What You'll Learn in This Chapter
- • Different order types and when to use them
- • Step-by-step process for placing your first trade
- • How to monitor and track your investments
- • Portfolio rebalancing basics
- • Practical tips to avoid common trading mistakes
It's time to put theory into action! This hands-on guide explains the basics of buying and selling investments, including different order types and step-by-step instructions. You'll also learn how to monitor your trades and make adjustments, turning you from a learner into an active investor.
Why Trading is Your Next Step
With your brokerage account open and research completed, trading is how you execute your investment plan. A trade is simply buying or selling an asset, like a stock or ETF, through your brokerage.
This page provides a clear, beginner-friendly process to place your first trades, track their performance, and adjust your portfolio over time. By starting small and following these steps, you'll build confidence and avoid common mistakes.
Understanding Order Types
When you trade, you use "orders" to tell your brokerage what to do. Here are the main types beginners should know:
MarketMarket Order
Buys or sells immediately at the current market price.
Pros:
- • Fast execution
- • Guaranteed to complete (if market is open)
Cons:
- • Price may shift before execution
- • Less control over final price
Best For: Quick trades when exact price isn't critical.
LimitLimit Order
Buys or sells only at a specific price (or better) you set.
Example: Buy a stock at $50 or lower; sell at $60 or higher.
Pros:
- • Control over price
- • Protects against sudden price swings
Cons:
- • May not execute
- • Requires price monitoring
Best For: When you want to set a specific price.
StopStop-Loss Order
Automatically sells if the price drops to a set level to limit losses.
Example: Set a stop-loss at $45 for a $50 stock to cap potential loss at 10%.
Pros:
- • Helps manage risk
- • No constant monitoring needed
Cons:
- • May sell during temporary dip
- • Could miss later recovery
Best For: Protecting against significant losses.
Order Types Comparison
| Order Type | Execution Timing | Price Control | Risk Management | Best Use Case |
|---|---|---|---|---|
| Market Order | Immediate | Low | None | Quick trades, stable markets |
| Limit Order | When price met | High | Moderate | Specific price targets |
| Stop-Loss | When price drops | Moderate | High | Limiting losses |
💡 Tip: Start with market orders for simplicity, then try limit orders as you gain experience.
1Step-by-Step: Placing Your First Trade
Here's how to buy an investment (e.g., an S&P 500 ETF) using a brokerage like Fidelity or Robinhood. The process is similar across platforms.
1Log In to Your Brokerage Account
- • Access the app or website (e.g., fidelity.com, robinhood.com)
- • Use your username and password, plus two-factor authentication if enabled
2Search for the Investment
- • Enter the ticker symbol (e.g., VOO for Vanguard S&P 500 ETF) in the search bar
- • Review the asset's details: current price, historical performance, and fees (e.g., expense ratio)
3Select "Buy"
- • Click the "Trade" or "Buy" button on the asset's page
- • Choose the account (e.g., taxable brokerage or Roth IRA)
4Choose Order Type
- • Select "Market Order" for your first trade to keep it simple
- • Enter the amount (e.g., $100 or 2 shares). Some platforms allow fractional shares (e.g., 0.5 shares)
5Review and Confirm
- • Check the estimated cost, including any fees (most platforms have $0 commissions)
- • Confirm the trade. Market orders typically execute within seconds during market hours (9:30 AM–4:00 PM ET, Monday–Friday)
6Save Confirmation
Note the trade details (price, shares, date) from the confirmation email or account history.
Example: Buying an ETF
Goal: Invest $200 in Vanguard S&P 500 ETF (VOO)
Steps:
- 1. Log in to Fidelity
- 2. Search "VOO" (price ~$450/share)
- 3. Select "Buy," choose market order, enter $200 (buys ~0.44 shares with fractional shares)
- 4. Confirm trade, check portfolio for VOO holding
Result: You own a portion of the S&P 500, diversified across 500 companies.
2Selling Investments
Selling follows a similar process:
- 1Find the Asset: Go to your portfolio and select the investment (e.g., VOO)
- 2Choose "Sell": Select market or limit order, specify amount (e.g., all shares or $100 worth)
- 3Confirm: Review the sale price and fees, then submit
Note: Proceeds go to your account's cash balance, ready for reinvestment or withdrawal.
💡 Tip: Avoid frequent selling to minimize taxes and fees (see Chapter 10).
3Monitoring Your Investments
Track your portfolio to stay informed without obsessing over daily fluctuations:
Check Performance
- • Use your brokerage's app to view gains/losses (e.g., "Portfolio" tab)
- • Compare to benchmarks like the S&P 500 index
Set Alerts
- • Enable price alerts (e.g., notify if VOO drops 10%) via your brokerage
- • Use news alerts for major events affecting your investments
Review Frequency
- • Monthly or quarterly checks are enough for long-term investors
- • Avoid daily monitoring to prevent emotional decisions
Tools for Monitoring
- • Brokerage Apps: Fidelity, Robinhood, or Schwab offer real-time portfolio tracking
- • Third-Party Apps: Yahoo Finance, Personal Capital for multi-account tracking
- • Spreadsheets: Track cost basis, gains, and dividends manually
4Rebalancing Your Portfolio
Over time, your portfolio's allocation (e.g., 70% stocks, 30% bonds) may shift due to market changes. Rebalancing restores your target allocation:
How to Rebalance:
- 1. Check your portfolio annually (e.g., 80% stocks, 20% bonds due to stock growth)
- 2. Sell overperforming assets (e.g., sell some stocks)
- 3. Buy underperforming assets (e.g., buy more bonds)
Automation Options:
- • Robo-advisors like Betterment automatically rebalance
- • Some brokerages offer "auto-rebalance" for set allocations
Why It Matters:
- • Maintains your desired risk level (e.g., moderate risk)
- • Locks in gains from strong performers
Example: Rebalancing
- Original Portfolio: $10,000 (70% stocks = $7,000, 30% bonds = $3,000)
- After 1 Year: Stocks grow to $8,500, bonds to $3,100 (total $11,600, now 73% stocks)
- Action: Sell $400 in stocks, buy $400 in bonds to restore 70/30 split
Practical Tips for Beginners
Start Small
Trade with $50–$100 to learn the process without high risk.
Use Fractional Shares
Buy partial shares of expensive stocks/ETFs (e.g., $50 of Amazon).
Practice First
Use a demo account (e.g., Schwab's thinkorswim) to simulate trades.
Avoid Overtrading
Stick to your long-term plan to minimize fees and taxes.
Track Trades
Log details (date, price, shares) in a spreadsheet for reference.
Sample First Trade
Profile: 30-year-old with $500 in a Fidelity taxable account, moderate risk tolerance
Action Steps:
- 1. Research VOO (S&P 500 ETF, 0.03% expense ratio)
- 2. Place a market order to buy $500 worth (~1.1 shares at $450)
- 3. Set a price alert for 10% drop
- 4. Check portfolio monthly
Result: Diversified investment in 500 U.S. companies, low fees.
What to Do After a Trade
Immediate Actions:
- • Review confirmation: Check trade details in your account history
- • Update goals: Adjust your investment plan if needed (e.g., increase monthly contributions)
Long-term Mindset:
- • Learn from outcomes: Did the trade meet expectations? Why or why not?
- • Stay calm: Market fluctuations are normal—focus on long-term growth
Next Steps
Congratulations on learning to trade! The next chapter, "Managing Risks and Avoiding Common Pitfalls," will teach you how to protect your investments and avoid mistakes like emotional trading or chasing trends.
Disclaimer
This guide is for educational purposes only. Investing involves risks, including the loss of principal. Consult a financial advisor before making investment decisions.