How to Trade Stocks for Kids

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If your child enjoys Disney movies or McDonald's hamburgers, perhaps a share or two of McDonald's or Disney stock will spark an interest in the stock market. If your child is computer savvy, that will facilitate their ability to conduct online trades with companies such as Etrade.com or Schwabb.com. Children under the age of 18 are required to have a custodial account with their legal guardian in order to make trades online.

Trading Stocks For Kids

  • Open a brokerage account. Online trading is the easiest way for a kid to trade stocks. Check with several online brokerages like Scottrade.com or TDameritrade.com, and compare services before opening an account. Notice the per transaction fees and minimum amount necessary to open a brokerage account. In most cases, you'll be required to open your child's brokerage account with $500 to $1,000. In addition, when opening a brokerage account for your child, you'll be required to download a custodial account form. Complete the form, and mail it to the indicated address.

  • Research various stocks with your child. If you have a discount brokerage account, you and your child will be making all the trading decisions without the help of a broker. Simply input your buy or sell order to execute trades. However, if you and your child are new to investing in the stock market, you may want to consider opening a full-service brokerage account. Having a full-service broker at your disposal may enable you and your child to gain sound investing advice.

  • Discuss potential trades with your child. It's a good idea to establish a specific time when you and your child sit down together to make financial decisions. This will provide you with greater control over your child's online trading activities. Since there are no mechanisms in place to prevent a minor from making trades, you'll need to take control of the situation. This is particularly true when dealing with children under the age of 13 who lack financial maturity. For example, if your child places a buy order for 1,000 shares of Wal-Mart stock at $50 per share without your knowledge, and the stock subsequently falls to $25 per share, you'll be stuck with the loss. In short, monitoring your child's trading activity helps prevent your child from making bad investment decisions.

  • Make trades. Generally speaking, it costs less to trade online than making traditional trades with a broker. Additionally, companies like TD Ameritrade may charge a flat fee for online trades regardless of the price or number of stocks bought or sold. Most online brokerages have tools that allow your child to track their investments. Furthermore, you and your child can gain financial insight by visiting sites like Moneycentral.msn.com.

Tips & Warnings

  • Becoming a 15-year-old millionaire from the stock market is a rarity. Instead of a get-rich-quick approach to trading, kids should consider adopting a long-term investing strategy that will serve them well into their adult years.

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