How to Speculate Stocks

by Herb Kirchhoff

Stock speculation essentially is a bet that a particular stock will be worth more in the future than it is worth today. Stock speculators are not interested in underlying value. They are not seeking long-term profits. They are only interested in a stock’s short-term price action. Although stock speculation has the potential to produce great reward, it also carries great risk of loss.

Open a brokerage account. As a speculator who will trade stocks frequently, you must go through a stockbroker. To open an account, you must sign an agreement describing how your transactions will be handled and what services you will receive. You may select from full-service brokers who offer research services and investment advice in addition to trading services, or bare-bones brokers who simply execute your buying and selling orders for a per-transaction fee. Some brokers have offices. Others are accessible only online.

Deposit money with your broker. The broker will use the money in your funding account to buy the stocks you want. The broker also will deposit proceeds from stock sales into your funding account. The amount you are required to deposit will vary by broker, but as a speculator you may expect a minimum deposit in the thousands of dollars.

Install trading software on your computer and buy high-speed Internet service. Most speculators use computer programs to track stocks and place buy and sell orders with their stockbrokers. Your brokerage may offer a trading program that lets you access its services. You also may buy trading programs that allow you to set up accounts with multiple brokers. Basic trading programs let you place trade orders, check prices of particular stocks and track the price and trading history of those stocks. More sophisticated programs offer a variety of stock analysis tools.

Select the stocks you want and buy them. There is no foolproof formula for picking winning stocks. Most stock-picking strategies use the tools and techniques of fundamental analysis. These strategies seek to find the fundamental intrinsic worth of a company’s shares and compare the current market price of shares against the intrinsic worth to determine if a stock is overvalued or undervalued. Technical analysis consists of a set of tools and techniques that attempt to predict the future price of a stock based on its past price history in the market.

Tip

  • Start out small and learn from your mistakes.

Warning

  • Never speculate in stocks with money you can't afford to lose.

Items you will need

  • Brokerage account
  • Money
  • Trading software
  • High-speed Internet connection
  • Analysis tools

Photo Credits

  • Kim Steele/Photodisc/Getty Images