — but don’t add more money to the pot until you know what you’re doing and can put research into other companies.

» View our list: The best-performing stocks

Investing can be emotional, particularly for those new to the game. Losing money doesn’t feel good, and it’s easy to panic and pull out at the wrong time. It’s also easy to get swept up in the excitement of what feels like a winning stock.