E*Trade and stocks?

Question

Beginning to look into buying stocks on E*Trade. How exactly does all this buying stocks work? Say if I want to buy one share from Buffalo Wild Wings (BWLD) for 38.85, I would first have to fund my account with 38.85 and after buying that share, I would a share of BWLD, right? And, whatever the change would be, whether it's more or less, that's how much "cash" I would have in my account, right?

Just looking for some newbie help with stocks and stuff.....

Answer 1

I think their minimum is $2000. You must fund the account initially, although if you hold a margin account you can borrow small sums if you go over due to a market order being for too much money.

If you have a cash account, then you must fund it with cash and trades cannot occur until cash is credited to the account. So if you bought BWLD today, and sold it tomorrow, it would be four days from the day you bought it before cash was credited back into your account under the SEC rule called T+3.

If you have a margin account, bought BWLD today and sold it tomorrow, then you could buy something tomorrow as well.

Given the size of commissions, you should not consider transactions of under $1000 per transaction or you will be eaten alive by commissions. This is true at any brokerage.

Also, you should pay attention to the distinction between limit and market orders. A limit order is your maximum price you are willing to pay. A market order tells your broker to go to the market and continue bidding until you are the highest bidder. That has come back to haunt people from time to time.

Anything you do not use in bids is the cash left over in your account.

Answer 2

Usually you have to open an account with a minimum X ($$$)funds. Depending on the broker this amount will change.

Check E*Trade, OptionsExpress, InteractiveBrokers, etc...

I believe OptionsExpress has the lower limit ($2000), but I used InteractiveBrokers ($5000) because they charged less per trade than any others I was able to find.

Now, I was VERY concern with the trading cost. If you are a short term trader (don't keep the position for more than a year) you need to look for the lowest trading costs.

Each buy & sell of a stock will cost commissions, so you have to factor that in in your position to know your profit & loss.

I recommend Interactive Brokers if you don't want to pay too much commissions.

For example, if you buy 100 shares or less it will cost you $1 to buy and $1 to sell, for a total of $2 commission.

With others brokers I seen $9 to buy $9 to sell, so that is $18. That means that you need to earn more than $18 to be profitable in a position. Base on my experience, that is a lot of risk when handling a 5K account. You probably have to define smaller stop/loss points because any big jump in losses will kill your account.

Another thing to consider is that to be able to do day trading you need a minimum of $25,000 base on SEC regulations. If you buy/sell more than 3 stock positions in one day, or more than 4 in a week you will be flag as day trader and your account will be frozen for trading for 6 months if you don't have the $25,000.

I once had to write a letter so they could unfreeze my account. The positions I open were automatically sold the same day due to the stop/loss I had placed and the sour day for the market for that day.

Look into functionality of the account. For example, if they offer automatic trailing stops so it bumps your stop/loss automatically when you become profitable.

Do they have charting capabilities. I use QuoteTracker with my Interactive Broker account, but it cost $60 a year.

Anyway, hope the hints help you decide on your broker hunt.

Cheers!