If you want to swing trade, you’re going to need to open a brokerage account. A brokerage is just a company that plays the role of middle man. The brokerage maintains an account for you and keeps records of your trades. It also allows you to deposit funds that can be used for trading, and allows you to take out your profits. They will also take care of the necessary tax forms on your behalf. The central role of the broker is to execute trades. So when you want to buy or sell shares, the broker will do that on your behalf. You can also borrow shares from the broker, or borrow money to make larger trades, if you have a margin account.
Before choosing a broker, you’re going to want to decide what financial assets you want to trade. Some brokers might not give access to all types of securities. This might be more important if you are interested in trading Forex or cryptocurrencies, finding good stock brokers is fairly straightforward. However many of the leading stockbrokers will also provide access to trading Forex, crypto, and other assets.
Types of Accounts
The first thing you’re going to want to consider is whether or not you want a full service brokerage or a discount broker. A full service brokerage is one that provides professional financial advisors to help you make your investment decisions. Some may even be able to assist you with swing trading. However, be aware that commissions are going to be an important factor when you trade frequently. It’s one thing to set up a periodic investment in an index fund, and quite another to be making several trades a month. For that reason, most swing traders are going to be interested in discount brokers.
Besides looking into whether or not you go with a discount broker, you are going to want to determine whether or not you open a cash account or a margin account. By law, to open a margin account you must deposit $2,000 up front. The advantage to opening a margin account is that if you qualify, it will enable you to borrow money and shares from the broker. This opens up the possibility of shorting a stock, or using leverage in order to purchase more shares than you could with your cash alone. Typically, swing traders can get 2-1 margin, which means if you deposit $2,000, you can buy $4,000 worth of stock.
Examples of popular brokerages include E Trade, Tasty works(particularly good for trading options), Robinhood (zero commissions), TD Ameritrade, along with more traditional brokers such as Fidelity or Charles Schwab. In each case, check to determine if you can trade the financial assets you are interested in trading. While its easier to have one account, if you are going to have diversified trading such as trading stocks, options, and Forex, you might have to get a different broker to manage your Forex trades. Of course it’s advisable that beginning traders stick to one asset, at least at first.
Expert Advisors
Full service accounts used to only include those with a professional financial advisor. However, over the past decade or so, a new type of full service account has developed that relies on software or “robot” advisors to manage it’s accounts. These often go by the name “expert advisor”. This type of account is managed for you, and the robot will pick stocks/options or currency trades to buy and sell and when to sell them. That may or may not appeal to you, the idea of having a robot running your trading account might be a bit intimidating.
Retirement Accounts
Swing trading methods can be used to grow retirement accounts, such as an IRA or a 401k. However, keep in mind that you will probably be put in a position of reinvesting profits from swing trading toward the purchase of more assets inside the retirement account. So it would not be traditional swing trading in the sense of earning profits in the here and now to cash out. If you cash out early from retirement accounts, you’re going to lose a lot of benefits because of heavy taxes and early withdrawal penalties.
However, swing trading is an intriguing way to grow your IRA from the inside. By law, you can only deposit about $5,000 or so per year, depending on age. But using swing trading, you have the potential to rapidly grow the account by earning profits inside of it. They can then be used to purchase more shares. If you are good at swing trading, you can double or triple the amount by which the account is growing per year, without violating any laws regarding contributions.
It’s always a good idea to have a retirement account as a part of your overall portfolio, so swing trading inside the account can be part of your larger financial strategy.
Opening a Brokerage Account
Opening brokerage accounts is a pretty simple process, its like signing up for an account with anything online. Enter your name, address, and bank account information. Some brokerages may require that you make an initial deposit to get started. If you are a beginning swing trader, consider using Robinhood. This is an app based trading platform that is somewhat skeletal, but also very easy to use. With Robinhood, there are zero commissions and no minimums. So you can limit your deposits to the amount of money that you want to use for trading, rather than having to meet some arbitrary funding requirement.
Keep in mind that if you want to trade options, the broker is going to want to make sure that you understand what you are getting into. Usually, an interview of some kind is required before you can trade options. They are going to want to make sure that you understand that options are speculation and not investment. That means that you are buying financial assets in the hope that the price of the asset is going to rise over a short time period. This is in contrast to investing, where you are sinking your money into a company for the long haul. So you want to explain to the broker that you want to do speculation more than investment and that you understand what it means and what the risks are. Second, you will want to assert that you are interested in short time horizons, and not long term investing. You will also be asked some basic questions about income level and net worth. However, don’t worry about those, they are pretty flexible on those points. Options trade for tens to hundreds of dollars, so you don’t have to be rich to get started.
The main purpose is simply to satisfy the broker that you completely understand the nature of swing or option trading. It does not preclude you from entering into long term investments as well.
Tools Available Online
Many brokerages are self-contained, that is they include all the tools you need in order to operate as a swing trader. At a minimum, you should make sure you have access to the following:
The ability to chart stocks out to a minimum of five years, preferably longer.
You should be able to create candlestick charts, not just line charts.
You should be able to easily switch between different time frames, such as days, weeks, and months.
There should be access to moving averages, especially simple and exponential moving average tools, with the ability to set the number of periods and include more than one moving average on a chart.
Other moving averages may be of interest, such as the Hull moving average.
You will want to be able to utilize Bollinger bands.
You want access to financial statements along with rundowns of cash flow.
If tools like these are not available, you can visit Yahoo Finance where they can be utilized for free. Some trading platforms have practice or simulated stock markets where you can practice trading real securities, without having to invest any money. This is a very good way to start training yourself, but of course without the strong emotions that come when real money is involved, they are of limited value.
Once you’ve setup your account, you’re ready to get started. The next task is to learn how to analyze stocks and stock charts, and look at technical analysis.