Setting up your first trade, step by step

In short: A first trade has three parts: a plan beforehand, filling in the order ticket and checking the execution. Decide beforehand how much you are willing to lose at most and when you will get out.

Step by step

1. Open an account with a supervised broker (in the Netherlands, check this with the AFM). See what is a broker and how to choose one.
2. Choose a company or fund you understand. Read how it makes money and look at recent news.
3. Decide the most you are willing to lose on this trade, as an amount in euros.
4. Decide the price at which you consider your plan failed (the stop-loss).
5. Work out the number of shares that fits those limits.
6. Fill in the order ticket and check the preview screen.
7. After execution, check the confirmation and place your stop-loss.
8. Write in a journal why you entered and what you expect.

A plan first

Before you click “buy”, you want answers to these questions:

• Why am I buying this? Put your reason on paper. “I heard it is going up” is not a plan.
• What is the maximum loss I accept? Set this as an amount you can afford to lose.
• When do I get out? Both at a loss and at a profit.
• How many shares can I buy? That depends on your maximum loss and the distance to your stop.

Example (hypothetical): you want to lose at most €50. You want to buy stock X at €20.00 and your stop-loss is at €19.00. You then lose €1.00 per share if the stop is executed. €50 divided by €1.00 is 50 shares. The position is then €1,000 in size. Allow for costs and for a possible gap, which could make the loss larger. The position size calculator works this out for your own numbers.

How much of your capital you risk per trade is a personal choice. Many investors choose a low percentage, but no rule applies to everyone. See also risk per trade.

The order ticket

Every platform looks different, but the fields are usually the same:

• Symbol or name: which stock or fund. Also check the exchange and the currency. The same company can be listed on several exchanges.
• Action: buy or sell.
• Quantity: how many units.
• Order type: market order or limit order. See order types explained.
• Limit price: for a limit order, the maximum buying price.
• Validity: a day order expires at the end of the trading day. A GTC order stays active until you cancel it or it is executed.

Almost every platform shows a summary before you send the order. Read it: symbol, quantity, price, costs and total amount. A typo in the quantity or the price is a well-known and expensive mistake.

Watch the trading hours too. Euronext is open from 09:00 to 17:30, and US exchanges usually from 15:30 to 22:00 Dutch time. See market hours and trading sessions.

After you send it

After you send it, your order goes through your broker to the exchange. The status can be:

• Open or pending: the order is waiting, for example because the price has not yet reached your limit.
• Partially filled: part of your quantity has been bought, the rest is still waiting.
• Filled: the trade is complete. You see the execution price, quantity, costs and time.
• Cancelled or rejected: nothing was bought. Look at the reason, for example insufficient funds.

Keep the confirmation for your records. A filled order only tells you that you own the stock. It says nothing about whether it was a good choice.

Then place your stop-loss straight away, if that is part of your plan. A stop-loss does not guarantee the execution price. In a gap, the execution can be lower than your stop.

Checklist before you click “buy”

• Do I understand what this company or fund does?
• Is the exchange open now and do I know the costs?
• Are symbol, exchange, currency, quantity and price correct in the ticket?
• Do I know the most I can lose, and can I afford it?
• Do I know when I get out, both at a loss and at a profit?
• Am I making this decision calmly, and not to win back an earlier loss or out of fear of missing out?

If you answer no to any question, wait with the trade. There is always another chance.

After your trade

Write down what you did and why, even if the trade lost money. After a number of trades you see patterns in your own behaviour. Also read the most common beginner mistakes.

Investing involves risk: you can lose some or all of your money. This tutorial is information, not investment advice.