Investments, retirement savings and sometimes regular income are all examples of the stock market's role in people's lives. Many retirement accounts, such as IRAs, keep their holdings in corporate shares, and some investors earn consistent income from dividend payments and other stock market strategies. Kids can learn to trade stocks at an early age, even before they are legally allowed to hold their own brokerage account at age 18. It is important to establish core investment strategies with a child so that they do not view the stock market as a random entity akin to a casino.
Opening a Custodial Account
Step 1
Visit the websites of major brokerage firms and select a broker that is appropriate for you and your child. Individual investment goals vary widely, and the features of any particular broker may or may not suit your needs. You can consider commission costs, the selection of financial instruments (do they only trade stocks, or also futures, stock options and foreign currency) and the features of their trading website or software when making a selection.
Step 2
Apply for a custodial account. Children under age 18 are not legally allowed to control their own brokerage account, but a custodial account provides them with access under the guidance of a parent or guardian. In most cases, you can apply for a custodial account online, but you may need to apply in person or by mail for some firms.
Step 3
Fund the custodial brokerage account once your application is approved.
Step 4
Log in to the custodial account, either through its online trading interface or via its stand-alone trading software.
Step 5
Chart any stocks you choose and show your child the basics of these charts and how they display price versus time.
Teach Trend Analysis
Step 1
Show your child how some stocks make a sequence of "higher highs and higher lows," indicating a positive trend. It is important for all traders to learn the concept of a trend as soon as possible in their investing career, as such knowledge will lead to better-informed trading decisions in the future.
Step 2
Buy shares in a stock when it exhibits trending behavior. Some traders wait for a trend to "pull back," or decline from a recent peak in prices before buying shares and entering the trend. Waiting for this opportunity requires patience, an important quality to instill in your children at an early age if they are to succeed in investing during their lifetime.
Step 3
Sell shares when the trend is no longer intact. This will teach your child to exit a trade when market conditions change. This is an important part of responsible trading: knowing when to get out. You will know the trend is broken if it fails to make a new higher high, or if a new low is lower than a previous low on the chart.
Tips and Warnings
- Many brokers provide "virtual" trading accounts, where you buy and sell shares exactly as with a regular account, but using fake investment capital. This may be a good option for teaching your child without the risks of losing money during the learning curve.
Member Comments