Ready to dive into the exciting world of stock market investing? ETRADE, now part of Morgan Stanley, is a popular choice for both beginners and experienced traders, offering a robust platform and a wide array of investment options. This comprehensive guide will walk you through every step of buying shares on ETRADE, ensuring you feel confident and prepared. Let's get started!
Your Comprehensive Guide to Buying Shares on E*TRADE
Step 1: Are You Ready to Invest? (Self-Assessment & Goal Setting)
Before you even think about opening an account, let's take a moment for some introspection. Investing in the stock market comes with risks, and it's crucial to understand your financial situation and investment goals.
Why do you want to buy shares? Are you looking for long-term growth for retirement, saving for a down payment, or simply interested in actively trading for short-term gains? Your goals will dictate your strategy and the types of shares you choose.
What is your risk tolerance? Are you comfortable with the possibility of your investment losing value in the short term for potentially higher long-term returns, or do you prefer more stable, less volatile options?
How much can you afford to invest? Never invest money you can't afford to lose or that you might need in the near future. It's wise to have an emergency fund in place before you start investing.
Take a few minutes to honestly answer these questions. Having a clear understanding of your investment objectives and risk comfort level will be your compass throughout this journey.
Step 2: Opening Your E*TRADE Account
E*TRADE offers various account types to suit different needs. For buying shares, a brokerage account is the most common.
2.1 Choose Your Account Type
Brokerage Account: This is your standard investment account where you can buy and sell stocks, ETFs, mutual funds, options, and more. It's suitable for most individual investors.
Retirement Accounts (IRA, Roth IRA, Rollover IRA): If your goal is to save for retirement, these accounts offer tax advantages.
Managed Portfolios (Core Portfolios): If you prefer a hands-off approach, E*TRADE offers automated investment management where professionals manage a diversified portfolio for you.
Other Accounts: E*TRADE also provides specialized accounts like Coverdell ESAs for education savings or Custodial Accounts for minors.
For the purpose of buying shares, we will focus on the Brokerage Account.
2.2 Gather Necessary Information
To open an account, E*TRADE, like all financial institutions, is required by law to verify your identity. Have the following handy:
Personal Information: Full Name, Address, Date of Birth.
Identification: Social Security Number (SSN) or Taxpayer Identification Number (TIN).
Employment Information: Employer's name and address (if applicable).
Financial Information: Income, net worth, and some details about your investment experience. This helps them assess your suitability for certain investments.
2.3 Complete the Online Application
Visit the E*TRADE Website: Go to the official E*TRADE website and look for an "Open an Account" or "Sign Up" button.
Select "Brokerage Account": Choose the appropriate account type.
Fill out the Application: Follow the prompts to enter all the required personal, employment, and financial details. The online application is generally straightforward and takes about 10-15 minutes.
Review and Submit: Carefully review all the information you've entered before submitting your application.
Step 3: Funding Your E*TRADE Account
Once your account is open, you'll need to deposit money into it before you can start buying shares. E*TRADE offers several convenient funding methods:
3.1 Explore Funding Methods
Electronic Funds Transfer (ACH Transfer): This is often the easiest and most common method. You link your bank account to your E*TRADE account and initiate a transfer. Funds typically become available for trading within 3 business days.
Wire Transfer: For faster access to funds, you can send a wire transfer from your bank. Wire transfers usually clear the same or next business day, but your bank may charge a fee.
Check Deposit: You can mail a physical check to ETRADE or use their mobile check deposit feature via the ETRADE mobile app. This is generally the slowest method, with funds taking up to 5 business days to become available.
Account Transfer (ACATS): If you have an existing brokerage account at another institution, you can transfer your entire account (cash and securities) to E*TRADE. This process can take 10+ business days for electronic transfers and even longer for mail requests (3-6 weeks).
Direct Deposit: You can set up direct deposit to automatically transfer a portion of your paycheck or other recurring income directly into your E*TRADE account. This typically takes 1-2 pay cycles to set up.
3.2 Initiate the Transfer
Choose the method that best suits your needs and follow the on-screen instructions or contact E*TRADE customer service for assistance. Remember, while some funds might be available for investing immediately based on cleared equity, it's essential to understand the full funds availability timelines for withdrawals or certain trades.
Step 4: Researching and Selecting Shares
This is where the real fun (and critical thinking!) begins. E*TRADE provides a wealth of research tools to help you make informed decisions.
4.1 Utilize E*TRADE's Research Tools
Stock Screeners: These allow you to filter stocks based on criteria important to you, such as industry, market capitalization, price, dividend yield, and financial ratios. This is a fantastic starting point to narrow down your options.
Company Profiles & Financials: Dive deep into individual companies. Look at their revenue, earnings, balance sheets, and cash flow statements.
Analyst Ratings: See what professional analysts think about a stock's future performance (buy, sell, hold recommendations).
News & Market Commentary: Stay updated on the latest news affecting the companies you're interested in and the broader market.
Charting Tools: Analyze historical price movements and identify trends. ETRADE offers advanced charting capabilities, especially on their Power ETRADE platform.
Educational Resources: E*TRADE provides articles, webinars, and tutorials to help you understand market concepts and investment strategies.
4.2 Key Considerations for Stock Selection
Fundamental Analysis: Look at a company's intrinsic value. This involves examining financial statements, management quality, industry trends, and competitive advantages. Are the earnings consistent and growing? Does the company have a strong market position?
Technical Analysis: Focus on price and volume trends to predict future movements. This involves studying charts, patterns, and indicators.
Diversification: Don't put all your eggs in one basket! Spread your investments across different industries, sectors, and company sizes to reduce risk.
Growth vs. Value Investing:
Growth investing focuses on companies with high growth potential, often with higher P/E ratios.
Value investing involves finding undervalued companies that trade below their intrinsic worth.
Dividends: If you're looking for income, consider companies that consistently pay dividends. You can even set up dividend reinvestment plans (DRIPs) to automatically buy more shares with your dividends.
Step 5: Placing Your Order to Buy Shares
Once you've identified the shares you want to buy, it's time to place your order. E*TRADE offers various order types to give you control over your purchase.
5.1 Navigate to the Trading Platform
You can typically find the "Trade" or "Place Order" section on the ETRADE website or mobile app. ETRADE has two main web-based platforms: ETRADE web (more beginner-friendly) and Power ETRADE (for active traders with advanced tools). Both have corresponding mobile apps.
5.2 Enter the Stock Symbol (Ticker)
Every publicly traded company has a unique stock symbol (e.g., AAPL for Apple, MSFT for Microsoft). Enter this symbol into the order entry form.
5.3 Specify Your Order Details
Action: Select "Buy."
Quantity: Enter the number of shares you want to buy.
Order Type: This is crucial and determines how your order will be executed.
Market Order: An order to buy or sell immediately at the best available current price. While it guarantees execution, it does not guarantee a specific price, especially in volatile markets. Use with caution for illiquid stocks.
Limit Order: An order to buy or sell a security at a specific price or better.
Buy Limit Order: You set a maximum price you're willing to pay. The order will only execute if the stock's price is at or below your specified limit. This gives you more control over the purchase price.
Stop Order (Stop-Loss Order): An order to buy or sell a stock once it reaches a specified "stop price." When the stop price is reached, it becomes a market order.
Buy Stop Order: Entered above the current market price, often used to limit losses or protect profits on short positions.
Other Advanced Order Types: E*TRADE offers more complex order types like trailing stop, stop limit, and various conditional orders. As a beginner, focus on Market and Limit orders first.
Time-in-Force: How long you want your order to remain active.
Day Order (DAY): The order is valid only for the current trading day. If it's not executed by the end of the day, it's canceled.
Good 'Til Canceled (GTC): The order remains active until it's executed or you cancel it (typically up to 60 days).
5.4 Review and Confirm Your Order
Carefully review all the details of your order before submitting it. Check the stock symbol, quantity, order type, and price.
Understand Estimated Costs: E*TRADE generally offers $0 commissions on online US-listed stock and ETF trades. However, be aware of any potential fees for OTC stocks or if you use a live broker.
Click "Place Order" or "Confirm Trade."
Step 6: Monitoring Your Investment
Your journey doesn't end after buying shares. Regular monitoring is essential to track your investment's performance and make informed decisions.
6.1 Access Your Portfolio
E*TRADE provides a clear overview of your holdings, including:
Current value of your shares.
Profit or loss on your positions.
Real-time quotes and market data.
6.2 Set Up Watchlists and Alerts
Watchlists: Create lists of stocks you're interested in, even if you don't own them yet. This helps you track their performance without having to search for them every time.
Price Alerts: Set up notifications to alert you when a stock reaches a certain price, either up or down. This can help you identify potential selling or buying opportunities.
6.3 Stay Informed
Continue your research: Markets are dynamic. Stay updated on company news, industry trends, and macroeconomic factors that could affect your investments.
Review performance regularly: While daily checks aren't necessary for long-term investors, a periodic review (e.g., monthly or quarterly) of your portfolio's performance is a good habit.
Step 7: Managing Risk and Exiting Positions
Investing involves risk, and having a strategy for managing it is crucial. Knowing when and how to sell is as important as knowing when to buy.
7.1 Risk Management Strategies
Diversification: As mentioned, spread your investments across various assets.
Stop-Loss Orders: Consider using stop-loss orders to limit potential losses on a position. If the stock price drops to your specified stop price, your shares will be sold, mitigating further losses.
Position Sizing: Don't allocate too much of your portfolio to a single stock. A general rule of thumb is to risk no more than 1-2% of your total trading capital on any single trade.
Risk-Reward Ratio: Before making a trade, assess the potential profit versus the potential loss. Aim for trades where the potential reward significantly outweighs the risk.
7.2 Selling Your Shares
When you decide to sell, the process is similar to buying:
Navigate to your portfolio.
Select the shares you want to sell.
Choose "Sell" as the action.
Enter the quantity.
Select an order type:
Market order for immediate execution (at the current market price).
Limit order to sell at a specific price or higher.
Review and confirm.
Important Considerations
Taxes: Profits from selling shares are generally subject to capital gains taxes. The tax rate depends on how long you held the shares (short-term vs. long-term). Consult a tax professional for personalized advice.
Fees: While E*TRADE offers commission-free trades for US-listed stocks and ETFs, be aware of potential fees for other asset classes or services.
Market Volatility: Stock prices can fluctuate significantly. Be prepared for ups and downs.
Patience: For long-term investors, patience is key. Don't panic during market downturns.
10 Related FAQ Questions
How to choose the right E*TRADE account type for my investing goals?
To choose the right account, consider your primary goal: for general investing and trading, a Brokerage Account is best; for retirement savings, choose a Traditional IRA or Roth IRA; for hands-off investing, a Managed Portfolio might suit you.
How to fund my E*TRADE account quickly?
For the fastest funding, use a wire transfer (funds usually available same or next business day). Electronic Funds Transfer (ACH) is also quick, typically taking 3 business days.
How to find specific stocks to buy on E*TRADE?
You can find specific stocks by using the search bar on the E*TRADE platform and entering the company's name or stock ticker symbol.
How to use E*TRADE's research tools effectively?
Start with stock screeners to filter options, then dive into company profiles and financial statements for fundamental analysis. Utilize charts for technical insights and read news and analyst reports for market context.
How to place a limit order on E*TRADE?
When placing an order, select "Limit" under the "Order Type" dropdown. Then, input your desired maximum buy price (for a buy order) or minimum sell price (for a sell order) and the quantity of shares.
How to set up dividend reinvestment on E*TRADE?
E*TRADE allows you to set up Dividend Reinvestment Plans (DRIPs). You can usually find this option within your account settings or by navigating to the specific stock's details in your portfolio and selecting to reinvest dividends.
How to monitor my stock performance on E*TRADE?
Log into your E*TRADE account and go to your Portfolio section. Here, you'll see real-time updates on your holdings, including current value, profit/loss, and market data.
How to sell shares on E*TRADE?
Navigate to your Portfolio, select the shares you wish to sell, choose "Sell" as the action, specify the quantity and order type (e.g., Market or Limit), and then review and confirm your order.
How to understand the fees associated with trading on E*TRADE?
E*TRADE offers $0 commission for online US-listed stock and ETF trades. However, be aware of potential fees for OTC stocks, options contracts (per contract fee), or if you choose to place a broker-assisted trade. Check their fee schedule on the website for detailed information.
How to manage risk when buying shares on E*TRADE?
Implement diversification across different assets, utilize stop-loss orders to limit potential losses, and practice position sizing (not investing too much in one stock). Regularly review your risk-reward ratio before entering trades.
