How old do I have to be to trade stocks, what options are available to me, and what should I know about the stock market or personal finance before I take the plunge? If you want to get a head start on your financial future – BusyKid can help.

We’ll break down the basics of financial planning, buying stocks, financial literacy, and more, so keep on reading. 

What Is the Stock Market?

Before we answer: How old do I have to be to trade stocks, it’s important to break down the stock market first. 

The stock market is a place where small portions of ownership in companies can be sold or bought. These portions are also known as shares and in the stock market, you can buy and sell stakes, but the prices can and do fluctuate throughout the day.

Stock markets create efficient price discovery and dealing and the leading stock exchanges in the U.S. include the Nasdaq and the New York Stock Exchange.

How Does the Stock Market Work?

The stock market consists of two components: the primary and the secondary markets. Let’s take a closer look at both.

The Primary Market

To raise money for their endeavors, companies will often issue shares. There are two ways these companies go about it. First, they can pull together the necessary funds from people they know and remain a private entity. However, they can also reach out to the general public and ask for money in return for stakes in the business.

The company first issues the shares directly as part of the initial public offering (IPO). Also, a particular amount of shares becomes available at a specified price, and those who buy them hope that they will increase in value.

The Secondary Market

After the IPO, the shares issued are free to change hands repeatedly and the company has no involvement in how or to whom they’re sold. 

Stock Exchanges

When a company starts selling portions of ownership to the public, they do so on a specific stock exchange. Almost all countries have at least one exchange where it’s possible to buy or sell company shares. If there’s more than one option, the company itself will choose which stock exchange to sell its shares on.

How Old Do I Have to Be to Trade Stocks?

Now, let’s get to the most important question of all: How old do I have to be to trade stocks?

You need to be at least 18 years old to open your own account and invest in stocks. Most accounts like individual brokerage accounts, IRAs, or other types of investment accounts require you to be 18.

However, if you’re interested in investing, there are ways to do so even if you’re under 18. There is a special type of account called a custodial investment account, which has two holders: the beneficiary and the custodian.

The custodian must be at least 18 years old and they’re the ones who are going to open and manage the account. On the other hand, the beneficiary can be under 18, but they will take full control of the account once they turn 18. 

The Basics of Investing in Stocks: Knowing Account Types

The custodian and beneficiary will have several different account types to choose from. Let’s take a closer look at some of the more common ones.

Custodial Brokerage Account: UGMA/UTMA

Uniform Gifts to Minors Act (UGMA) and Uniform Transfers to Minors Act (UTMA) are types of custodial accounts. For these types, the adults would make the investment choices while the minors would own the investments.

A UGMA custodial account can be used to hold only financial assets, which include but aren’t limited to stocks, bonds, ETFs, mutual funds, and insurance products. On the other hand, UTMA accounts hold all the assets UGMA ones do, as well as any property. 

It’s important to note that the UGMA custodial accounts have been adopted in all 50 states, while UTMA has been adopted in 48. The two states that don’t have UTMA options are South Carolina and Vermont.

Custodial IRA: Traditional or Roth

If the person under 18 has earned income, the parent or guardian can open a custodial IRA or a custodial Roth IRA on their behalf. Once the account is open, the assets inside are managed by the adult until the minor reaches 18 or 21 depending on state laws.

A custodial IRA works like a traditional IRA, where contributions are on a pre-tax basis. That means that they reduce the taxable income.

The custodial Roth IRA will work just as a traditional Roth IRA. That means all contributions are made on an after-tax basis, which can often be a good option for minors.

529 Plan

A 529 plan is an education savings vehicle with tax advantages. Essentially, as long as the money stays in the 529 accounts, the earnings inside grow tax-tree. However, if the custodians were to make withdrawals for certain qualified education expenses, they might be able to do so free of tax on a federal level.

The unique advantage of a 529 plan is that there are no income restrictions when it comes to making contributions.

Tools for Teaching About the Stock Market

If you’re a parent or guardian who wants to spark interest in your teens or kids, there are many different tools to help you. So now that you know: how old do I have to be to trade stocks, let’s see the things that can help you understand it better.

First off, there are online stock market games, which can be an entertaining method to get kids interested in investing. Also, there are countless investing books for kids that specifically focus on teenagers or child investors. 

Final Thoughts on How Old Do I Have to Be to Trade Stocks

If you want a more interactive and hands-on approach to teaching kids about investing, there are apps like BusyKid. With BusyKid, parents have the platform to help their teens and kids start learning to invest for as little as $10.

With the BusyKid app, you and your kids can learn to invest, save, and budget with just a few clicks. What’s more, your assets are safeguarded as BusyKid’s integrated investing platform is backed by Apex Clearing Corporation.

Download BusyKid to learn more and get a head start on your children’s financial future.

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