If you are concerned about your financial future, then most likely you will begin to be interested in investing. When you decided that it is time for you to do this, now you probably wanted to learn how to buy stocks.
If this happens for the first time, then your imagination surely draws successful and wealthy people in suits that have shares in different enterprises and receive passive income from it. However, before you start celebrating your first successes, you will have to learn something about how to buy stocks, where to start and what you need to do to begin earning on stocks.
Start by opening a brokerage account
So, buying stocks: how does it start and how does it happen? Nowadays, the stock exchange has almost nothing to do with what we could see in the movies before with brokers screaming and waving papers. Now, basically, this all goes calm and quietly behind computer monitors, when decisions are made online based on the latest data and graphs.
Today, you can use one of the brokerage networks to open a brokerage account and start investing in stocks. It is as simple as coming to the bank and opening a regular bank account there.
Choose a broker who does not suck you dry, look for brokers who provide low trade commissions, but the pursuit of cheapness should not be your main goal. Cheap does not mean quality. This will be especially relevant for those who are just starting and still want to learn how to buy stocks. At this stage it is worth paying more attention to the quality of service. Sometimes it is worth to overpay a few bucks, but get better service.
When choosing a stock broker, it is also worth deciding how much service you need. In addition to trading securities directly on the stock exchange, most brokers will be ready to provide you with various types of information, training materials and consultations with various experts.
After you have chosen a broker, to register a brokerage account, you will need the same documents proving your identity as when opening a bank account. Fill out an application, submit documents and choose the method of its refill, which is available in almost any form. That’s all – your brokerage account is open and you can start investing.
Decide on the type of investment
Next, decide what you want to invest. If you have already been interested in a little bit and want to learn how to buy stocks and investing in general, then you probably already know that there are different types of investments in the stock market.
If you are planning a long-term investment, you can start with mutual funds and ETF. This type of investment with the right strategies and good deals can provide you with, for example, a comfortable life when you retire, pay for your children’s college tuition, or buy a new home in length of time.
Some investors, including some beginners, preferring long-term strategies, do not go into the details of individual stocks and companies, but seek to cover entire markets. Others choose shorter strategies, stocks of specific companies, options, and other specific securities, but they need to pay more attention while trying to figure out how to buy stocks and how to handle them.
What else do you need to pay attention to when you decide to start investing in securities?
Of course, it is very important to always understand what means for investment you have. It should be free money that you do not pull out of your monthly budget, which you may lose, but this will not so critical for you. You should know that any kind of investment is risky, and there can be no absolute guarantees in this matter. If someone assures you otherwise, then this is most likely fraudsters.
Also many stock brokers have their minimum requirements for your account. The minimum amount on your account, with which they are ready to work, can go up to $ 2,000, although options are possible from zero and up.
The next important point to pay attention to before you start investing, when you are going to learn how to buy stocks, this will be how often you plan to trade on the stock exchange. This is necessary in order to understand what expenses are awaiting for each transaction.
If you are planning to trade actively, making 10 transactions per month, then it will be important for you that the broker takes low commissions, otherwise you may not earn anything from trading in securities. Most often, for new investors who do not really understand how to buy Stocks begin to trade gradually, brokers have tariffs from 5 to 10 dollars of commissions per transaction. There are also cases where some brokers charge a fee for inaction. If you do not plan on active trading at the initial stage, then you should not cooperate with such brokers.
Select stocks to invest
Now that you have chosen a broker, the level of service, decided on the type of investment and how often you intend to trade, it is time to choose specific securities, stocks and companies. For a start, you can draw your attention to companies known to you as a consumer in order to study them and the situation in which they are.
You should not react violently to every fluctuation of the price of shares of a certain company and panic about it. The market price of shares fluctuates daily and can shift to either side in one day or one hour. This is only part of the stock exchange work. Connect your intuition and desire to own shares of a certain company, and do not chase short-term indicators.
Explore everything related to the selected company, starting with the company’s annual report and ending with the market as a whole, in which it operates. If you want to learn how to buy stocks, in order not to make a mistake in choosing, then you should be interested in analytical information about the selected companies. In this case, you will find tools such as SEC documents, quarterly income reports, latest news, and expert evaluations.
You should not immediately acquire an equity stake from the first time, especially when you are just starting to use the knowledge of how to buy stocks. Start with just one or more shares to understand what it means to be an investor and own stocks. After all, this is your money and, by investing, you risk it in any case. Should you immediately lose sleep and nervously respond to every price fluctuation or news about a company or a market? It is hardly. Start small and then, over time gaining confidence, gradually increase your share of ownership of the company.
Select order type
In order to decide how to buy stocks, it is necessary to place an order correctly so that you understand that you are acting absolutely consciously and not playing roulette. If you want to play in a casino, then you can go to Las Vegas, but when buying stocks, you should understand what you bet on.
- If you want to purchase stocks, first of all, find out the price that sellers want for one of their shares.
- If you want to sell stocks, first of all, respectively, find out what price buyers are willing to give per share.
In both cases, look at the spread; find out what the range of prices is between the maximum and minimum prices per share. A market order means that you create a request to buy or sell shares as soon as it is possible at the best available price.
- Limit order: a request to buy or sell shares is not above or not below a certain price.
- Stop (or stop loss) order: in a situation where the stock price reaches a certain point, the purchase at a higher price or sale at a lower price is not carried out.
- Stop limit order: when the stock price reaches the stop point, the transaction changes its status to the limit order and is filled to the point of the set price limits.
These are the main types of transactions, but not the only ones, however, the majority of successful investments still occur on limit and market orders, so do not worry at the initial stage, when you are just starting to learn how to buy stocks that you do not know or do not understand all types of transactions.
The market order does not set the price parameters of the transaction, so it will be executed as quickly as possible (but it is unlikely that in real time) at the best market price available at the time the order is executed. Why not in real time? The fact is that the stock price on the stock exchange may change every second, so it may take some time between creating your order and the moment it is executed, at least a few seconds.
In this regard, the market type of order is better to use when you purchase shares of large stable companies that are more resistant to momentary market fluctuations. When you learn how to buy stocks, you should understand that smaller companies are more prone to market fluctuations and the price of their shares can change faster and more often.
It should also be borne in mind that a market order is best suited for those investors who hold shares, relying on a longer perspective, when full security of the transaction is more important than a slight difference in the price of shares.
It should also be understood that some stockbrokers combine trading inquiries of many different clients to execute them at one moment at the prevailing price, perhaps on another day, so if your order was not filled before the end of the day, check its refusal request.
This type of exchange orders will not allow your broker to buy a share more expensive than the price you set or sell for less than the price you set per share. This gives you such control over the price of the transaction, which the market order does not give you. You can also add some additional conditions to the limit order.
Thanks to the condition you have set for the duration of opening your limit order, you get even more control over the price of your transaction. For example, the “Good for day” order (GFD), even if it was not completely filled, expires at the end of the trading day, while the All or Nothing (AON) order will be executed when all the stocks you want to trade, will be available at your price limit. Another type of limit order “until canceled” (GTC) remains open until the client cancels it or the order expires.
Although the limit order gives the broker’s client much more control, it may not be executed partially or completely, due to the restrictions it sets. It is executed after only after market orders, so the price you set and other restrictions may no longer be relevant.
In addition, due to the fact that limit orders can be executed for more than one day, then each of them can cost the client more commissions. You will have to pay transaction costs for each day that a broker makes transactions. At the same time, it is also worth considering that the transaction on your limit order may not be executed at all if by the end of its term the share price has not reached the limit set by you.
To sum up
Proper investing in stocks over time can significantly change your life, so it’s really worth exploring how to buy stocks to have great future prospects.
The main thing in this business is not to hurry and not to make hasty decisions. Start small, study information about companies of interest and do not worry if you make a mistake somewhere, no one is insured against this, even experienced investors. Do not use your last money for investments, and remember that any investments always carry risks. Keep your finger on the pulse of events and be aware of relevant news.
Concentrate on your long-term investment goals and move towards them systematically, gaining experience and gradually increasing your portfolio.
We hope that the information that we have prepared for you will bring you much benefit and profit. Read our financial blog to find out as much as possible about credit and personal finances. Write comments and ask your questions below.