Before I started this blog I decided to make a few trades just to prove to myself I wasn’t missing anything obvious.
A few years ago I deposited $1,000 in a IRA as a proof of concept that provided invaluable experience.
The first thing I got out of the way is signing up for the account and realizing that the money takes time to transfer from your checking. Seems reasonable, but could be frustrating if you’re trying to make your first trade immediately.
The second thing I learned is the difference in order types. Instead of seeing a buy and sell button, there are a few options for each (market, limit, stop quote, ect.) I can now explain these, but it took some lite googling to understand them.
The third, and most important thing I learned is how to actually make a trade. Although I already understood this as a concept, it was important that I went through this process from end to end with a small amount of money. It would be unfortunate to mess up a large trade because I clicked the wrong button.
There is the argument that because trading fees are high, it is hard to make a profit on such a small amount. However, these early trades were not about profit, they were just about making sure I knew what I was getting into.
Experiencing the trading process from start to finish demystified it for me and gave me more confidence down the line. Now if I see an opportunity I know exactly where to log in, how much time it will take my money to clear, and which order type I should choose. Because I started with a proof of concept, I can focus on the trade knowing that I won’t experience any technical difficulties.