I am 14 years old. Me and a friend are very interested in stocks. We want to spend some years researching the ins and outs of investing, and then start investing maybe when we are 15 in a few months or 16. I realize that our legal guardians are supposed to open a custodian account for us. Where would I go to open this? Also, could someone just explain some simple things to me very very briefly, like NASDAQ and DOW? Im reading a bunch of books, and I would just like to increase my vocab. Thanks!
Hi Inferno,
Welcome aboard!!…..firstly, decide why you want to be involved in selling/trading stocks. If it’s just a hobby, then this could be a deadly proposition. Stock/share trading should be treated as a business since you need to protect yourself out there and know what you’re doing, so that you can be comfortable with your decisions and responsible to yourself.
When it comes to your question about where to go in order to open a custodian account for you and your friend, your legal guardians should be able to open up such an account for you with any stockbroker. Over time, you’ll recognise the best broker to work with depending on your investment style.
But, take your time, and before even looking to start trading, I’d highly recommend that you keep checking out a few books and perhaps enrol into a course or two so that you can network with other people and learn from others mistakes and triumphs.
A few brief definitions that you asked about:
NASDAQ: This is a stock exchange that focuses primarily upon the technology based stocks – the stock exchange’s role is to match up buyers and sellers in order to facilitate the exchange of shares from one party to another.
DOW: This is an index (number) that represents the value of the top 30 stocks in the United States (different proportions are applied to each stock contained within the index, based on value of the company). You’ll hear about this figure all over the news – e.g.: “the Dow is down 200 points in trade today”. What really matters is the percentage fluctuation that occurs in any index. In my opinion, you are much better getting used to using an index such as S&P 500, which is a broader index of stocks in order to get a gauge of market performance in the United States. The S&P 500 tracks the top 500 stocks in the United States, which is much better than the DOW.
It’s great to see that you and your friend are reading lots of books, which is an awesome start for anyone your age. These five books in particular are absolutely awesome and a MUST READ for anyone investing (from the beginner all of the way through to the seasoned investor):
Stan Weinstein – Stan Weinstein’s Secrets For Profiting in Bull and Bear Markets:
– This book focuses upon looking at charts and how to interpret them and uses some excellent examples of how the “30 week moving average” concept applies.
Mark Douglas – Trading in the Zone: Master the Market with Confidence, Discipline and a Winning Attitude:
– This book focuses upon psychology of trading and how our past experiences can have an influence on our future behaviour. I’m not much of a fan of psychology stuff in general, but this was a fascinating read and an absolute must before placing ANY trade whatsoever.
Van Tharp – Trade Your Way to Financial Freedom:
– Another terrific book that deals with quite a lot of information in an easy-to-read manner. This book is the absolute best when it comes to “risk management” using a technique known as “position sizing”.
Robert Kiyosaki – Rich Dad, Poor Dad
George Samuel Clason – The Richest Man In Babylon
I’ve also recently seen the recommendations of “The Intelligent Investor” by Benjamin Graham and “Security Analysis” by B. Graham and D. Dodd. Yet to read them myself, but they look good.
Once you’ve read those and you’re clear about your goals and objectives (never forgetting to give back to society as a whole too!!), then you’ll need to do some research into what strategies work best for you. Be sure to look into things such as share trading, contracts for difference (CFDs) and options. This may all sound scary and risky, but believe it or not, CFDs and options are actually designed to minimise your risk and are actually less risky than owning shares outright (and require less capital to begin). However, do be aware that CFDs cannot be traded in the United States – but options certainly can!!
Be sure to take a look around at various strategies and learn as much as you possibly can. You can look at “stop losses”, “options”, “covered calls”, “collars” and “dollar cost averaging” as a few strategies to help minimise risk. Most importantly, you need to find a strategy that fits your personality, risk level and dedication level. Listen to your inner voice and you’ll certainly find your true calling.
All of the best in your journey, it’s a great ride to be involved in. Number one rule though, be sure to be comfortable with whatever you choose to do – you only have yourself to answer to!!
Hope that helps!! Cheers!!
I admire your ambition. Keep up your research work. I’ll answer the rest of the questions when you reach 18.