Purchasing stocks isn’t as daunting as it sounds, but you’ll need to do some homework — and understand the jargon — before making the first buy.
To buy or sell stocks, you need a brokerage account. After you’ve opened your account and transferred funds to it, you can use the steps below to search, pick, and invest in specific businesses.
Buying stocks can seem complicated at first, but it is actually very easy. Learn how to buy stocks in 5 steps:
Choose an online stockbroker.
An online stockbroker is the most convenient way to purchase stocks. You will purchase stocks via the broker’s website in minutes after opening and adding funds to your account. Another choice is to use a full-service stockbroker, or to purchase stock directly from the desired company.
It is as easy to open an online brokerage account as it is to open a bank account: You fill out a new account opening application, provide identification; and decide whether to fund the account with a check or electronically transfer funds.
How to buy Stocks for the first time.
After you’ve set up and added funds to your brokerage account; it’s time to start picking stocks. A good way to start is by studying the businesses you already know from your customer experiences.
Don’t let the flood of data and statistics and market fluctuations confuse you when doing your analysis. Keep your goal simple: you’re shopping for businesses in which you want to invest.
“Buy into a business because you want to own it, not because you want the stock to go up.”– Warren Buffett.
He’s done very well for himself by sticking to the principle.
After you’ve found these businesses, it’s time to do some analysis. Begin with the annual report of the company, particularly the annual letter to shareholders from management. The letter would provide you with a general narrative about what is going on; in the company as well as explanation for the figures.
Following that, the bulk of the facts and analytical data you’ll use to analyse the firm will be accessible on your broker’s platform, such as SEC filings, conference call transcripts, quarterly earnings results, etc,. Most online brokers also offer tips about how to use their software, as well as simple tutorials on stock selection.
Number of shares to purchase.
There should be no stress on you to buy a certain amount of shares or to load your whole portfolio with a single stock all at once. You can consider taking baby steps — very small — and buying only one share and get a sense of what it’s like to purchase individual stocks. When you master the shareholder swagger, you will be able to expand your holding position.
Stakeholders may also be interested in fractional shares, which is a relatively new product offered by online brokers; which can you to purchase a percentage of a stock rather than the whole share. That means you can buy into expensive stocks — firms like Google and Amazon, which have four-figure share rates — for a fraction of your investment. Brokers that sell fractional shares include SoFi Active Trading.
Many brokerages already have a method for exchanging USD to securities. This is useful if you have a specific amount to spend — say, 500 USD — and want to see how many shares that amount will buy.
Also Read: How To Invest 1 Million Dollars
Choose the kind of stock order you want to place.
Don’t be put off by the huge pile of numbers and irrational terms on your broker’s order book. Refer to the following glossary of simple stock-trading terms:
There are a number of difficult trade moves and order sides. Don’t bother now, or never. Investors can develop a successful career by using only two types of orders: market order and limit order.
A market order indicates that you want to purchase or sell the stock at the best available existing market price. Since a market order does not specify a price; the order will be executed automatically and completely filled, unless you are attempting a takeover coup by purchasing a million shares.
Don’t be disappointed if the price you pay for the stock — or collect if you’re selling the stock differs. Throughout the day, bid and ask rates fluctuate. As a result, a market order is better used for purchasing securities that do not have huge price fluctuations — large; consistent blue-chip stocks as opposed to smaller, more unpredictable businesses.
A market order is better for buy-and-hold shareholders; who care more about ensuring that the exchange is properly conducted than about minor price changes.
If you place a market order for sale, after the markets have closed for the day, your order will be executed at the current price before exchanges reopen for trading.
Read and under the trade execution disclaimer given by your broker. Few low-cost brokers combine all consumer trade orders and complete all orders at the current price at the end of the trading day or at a specific time of the week or within a week.
With a limit order, you get more leverage about the price at which your order is fulfilled. If XYZ stock is selling at $100 a share and you assume a price of $95 per share is more in line with how you view the business, a limit order instructs your broker to stay on and fulfil your order only when the ask price falls to that amount. A limit order instructs the broker to sell the shares until the bid hits the threshold you assign.
Limit orders are a valuable tactic for customers who purchase and sell smaller business securities, which appear to have spreads.
While a limit order ensures the price you will get once the order is executed, there is no certainty that the order will be executed fully, partly, or at all. Limit orders are put on a first-come, first-served basis, after market orders have been executed, and only if the price persists within the defined parameters long enough for the trader to fulfill the order.
The commission for limit orders can get higher than that for market orders. A limit order that cannot be filled in full at one time or on a single trading day can be filled over several days, with processing costs paid per day a trade is completed. If the stock has not reached your limit order level before expiration, the transaction will not be executed.
Manage your Portfolio
We hope that your first stock investment is the start of a lifetime pursuit of profitable investing. Still, if things get complicated, bear in mind that any investor, including Warren Buffett, goes through hard patches. The trick to long-term sustainability is to maintain your perspective and reflect on what you can manage. Price manipulations are not one of them. However, you do have some influence over a few aspects.
If you’ve mastered the stock-buying process, you should branch out into other parts of the investing ecosystem. How would mutual funds fit in your investing strategy? Have you developed a savings plan, such as an IRA, in addition to a brokerage account? Opening a brokerage account and buying stocks is an excellent first step, but this is just the beginning of your investment journey.