Stock trading can seem like a daunting task for newcomers, especially teenagers learning about stock trading for the first time. And you might be happy to know it doesn’t have to be.
In general, the earlier you start investing, the better. Investing during the teenage years builds valuable habits, makes the most out of compound interest and has tax advantages if done in a retirement account like a Roth IRA.
However, investing money as a kid will carry different rules than someone who doesn’t start investing until later in life.
Therefore, it’s important to understand how minors can legally invest and what types of apps allow stock trading for teens.
In this article we will talk about investing for teenagers and the best places to start your journey in investing.
We’ll also take a look at some of the basics that you need to know before you get started so you don’t make any costly mistakes along the way!
What is the Stock Market?
The stock market is a place for buyers and sellers to come together and trade shares in publicly-traded companies with each other.
Stock markets essentially act like auctions, where potential buyers name the highest price they’re willing to pay (called “the bid”) and potential sellers name the lowest price they will accept (called “the ask”).
When you want to purchase stock in a company, you set your bid price by placing an order on an exchange through a stock broker.
This broker finds another person interested in selling at a price you wish to pay, or closely matching your bid to their ask.
Once the market finds two or more parties interested in filling a trade at the agreed upon price, the brokers deliver the shares and cash proceeds to the respective accounts.
The actual execution of the trade price takes place between the bid and ask prices.
Neither the buyer nor the seller receives the full amount of money paid or received in the transaction because the brokers capture a portion through the spread between the bid and ask prices.
This bid-ask spread pays brokers and the market exchange for facilitating the transaction. While often small with respect to the single transaction, taken over the entirety of the volume of shares traded on a daily basis, it can amount to serious money.
Many free stock trading apps monetize this trading volume through payments for order flow.
Can You Trade Stocks Under 18?
Yes! If you are choosing to invest as a minor, (meaning you’re under 18 or 21, depending on your state of residence) you can invest in the stock market under 18.
To do so, you’ll need to open a special type of investment account for minors called a custodial account.
These accounts allow custodians, or parents, guardians or other people with ties to the minor, to invest money for the benefit of the minor on the account.
Custodial brokerage accounts act as a great way to engage teenagers who wish to learn about the stock market and trade stocks under the age of 18. They require a custodian to open the account and oversee the investment decisions made within it for the benefit of the minor.
When people contribute assets to a custodial account, the money becomes an irrevocable gift to the minor.
These accounts come in two flavors: UTMA and UGMA.
- UGMA (Uniform Gifts to Minors Act) – These accounts allow a custodian to invest in traditional financial assets like stocks, bonds, ETFs, mutual funds and related securities.
- UTMA (Uniform Transfer to Minors Act) – These accounts act in a similar way but also allow non-financial assets to go into the account like the deed to a house, automobiles, alternative investments in addition to traditional financial assets.
Teens can also join as an owner of a joint brokerage account with an adult, usually a parent or guardian.
Regardless of your preference for a custodial account as a UGMA or UTMA or a joint brokerage account, teens should get involved in investing and learn the markets.
Some of the wealthiest people in the world got there by investing in stocks and starting from an early age. Perhaps most famously, Warren Buffett began investing in his teens and now has tens of billions of dollars in personal wealth.
He started young and developed his wealth building habits from his early years.
Minors should learn how to invest as a teenager because they bring a unique perspective no other investor older than them can. For example, you are a consumer who sees new offerings and what potential they have.
In my case, I saw the growth and rise of online retailers like Amazon and Shopify, social media giants like Facebook and Twitter, major tech companies like Alphabet, Apple and Netflix as well as auto manufacturers like Tesla or even cryptocurrencies like Bitcoin.
Because you have dialed in interests with hyper focus on them, you might know about the next great companies entering the market because you interact with them on a regular basis.
Choosing to follow through on your projections by investing in these companies’ stocks might show you the power of conviction and even the satisfaction of aligning your money with your interests.
What is Stock Trading for Teens?
Stocks act as some of the best investments for teenagers because they tend to provide a long-term focus on growth and higher returns.
They carry higher risks traditionally than investments like bonds, but young investors can tolerate this volatility due to their long investment horizons.
Starting to invest as early as possible makes complete sense as the practice relies on building sustainable habits to last a lifetime.
This means taking time to research stocks, vet different index funds, understand how companies make money and much more. Though, these efforts don’t always fixate on the long-term orientation of investing I tend to favor.
Today’s news headlines rarely take into account long-term views, meaning the most reliable purpose for investing sustainably to build wealth gets lost in the news cycle.
While these might be the source of some people who turn money into more money in great quantities, it rarely pans out that way for the retail investor following the herd to take advantage of some passing craze.
My personal investing style might also be the most boring: investing in low-cost index funds to let your wealth compound in a diversified portfolio over many, many years.
However, many teens consider index funds less exciting than individual stocks and want to own shares of companies they know and love.
Should Teenage Investing Include Individual Stocks?
If you choose to start investing in individual stocks, try to stick to blue-chip stocks. Blue-chip stocks come from established, well-known companies that are generally more stable.
Blue-chip stocks might not represent the best choice for aggressive growth, but they do offer a steadier return than other types of stock investments.
Larger companies carry less risk in general because there is already too much money at stake to risk doing something drastically different that could tank your share value–and their company as well!
One investment newsletter service to consider is AskFinny. This personal finance tool makes learning about finances and investing fun for all ages by providing engaging quizzes, breaking down complex topics in easy-to-understand terms and upskilling teens and young adults interested in learning how to manage their money.
Consider signing up for a 7-day trial to see if it would make a valuable resource for you to teach your kids about personal finance.
When using a long-term mentality for investing in the best stocks for kids, you can see your account balance grow over time without worrying about the latest tweet from Elon Musk and how it’ll affect any number of investments filling the news headlines.
Investing in individual shares can be an exciting way to increase your wealth and build up appreciating assets over time; however, it’s important to know what you’re getting into before diving right in without any knowledge or understanding.
Consider subscribing to a stock picking service that has performed well over many years and developed a sound track record and investment vetting process.
These can easily cut down your investable selection of stocks to focus only on ones that have passed numerous quality criteria from highly-regarded and well-respected stock advisor websites and services.
Once you get these stock selections, and you have done some research on trading practices, you might consider starting to invest.
Make sure this active type of investment strategy suits you and then start investing now while you still have years to earn money and save ahead of you.
You might also consider investing in index funds like VTI to see how these investments perform in comparison. If nothing else, it’ll build instant diversification in your portfolio through an all-in-one type of investment.
6 Apps that Show How Teenagers Can Invest in the Stock Market
The stock market can be a tricky place. It can be really rewarding if you choose wisely and your stocks go up – or devastatingly disappointing if they don’t. That doesn’t mean investing as a minor is off limits though!
In fact, investing can be as simple as buying one index fund and letting it sit idle. Though, that’s not always what a teenager wants to save up for and buy.
That’s where individual stock trading for teens comes in! You can still invest for the long-term, meaning without a lot of the risk that comes associated with day-trading, but you can choose stocks individually and see how they perform over time.
It’s also less time consuming than day-trading because you only buy and sell the companies you like when it suits your needs. That way you don’t have to worry about being glued to your computer screen all day wondering what stocks to buy.
By beginning with small amounts of money, teenagers can learn how to trade stocks in their portfolio before serious amounts of money get put at risk.
There are a few ways to trade individual stocks as a teen without being too risky and still making it fun:
You can open custodial accounts through apps like M1 Finance to trade along with parents or family members. This will let you learn how to trade stocks as a teen under close supervision.
Likewise, you can trade exchange-traded funds (ETFs) like passively-managed index funds to diversify your portfolio with a single purchase.
You can also invest in actively-managed exchange-traded funds which come managed by professionals who have more experience investing than you do.
You can also open up low-cost investing apps for beginners to show you how to invest in diversified investments from the start and build a substantial account balance over the years.
Some apps geared toward teenagers learning to invest include:
|App||Rating (out of 5)||Fees||Best For||Promotions|
|Acorns Early||4.8||$1/month - $5/month||Automated investing in the background into diversified investments; Round Ups||$10 sign up bonus when making first deposit at account opening|
|Greenlight + Invest||4.8||$7.98/month||Teaching investing fundamentals with guidance from parents; allows individual and index fund investing||First month free|
|EarlyBird||4.0||$1/mo if over $200 invested; $2/gift paid by gifter||Simple gifting and investing in a UGMA account for reasonable fees||$10 for opening an account|
|Stash||4.7||$1/month - $9/month||Everyday people looking to start managing their finances||$5 stock bonus for making a deposit of $5 or more|
|M1 Finance||4.3||$0 trading or automated investing; $125/year on M1 Plus subscription for custodial account||Fee-free active trading and automated investing, Custodial IRAs||$30 sign up bonus with $1,000 deposit|
|UNest||4.5||$3/month - $6/month||Age-based investments in custodial investment account||Matching bonus with $25 initial deposit ($25 bonus)|
1. Acorns ($10 bonus)
- Available: Sign up here
- Price: Acorns Lite: $1/mo, Acorns Personal: $3/mo, Acorns Family: $5/mo
Acorns is the signature app loved by Millennials and Gen-Zers because it allows users to start with very small amounts of money and grow their balance into larger figures through “Round-Ups”.
Round-Ups are small purchases that you make with your linked Visa debit card through the Acorns app.
For example, if you buy an espresso for $3.75 and Acorns is connected to the purchase, then it will round up to $4.00 and invest the difference of $0.25 into stocks automatically!
This also makes one of the best investing apps for college students because you can avoid the monthly fees if you have a .edu email address from school.
Learn more in our Acorns review.
2. Greenlight App
- Available: Sign up here
- Price: Free 1-month trial, $7.98/mo after for Greenlight Card + Invest
It’s easy to use and can double as a savings account for your teens. The app will teach you the basics of investing, how to trade stocks, ETFs, etc. with market capitalizations of $1 billion or greater.
In other words, no small cap stocks, and more the stocks for kids with broader brand name appeal.
It works best if parents are involved in the process because it requires linked brokerage accounts from custodian banks or brokerages.
Read more in our Greenlight Card review.
3. EarlyBird ($10 Bonus)
- Available: Sign up here
- Price: $1/mo (first $200 managed free); $2 per gift (for the giver)
EarlyBird is a mobile app which allows parents and guardians to set up a UGMA account to gift money for investments to their children.
This app provides a convenient and inexpensive way to gift money to a child, with funds available to go toward any expenses which benefit the child.
When providing a gift, givers can record a video to go along with their gift, personalizing these moments which last a lifetime. If you’d like to give but the recipient doesn’t have an account, you can text them a link from the app to the recipient’s phone number.
When opening an account to invest for your children, you can select from five different portfolios, ranging from conservative (100% bond ETFs) to aggressive (100% stock ETFs).
All portfolios rely on diversified ETFs to achieve your investing aims, removing the complexity of conducting your own research or selecting specific investments.
You can open an account and have the first $200 managed for free, upon which the account charges $1 per month per child. Further, each gift made incurs a $2 processing fee payable by the giver.
Consider opening an EarlyBird account today and get $10 to get you started after opening your account.
4. Stash ($5 bonus)
- Available: Sign up here
- Price: Starts at $1/mo
Stash is another all-in-one personal finance app geared toward helping every American start investing for the first time.
It caters toward beginners looking to get started on their financial journey and offers a large financial literacy library to learn about different finance topics.
Further, Stash offers their “Stock-Back” solution which allows users to earn stock on purchases made on their linked debit card. Over time, these additional stock contributions can build your portfolio.
Consider signing up for Stash if you’re looking for a simple investing and banking solution for teenagers. Stash grows with the user and makes your money work for you.
5. M1 Finance ($30 bonus)
- Available: Sign up here
- Price: Free trades, $125 subscription to M1 Plus required for custodial account
M1 Finance is an all-in-one personal finance solution that allows new investors to set up an account in seconds. If you want to invest as a teenager, you’ll need to apply for an M1 Plus subscription. The company has a limited time offer of the first year for free ($125 value).
The service offers investors the ability to create Portfolio Pies, or a diversified portfolio that rebalances to help you achieve your money goals.
M1 Finance is a service designed for self-directed investors by offering flexible, customizable and automated financial solutions. The platform manages your money intelligently based on how you want, for free.
Consider signing up for an M1 Finance custodial account today.
6. UNest ($25 bonus)
UNest is a new custodial account that allows parents to invest money for their kids for needs beyond just education but events like a new car, a wedding, vacation or anything else a minor might want some day.
UNest even offers a free matching $25 sign up bonus for opening an account and making an initial $25 contribution.
You can also learn how to get free stocks through offers like these with a number of useful investing apps.
Can Teenagers Invest in a Custodial IRA?
A great option for teens to start investing is by opening a custodial Roth IRA (or traditional). This allows teenagers to invest money toward their retirement when they will likely start having earned income.
A custodial IRA is a special type of retirement investment account that you can set up for an underage person, especially for one who has earned income.
For Roth IRAs, unlike traditional IRAs, the investment contributions are not tax-deductible but will likely get hit with very low taxes because a teenager won’t earn as much money as they will later in life.
The teenager can use an app like M1 Finance to invest in index funds that the parents or family members buy for them with contributions to the account.
As the account balance grows and the teenager learns to follow along, they can understand how stock trading for teens can build serious wealth.
Why Parents Should Be Involved in Stock Trading for Teens
Stock trading is a risky endeavor if not handled correctly. Investments can quickly sour and turn bad.
In order to avoid disaster, parents should be involved in stock trading for teens. Otherwise, you’re likely to have a lot of gunslinging young investors ruining what otherwise could be a fantastic start in equities for teens.
By establishing defined guardrails and clear limits, teens can take that first step to learn a valuable skill early in life.
For one, minors shouldn’t be allowed to trade sophisticated assets like options, stock market futures, forwards, commodities, or anything with that level of risk profile.
Plain stocks and ETFs should suffice as learning is the primary goal, not unsuitable risk.
In recent history, apps like Robinhood captured headlines not for democratizing access to markets, but by doing so in far too flung a fashion.
In fact, one 20-year-old killed himself after seeing some alarming messaging in his app after making what seemed like an innocuous options trade on Amazon stock.
Certainly taken to the extreme, but this never should have happened with the easy access to trading options.
Individual stock trading for teens shouldn’t involve fast trading – especially not in volatile types of investments like options or cryptocurrencies – because that can quickly turn into capital losses.
But owning a handful of shares in a company you follow or admire is something else entirely.
It gives you skin in the game to learn about the company, the broader market and instill good money habits to build wealth.
Custodial Accounts with Safeguards are the Answer
Parents can help their teenagers start investing with a custodial investment account. It’s easy to start and can be a useful way to teach kids in a low-risk environment how to start investing.
There will likely be volatility, even in this environment. After all, it is the stock market and it indeed carries risk- no matter your investment choices.
However, learning how to deal with those swoons in the moment from parents or guardians can teach teens how to react and build these behaviors from an early age.
This is much better than filling with dreadful emotion when a stock tanks or filling with exhilaration when one rockets to the moon.
These types of emotion don’t relate to sustainable investing strategies- that’s gambling plain and simple.
Services like Fidelity’s Youth Account allow teenagers to invest without a custodial account, letting them trade unsupervised. This type of arrangement is fraught with risk and is not an ideal environment for teaching investing for kids.
Instead, parents can use the above investing apps to track stocks and monitor portfolios of their teenagers’ investments while providing guidance.
As the account balance grows, so does the teenager’s understanding of how stock trading for teens works.
When they are ready to start investing on their own, parents should help them find a broker or advisor who understands this age group’s needs in terms of risk tolerance.
However, the apps highlighted above also grow with the investor, meeting their increasing needs with added features and functionality.
As they grow, they’ll get more comfortable with risk because they’ve seen it before through investing in a custodial account.
As a teen, stock trading allows you to keep score of your decisions with the possibility of feeling pain on the losses, but considerably less so because of the smaller investment account balance than an adult would have.
By placing the proper guardrails on investing young, parents can teach teenagers valuable life lessons. Left unchecked and you’re showing kids how to gamble, not how to invest in a secure financial future.
About the Site Author and Blog
In 2018, I was winding down a stint in investor relations and found myself newly equipped with a CPA, added insight on how investors behave in markets, and a load of free time. My job routinely required extended work hours, complex assignments, and tight deadlines. Seeking to maintain my momentum, I wanted to chase something ambitious.
I chose to start this financial independence blog as my next step, recognizing both the challenge and opportunity. I launched the site with encouragement from my wife as a means to lay out our financial independence journey and connect with and help others who share the same goal.
I have not been compensated by any of the companies listed in this post at the time of this writing. Any recommendations made by me are my own. Should you choose to act on them, please see the disclaimer on my About Young and the Invested page.