How Old Do You Have to Be to Trade Stocks – Get Started Now
July 15, 2021
Thanks to compound interest, investing early in life is one of the best things a minor can do. If you invest your money early on, you leave more years between you and retirement, which allows your starting investment to grow more interest as it compounds.
But how old do you have to be to trade stocks? Being a teenager, is it even legal to begin trading and investing in stocks with money you’ve earned from a part-time position?
Today, we’re going to talk about the age requirements for trading and investing in stocks. We’ll also explain how you can start investing your money now using a custodial account and what you can do to start educating yourself about making the best stock market entry.
Why Is There an Age Restriction on Stock Trading?
The minimum age to begin investing and trading stocks are 21 in the vast majority of states. However, if you reside in Virginia, Oklahoma, South Dakota, New Jersey, Nevada, Michigan, Louisiana, Kentucky, the District of Columbia, or California, you can begin trading stocks after turning 18.
So, why must you be at least 18 to trade stocks on the market? You have to be at least 18 because selling and buying stocks requires you to sign contracts. With the Internet, it’s easy for people to forget that buying and selling stock is them signing a contract for the sale.
A minor isn’t legally able to enter into contracts, and a contract signed by a minor is unenforceable. Because of this, brokers won’t even let you open up an account until you’ve reached your state’s age requirement for trading stocks.
Am I Still Able to Fund a Trading Account?
Being a minor, you aren’t able to operate or own a brokerage account. However, you can access financial markets by using what’s called a custodial account.
Custodial accounts are brokerage accounts that start out being owned by the legal guardian or parent of a minor. The assets held within that account are held legally in the minor’s name until they’re old enough to run the account themselves.
By using a custodial account, you’re able to ask your legal guardian or parent to deposit money and conduct trades for you. You can choose which assets you want to sell or buy to the custodian of the account – usually the minor’s parent.
However, the parent has to be the one that’s controlling the account and doing the investing orders. After you reach the minimum investing age, you can start executing the orders yourself and have complete control over the account.
How to Prepare for Trading on the Market
Trading on the stock market isn’t the best way to gain knowledge about the stock market.
Do you know early on that you want to invest in the stock market? If so, there are some things that you can start doing now to build your knowledge about the stock market and help you prepare for your entry into the stock market when you’re old enough.
Learn About Trading Terms
There are so many educational resources online that you can use to learn about stock investing, trading, and the types of securities you’re able to purchase. Some things that you may want to research include:
Types of Trading Assets
Were you aware that the majority of brokers allow the buying and selling of more than common stock alone?
You might want to gain more knowledge about the types of securities you can trade on the stock market you’re able to invest in, including cryptocurrencies, forex, ADRs, futures, and options contracts. You may also want to know the differences and similarities between mutual funds and ETFs.
Types of Buy and Sell Orders
There are several types of buy and sell orders that you can use to buy shares of stock. It’s best if you familiarize yourself with the types of stop-loss, limit, and market orders and when you should use each one.
Like the ones on the stock market, companies that are publicly traded are required by law to disclose financial information to the public. These financial filings help investors learn more about which companies they should invest in.
While you’re young, learn how to properly read an SEC report and learn some of the more commonly used terms you’ll find experts talking about when it comes to a stock’s future and output. Some examples include “dividend,” “earnings per share,” “dividend yield,” “PE ratio,” and more.
In the vast majority of the country, you cannot buy or sell stocks until you’re 21 – though in some states, you only need to be 18. This is because trading stocks involves the use of a contract, and minors can’t legally sign valid contracts.
If you currently have money that you want to invest, you might consider asking your parent or guardian if they would be willing to open a custodial account for you.
Custodial accounts are owned by the parent or guardian of a minor until they reach the minimum investing age in their state.
With a custodial account, you’re able to deposit your own money into the account, research assets, and direct trades – but your parent or guardian has to be the one conducting the buying and selling.
There are several ways that you can start learning about the stock market and how to invest and trade.
Familiarizing yourself with stock market terms and taking courses on finance and business can help you build your knowledge about the stock market, so you’re prepared to begin investing when you’re old enough.