This month’s TradeKing promotion earns you $100 for opening a new account with the online broker. The number of people using the online brokerage has been growing quickly over the last few years, not due just to the TradeKing promotions but also because they make it cheaper and easier for their customers to invest their money in a number of ways.

Low Trading Commissions

With $4.95 trades and $0.65 per option contract and no account minimums TradeKing is one of the best options when it comes to low cost trading commissions.  Of course the TradeKing bonus where you earn a $100 signup bonus don’t hurt either, basically they’re equivalent to 20 free stock trades.

Options Trading Education

Low cost trades have an impact on your returns but TradeKing also offers a ton of trader education videos and webinars on stocks, bonds, and options that can help you with your investment decisions.  I’ve gone through the first few options trading webinars and have been working my way through their Options PlayBook, written by their options expert, Brian Overby.

Another kind of trading education are the forums and groups, called the Trader Network, where you can interact with the experts who do the webinars, as well as other TradeKing members.
If you’re looking for ideas and strategies for your portfolio or even to understand some of the concepts the pros use to analyze and evaluate their investments you can get answers in the forums. I haven’t taken advantage of this feature myself but this promotion reminds me I need to spend some time there.

If you don’t have a TradeKing account and want to try out their training and trader’s network you can earn the $100 bonus by signing up here.

Online Stock Trading Tools

Another feature I haven’t made good use of yet are their calculators, reports, and screens.  For example, here are some of the tools I’ve been meaning to spend more time with:

• MarketGrader Research Reports
• Probability & Profit and Loss Calculators
• Stock and Option Screeners
• Technical Analysis Tools

TradeKing also provides the Maxit Tax Manager to help sort things out with your accountant or tax software come tax time.

Customer Service

Those kind of tools are something you’d expect of any online brokerage but one cool thing about TradeKing is that they’re willing to help you out with questions you have about them.  Their online broker chat option lets you ask questions when you’re stuck or trying to figure something out; I’ve also gotten fast email responses to my inquiries.

I’ve never called in so I can’t speak to their telephone hold times but SmartMoney and Kiplinger’s rated TradeKing tops for customer service in recent online broker surveys.

TradeKing Promotion

The TradeKing promotion runs through the end of the month, after you open an account with $2,500 and make your first 3 trades, you’ll earn the $100 bonus.  There’s no promotion code needed but you do have to sign up through the following promotion link to earn the bonus – Click Here for Bonus

The first thing we need to do when discussing this topic is define what market capitalization is. This term represents the size of a corporation in regards to value. The market cap of a company is equal to the share price of its stock multiplied by the shares outstanding. For example:

Company ABC stock price: $10.00
Company Shares Outstanding: x 10,000,000
Company Market Cap: $100,000,000

Market Capitalization

How a company is described in reference to market cap depends on the size. There are five categories that are regularly discussed. So much so, that there are indexes, mutual funds, ETFs and sectors built around these. These numbers are not set in stone and may even vary by country. The following would be a good benchmark to use for comparison:

Mega-Cap: Over $200 billion
Large-Cap: $10 billion – $200 billion
Mid-Cap: $2 billion – $10 billion
Small-Cap: $250 million – $2 billion
Micro-Cap: $50 million – $250 million

Mega-Cap Stocks

These are truly the biggest companies in the world. Names like Microsoft, ExxonMobil and Johnson & Johnson fall into this category. It used to be that these big companies were considered pretty safe investments “too big to fail” if you will. We found that not to be the case over the last few years.

Large-Cap Stocks

This is probably the most popular segment in regards to investing. The S&P is built on these stocks. Names like Wal-mart, Coca Cola & Apple fall into this category. As discussed in a previous post, there is an argument for index investing and just taking advantage of the natural growth and movements of the market. The more sophisticated investor will disagree, but then not everybody falls into that category either.

Mid-Cap Stocks

This segment is probably the most over-looked by the average investor and it is possibly their biggest mistake. Mid-cap stocks benefit from being like their larger brothers, in that they have established track records both in financial statements and share price. They are less risky than smaller companies, and yet they have only truly seen the beginning of their growth. According to Morningstar, the Mid-Cap 400 Index has outperformed the S&P in both the 5 year & 10 year time frames.

Small-Caps/Micro-Cap Stocks

These segments are the area where many sophisticated investors and day traders play. The volatility is much higher here and the potential to wither win big or crash and burn is much higher. The hard part here is the limited information available for many of these stocks.

Each of these segments of the market has their reasons why you should or should not use them in your portfolio. Whether you do or not is entirely up to you. At least now when you hear those analysts rattle on about small-caps outperforming, you will know what they are talking about.

A Scottrade review is something I’ve been meaning to do after seeing the online brokerage rank pretty high in the SmartMoney survey of discount brokers.  With their competitive fees, low minimum requirements, and wide range of investment options Scottrade is an attractive option for many investors who like to manage their own portfolios.

Scottrade Fees

I’ll start off with investing fees since that’s one of the first things people usually ask about. You’ve probably already seen Scottrade’s ads online for their $7 trades, relatively low as you’d expect from a discount broker.  If you’re interested in options trading, those also run $7 plus + $1.25 per contract on all limit and market orders.  Their margin rates are competitive with the other national online brokerages.

You’ll need $500 to set up a Scottrade account ($2,000 for margin accounts) and there are no account maintenance or inactivity fees. Funding a Scottrade account is pretty flexible, with options including an ACH money transfer, a personal check, or a wire transfer. You can also transfer funds into your Scottrade account from another investment account with a different firm and they’ll reimburse your transfer fees.

Scottrade Investments

Scottrade was rated highly for their available investment products.  Using your online brokerage account you have access to stocks, options, mutual funds, ETFs, bonds, and certificates of deposit. They give you a selection of around 15,000 mutual funds (load and no-load) — 2,800 of which have no transaction fees. Scottrade also offers fixed income investments including municipal, corporate, and treasury bonds.

If you’re looking to save for education or retirement, they offer a Coverdell Education Savings Accounts (ESA) and an IRA account. There are no setup fees, annual fees, or termination fees for a Scottrade IRA.

Scottrade Customer Service

Unlike some of the other online discount brokers, Scottrade has a network of almost 500 local branches.  Personally, I don’t need to sit down with someone, I’m fine handling it all online.  However, if you like having the option of dealing with someone face to face the local branch is a nice feature.

Scottrade received four out of five stars for customer service in the broker survey so although they’re not perfect, they certainly make the effort to keep their members satisfied.  One of the things that helps them offer this level of service is that Scottrade puts an emphasis on educating their investors.

Investor Education

You may not be looking for extensive investor education, just a good place to buy stocks. However, if you are interested in learning more about investing and the markets Scottrade’s does have live webinars and on-demand webcasts for members.

They also offer local branch seminars and regional user summits that not only go over investing in general but also specific aspects of using the Scottrade platform.

Trading Security

Scottrade has been around for 30 years so they’re not a new online stock broker.  They certainly have a reputation to uphold so one of the things that they pay close attention to is your account security.  From an investment perspective, Scottrade offers $2.5 million in account protection through their membership in the Securities Investor Protection Corporation (SIPC). 

From an online perspective, Scottrade gives all their members free McAfee Security Software and suggests a security checklist to follow to protect your computer and account.  They also offer the Scottrade Online Security Guarantee, if a fraudulent trade is placed using your account they’ll reverse it at no cost to you.

Scottrade Comparison

Overall Scottrade stacks up pretty well against other online brokers.  While their $7 trades are cheaper than many other options, there are one or two discount brokers that offer lower trading fees.

Scottrade does have the lowest minimum initial deposit and has a wide selection of investment choices.  It’s also the only online stock brokerage in its class with no account closing fees or transfer fees so if you ever decide to switch to another firm it won’t cost you anything. If you want to give Scottrade a try, you can find more info here.

What are Options?

An option is a contract that gives you the right to buy or sell an asset at a specific price until a certain time. There are two types of options:

1. Call: This is a “buy” option, allowing you to buy the underlying asset in question, at a certain price.
2. Put: This is a “sell” option, providing you the right to sell the underlying asset at a certain price. If the option is exercised by the option holder, the seller is obligated to sell the underlying asset.

It is important that you understand that, as a buyer, you do not have to buy the asset the option contract is based on. You are simply purchasing the right to buy it at a specific price. Anytime until the option expires, you can buy it at the price specified. If asset prices rise, you can make money because you have the right to purchase the asset at a lower price than the current market value and then turn around and sell it for more.

If you do decide to exercise the option, you’ll need to have the money available to buy the stock.  Options contracts typically start off at 100 shares so even at the lower price, you’ll need a chunk of change to make the purchase.  Another alternative you have is to sell the option itself rather than exercising it and actually buying the shares.

While you can buy or sell options, many beginners prefer to start out with call options since they are a little simpler way to understand the options market.

Basic Options Definitions

Here are some basic definitions to understand before you begin options trading:

• Underlying Asset: This is the the security that the contract is based on. If you are trading stock options, it is the stock you are considering. If you want an option on Citi (C), then you purchase the right to exercise 100 shares of C.
• Premium: This is the price of the options contract.
• Expiration: The final date at which the option can be exercised.
• Strike Price: Using the market price of the underlying asset, a key price level is determined. This is the strike price. At expiry, if the underlying share price has moved below the strike price, it is worthless on a call option. For a call, you want the underlying security to expire above the strike price. The opposite is true of a put option. With a put option, it is worthless if the underlying asset ends up with a price above the strike.

Remember that the buyer has control of the transaction. An options buyer can choose to exercise the option, or allow it to expire. Sellers, in most situations, can only wait for a buyer decision.

Options Trading Advantages

The main advantage to buying options is that you do not have to actually own the underlying asset in order to participate. When buying options you have leverage working on your side.  You can control 100 shares of an asset without having to pay the price to purchase them at market value.

As mentioned earlier, one of the benefits of buying an option is to hedge your risk against a big drop in the value of an asset that you own.

Options Trading Disadvantages

The main drawback to options trading is, as you might imagine, the potential for loss. If the option expires without being executed, you lose money. Unlike buying a share of stock, whose value is based on the underlying assets and performance of the company, an options value is based only on your right to buy.

Indeed, since you purchased the right to buy an asset at a specific price, if you don’t buy it, you are still out what you paid for the option. Also, if you are selling an option, and someone buys it, and the price has increased, you have no choice but to accept the lower price.

Options Trading Training

More online brokerages these days are offering the ability to trade options.  Before you begin, it is important to make sure you fully understand how option contracts work, as well the potential downsides. Hopefully this gave you a decent overview of why people buy and sell options and some of the advatages and risks.

Some options brokers offer extensive training on the basics of options as well as the various options trading strategies.  If you’re interested in pursuing options trading I suggest you go through some of this training to see if it’s a good fit for you.

That’s where financial ratios come into the picture; they can help you understand where companies stand relative to one another in terms of cash flow, debt, earnings, and other important financial metrics. Once you understand what these ratios represent, you can setup stock screens on the various ratios to help you find stocks of companies that meet the specific criteria that are important to your investing strategy.  Most online brokers allow you to setup stock screens to help monitor these ratios.

A while back we ran a series of posts covering some of the most widely used stock analysis ratios, below are links to each of the articles.  Each one describes what the financial ratios represent and how you can use them to analyze a stock.

• Earnings Per Share & Price to Earnings Ratio
• Price to Earnings Growth, Debt to Asset Ratio, & Dividend Yield
• Price to Book Ratio, Beta, & Price to Sales Ratio

Discount Broker Reviews

Luckily for us, SmartMoney magazine conducts an annual broker survey where they evaluate the online brokerages on a number of criteria and come up with a list of the worst and best online brokers.

The survey rates each discount broker from one to five stars in each category to come up with category winners; and also picks an overall winner.  This year’s survey is coming out in the latest edition of SmartMoney so we don’t know quite yet who the best are in each category.

I’m curious which aspects matter the most to you when choosing an online broker.  Here are the categories that the survey rates:

• Commissions & Fees
• Investment Products & Mutual Funds
• Customer Service
• Trading Tools
• Banking Services
• Research

Which of these are most important to you?

Defined Investment Goals

Each member of the group needs to have the same goal in mind and the same methods of achieving that goal. If some members of the group are only interested in making a profit, instead of learning more about investing and the details involved, there will be a divided set of goals. All members of the club should have the same philosophy about investing.

Long Term Goals

Members of the club should be clear on what the long term goals of the club are all about. There should be an understanding established of what amount of the profits that are realized from investments are going to be held and which amount is going to be reinvested immediately back into the stock market. There should be an equal amount of growth and stability that is agreed upon.

Investment Club Meetings

It’s important that members of the group are able to attend all meetings. When there are decisions that need to be made about ongoing investments and future investments it’s important that all members are part of the decision process. If the group decision is held up because some members don’t attend regularly the endeavors of the investment group are jeopardized.

Investing Accountability Checkpoints

It will be very important that the investment club have checkpoints in place that account for all investments, profits, losses, and other money issues. These checkpoints should be readily available for all members of the club to read at point in time.  For example decisions on buying and selling stock. Before any stock is purchased or sold it will be required that all members of the investment club are part of the study of these stocks and part of the final decision.

Before you decide to invest your money with other people, here are a few things you should consider.

Have Realistic Expectations

If you’re joining an investment club to make a killing in the stock market, you’ll most likely be very disappointed. The goal of an investment club is to learn more about the stock market and if you have dreams of becoming rich you’ll be starting the club for the wrong reasons. Joining an investment club means joining for a long period of time.

You’re Not a Professional Trader

Starting an investment club doesn’t mean that you have to be an expert on the stock market. In fact, an investment club is ideal for a group of amateurs who want to learn about how the stock market works and what it can do for them. An investment club should be a safe environment in which you can invest a little bit of money and not worry about losing a large amount of your hard earned dollars when something unexpected happens.

Minimum Investments

You shouldn’t need a lot of money to start or join an investment club. There will be a minimal fee for each month’s contribution, just make sure that it fits into your budget. If it’s a new investment club, you’ll have the chance to determine what the minimum monthly contribution should be each month when you have your first meeting.

Willingness to Debate & Compromise 

One thing that you should keep in mind is that your voice will be part of the larger group and you may not always have a say in which stocks you want to invest in. If you’re unable to sit back and let another decision take the place of something that you would rather see, then an investment club might not be for you. You’ll need to have the ability to let the majority rule whenever a decision is made.

You Might Lose Money

Be aware that you may never realize a profit from the stock market through your club. One of the important goals and features of an investment club is that you benefit from the learning experience of being with other people with the same interests in the stock market. No one likes to lose money but if you do make sure you learn from the loss.  Analyze what went wrong with the stock picking process and figure out what you’ll do differently next time.

Her son suggested she open her own account but she had the whole process built up in her mind to be too complex for her to ever understand. I told her I’d put together an overview of the account opening process to show her that’s it’s really not that complicated.

I went through in the Spring and took screen captures of opening a TradeKing account but then we had a baby so I’ve been a little distracted since then. Anyhow, here is a visual walkthrough of opening an account and the 10 main questions you have to answer to complete to an application for their online brokerage account.

1. What’s Your Basic Info?





2. What Will Be Your Secure Code?









3. Which Type of Account?









4. Who Are You?









5. Where Do You Work?









6. How Much Money Do You Have & What is Your Trading Experience?









7. Do You Have a TradeKing Promotional Code & What Are Your Affiliations?









8. What Are Your Investment Goals?









9. Do You Agree To Follow the Rules?











10. Give Your Electronic Signature









11. TradeKing Application Complete!

Of course, opening an account’s not so bad; it’s actually the easy part. Setting your investing strategy & buying and selling stocks is where the uncertainty comes in. To open a TradeKing account, click here.

This year the market has a lot more positive momentum than it did last fall and some of the people that were sitting on the sidelines are getting back in.  TradeKing is offering a $50 bonus if you open a new account and try out their stock trading platform.  You can read more about pros and cons of the online brokerage in this TradeKing review.

I had forgotten that they extended the promotion by a month last year until I recently got an email from TradeKing announcing they were pushing the deadline out a month.  They didn’t push it any further last year so if that’s any indication then this month will likely be the last chance for the bonus in 2009.

There is no TradeKing promo code necessary simply signup here and you get your $50 bonus after you fund your account with at least $2,500 and make your first trade.