Have you been wondering how to buy stocks and don’t know where to start? You’ve come to the right place. But there’s good news and bad news. Bad news first: with so many options to choose from, it’s easy to make the wrong move and lose out on your hard-earned cash. Good news: by following the instructions provided in this guide, you’ll be in the best position to buy a stock that will make your money work for you.
Read on to learn how to buy stock the right way.
Open a Brokerage Account
Before you initiate your first purchase, it’s a must that you open a brokerage account. Why so? Well, you’ll need to execute orders and hold your stock. But not all brokerage accounts are created equal.
Some require a higher minimum deposit, which may not be ideal if you’re new to the trading game and would like to get acclimated slowly by only investing a small amount. Therefore, you’d want to go with a brokerage account with low fees and commissions.
But if you’re wanting to derive the greatest return on your money sooner than later, a more expensive brokerage account option may be the best fit.
Brokerage Account Options
Below is an overview of the different types of brokerage accounts:
- Full-Service Brokerage Account- ideal for investors who need thorough guidance on stock trading transactions, and are accompanied by a fee in the form of a flat fee or commission.
- Discount Brokerage Account- ideal for seasoned investors, newbies on a tight budget, or those who wish to handle their own stock trading transactions, but may need support on occasion. The flat-fee or commission is generally lower than what you’d find with a full-service brokerage account because the support provided is minimal.
Analyze the Various Types of Stocks
All set with the brokerage account? The next step is to choose the stocks you want to buy. But it’s not as cut and dry and choosing what some stockbroker you saw on television said was the best fit.
Instead, brainstorm a list of companies in industries that pique your interest. You can also add companies from some of the most lucrative fields, like tech, if you’re looking to maximize your dollar in the short-term. Another option: ask around for recommendations, and don’t be afraid to call up your financial adviser and allow them to weigh in.
Upon compiling the list, do a bit more digging to get a feel of the company’s overall performance over time, but pay attention to how they’ve done as of late. Look for trends so you can make an educated guess regarding how the stock will perform in the near future should you decide to invest. The firm under which your brokerage account is housed should also be able to provide you with information to help analyze stock performance, and may even have more detailed information about the company’s you’re considering.
You should also retrieve a company’s annual reports to analyze financial trends and overall company performance in the past year. They can usually be found online.
Obtain a Stock Quote
The stock quote, which is identifiable by the ticker symbol, contains key components related to pricing on an exchange and can be obtained from the broker you are doing business with. You can also visit Nasdaq.com to get stock quotes.
They include:
- Ask Price (or Offer Price): the lowest price a seller will accept per share
- Bid Price: the maximum price a buyer will pay per share
- Information on the volume at which the stock has traded in the past
- Projected performance based on simulations
Place a Stock Order
Before you place a stock order, you need to know how many shares you want to purchases. You should also be aware of the three types of stock orders to choose from:
Stock Order Options
- Market Order: guarantees you are able to obtain the number of shares you wish to purchase. Usually executed first.
- Limit Order: guarantees you are able to obtain shares at the price you wish to pay
- Stop Order: can only be executed when the number of shares an investor requests reaches the stop price. Stop-loss orders guarantee the entire order is executed when the price reaches desired “stop level”. Stop-limit orders guarantee the order is executed when the price reaches the desired “stop level”, but the entire order may be not filled.
The Bottom Line
By following these instructions, you’ll find that it’s not too difficult to buy your first stock. Even better, you’ll start to accumulate wealth by making investments in the right companies, which can drastically boost your nest egg.