Are you wanting to invest in the stock market but don’t know where to start? You’re not alone. Buying stocks online is a simple process. But doing the research can be a bit overwhelming if it’s your first rodeo. But don’t fret. Read on for a step-by-step guide on how to buy stocks.
Mastering the Basics: A 4-Step Guide to Buying Stocks for Beginners
Embarking on your stock trading journey can be both exciting and overwhelming. With this concise 4-step guide, we’ll help you navigate the essentials of stock trading, from setting up a brokerage account to making informed decisions on stock purchases.
Step 1: Set Up a Brokerage Account
To buy stocks, you’ll need to apply for a brokerage account. With an online brokerage account, you can transfer funds into your account electronically from a linked bank account to fund any future investment orders. And upon making a purchase the stocks will remain in the account until you trade them.
Types of Brokerage Accounts
The basic types of brokerage accounts are:
- Common amongst online brokers
- Similar to a do-it-yourself option with limited support
- Minimal fees and commissions
- Some don’t have a minimum deposit requirement
- Designed to help investors from start to finish with planning and execution of trading goals
- Offers extensive support from financial advisers at brokerage firm
- Commission or fee-based structure
When analyzing brokerage firms, you want to consider the following:
- Minimum deposit requirement: if you’re just starting out, you may only want to invest a small amount to get your feet wet. Once you’re acclimated with buying and selling stocks online, you’ll beef up your stock portfolio. But until you reach that point, a discount brokerage with minimal fees and little to no deposit requirement may be best.
- Short term goals: do you plan to hit the ground running? Do you need all the support you can get to maximize your investment in the shortest amount of time possible? If so, a full-service brokerage may be the better choice.
Some of the most popular online brokers include Ameritrade, Charles Schwab, E*Trade, Fidelity, Merrill Edge, Robinhood, and Vanguard.
Direct Stock Purchase Plan
Some publicly-traded companies also offer a direct stock purchase plan (DSPP), which allows you to buy stock from them. This is another way to buy stocks that require using online brokers. Instead, the company’s transfer agent manages the transaction.
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Best Online Stock Brokers for Beginners
Step 2: Evaluate Your Options
There are tons of individual stocks to choose from. So how do you narrow down your options and select the best fit for your financial situation? You can sift through mountains of financial data inundated with jargon you’ve never seen a day in your life.
A better idea: think about industries or businesses you have a keen interest in. Are there a few that you’d like to own a piece of? If so, start there. Otherwise, you can always ask your financial adviser for data on up-and-coming companies or pay attention to market trends in the media.
Get a Copy of the Annual Report
Once you have a list of top prospects, head on over to the company’s website and download a copy of the annual report. It’s an extensive document that provides an overview of how the company performed in the last year, along with detailed financial reports.
The U.S. Securities and Exchange Commission (SEC) mandates that public companies provide this report to shareholders on an annual basis.
But it’s usually available through the company’s website as well for the public to see. If you’re unfamiliar with any of the terms listed, the broker’s website should have information and resources that can assist.
Monitor the Company’s Performance
You may also want to consider monitoring the company’s performance before making a purchase decision. Steep fluctuations or signs of declining revenues could indicate that it may not be the right time to invest.
(Most brokerage firms will also offer tools and resources to help you stay on top of what’s going on with the companies you’re considering).
Step 3: Get a Quote
You’ll want to pay close attention to the information presented in the quote. Stock quotes, which are represented by ticker symbols that are abbreviations of the company, include:
- Bid: highest price per share a buyer wants to pay per share
- Offer or Ask Price: lowest price per share a seller will accept per share
- Historical information on trading volume
- Interactive resources to help gauge projected performance
Contact your online broker to learn more or visit Nasdaq.com to retrieve a real-time quote.
Step 4: Place an Order
Now that you’ve gotten all the technical/admin duties out of the way, it’s time to buy stock. But before you get too excited, it’s important to familiarize yourself with order types.
A market order ensures you get the amount of shares requested, even if the asking price is a bit higher than your bid. This is usually the case when your primary concern is the share volume and not stock price.
This type of order is best for investors who are in it for the long haul. Why so? Well, a slight spread, or the difference between the asking price and bid, shouldn’t make that much of a difference over time.
Let’s say you want to buy 75 shares at $150 and the quote states:
- Bid: $149 (75)
- Ask: $150 (60)
- Last: $151 (100)
If the seller agrees to issue 75 more shares at $153, your market order will be for 60 shares at $150 and 15 at $153.
A limit order ensures the broker purchases shares at the desired price point. So there’s a possibility you may not receive the number of shares you want until the price point decreases.
Let’s say you want to buy 80 shares at $160 and the seller is only offering 45 at that price point. If you decide to execute a limit order, you would get 45 shares and wait for sellers offering at least 35 or more shares at $160 to reach 80 shares.
When you place a limit order, understand that there are no guarantees your order will be filled since market orders are executed first.
If it takes several rounds of trading to get the desired volume of shares, expect a hefty amount of broker fees because commissions are tacked on after each transaction.
In this case, it may be in your best interest to execute a market order and pay a bit more per share since the cost of commissions may wipe out the cost-savings per share of stock.
AON Limit Orders
You should also be mindful of all-or-none (AON) limit orders, which indicate to the seller that you’ll only purchase if the price is at or below the amount of your bid. Furthermore, the requested amount of shares must be offered during that specific bid.
If you want to leave the order on the table for an extended period of time, it can be coded as good till canceled (GTC). The timeframe can span from a few to several months.
Stop orders are driven by price and are only filled when the requested amount of shares reaches the stop price. There are two types of stop orders you should be aware of:
- Stop-limit order: functions like a limit order because it’s only executed at the “stop-price”. However, you may not get the number of shares you want.
- Stop-loss order: functions like a market order, but the primary difference is the entire order will only be filled when the price is at or below the “stop level”.
How many shares will you be purchasing?
Before you can execute a market or limit order, you’ll need to decide on the number of shares you wish to purchase. There’s no right or wrong amount, and some newbies prefer to start small and scale up once they’re a bit more comfortable with how stock trading works.
The Next Steps
Kudos to you on your first stock purchase. It’s a great first step toward building wealth and helping secure your financial future.
And even if your first round doesn’t turn out as planned or your experience steep market downturns, don’t throw in the towel right away. Remember why you started and focus on the light at the end of the tunnel, or your future earning potential.
If you are unsure of which stocks to pick, you might want to consider buying mutual funds or ETFs.
Best Online Brokers and Trading Platforms for Buying Stocks
The best online brokers offer low commissions and fees, and great research tools, such as charts and stock screeners. You will also want to choose a brokerage platform that is easy to use and intuitive.
Good customer service is also essential when considering an online brokerage account. Check to see if the broker offers phone and email support, as well as live chat. Here are some of the most popular brokers to look into:
- Robinhood is a good choice for buying stocks with zero commissions. It offers a simple mobile app with a limited selection of commission-free ETFs and no-transaction-fee mutual funds.
- TD Ameritrade offers commission-free stock trading on a robust trading platform with plenty of research tools.
- Charles Schwab offers a comprehensive trading platform with powerful research capabilities. You also get access to a wide variety of financial products, and Schwab offers 24/7 customer service.
- Fidelity offers comprehensive research and market analysis tools, low trading fees and commissions, and a dedicated customer service team.
- With E-Trade, you can easily invest in stocks and other financial instruments online or on your mobile device. They also offer advanced trading tools and charting.
How to Buy and Sell Stocks FAQ
How do I buy and sell stocks?
You can buy and sell stocks through a stockbroker or online trading platform. A stockbroker can help you with the purchase and sale of stocks and provide advice on the best investments for your portfolio. If you decide to use an online trading platform, you’ll need to research and choose one that best meets your needs.
What is the best way to buy stocks?
The best way to buy stocks is to do your research and learn about the different stocks and companies you’re interested in. Then, choose the ones that best fit your investment goals and risk tolerance.
You should also consider the fees associated with trading and the terms of the broker you plan to use when making your purchase. Additionally, it is important to practice patience and discipline to avoid making rash decisions.
How do I choose which stocks to buy?
When choosing which stocks to buy, you want to consider a variety of factors. You should look into the company’s financial health, its competitive advantage in the market, its management team, the industry it operates in, and its earnings potential.
Additionally, you should consider your own financial goals, risk tolerance, and investing timeline. Before you start buying stocks, it is important to do your own research. You may even want to consult a financial advisor to ensure that the stocks you are considering are appropriate for your individual financial situation.
What is the risk associated with investing in stocks?
Investing in stocks carries a certain level of risk, as the stock market can be volatile and movements in stock prices can be unpredictable. It’s critical to understand that stocks have the potential to both increase and decrease in value.
What are the costs associated with buying and selling stocks?
The costs associated with buying and selling stocks include commission fees, taxes, and any other applicable fees. Depending on the broker, commissions can range from a flat fee to a percentage of the total trade value.
Taxes, such as capital gains taxes, may also be applicable when selling stocks. Other fees such as account maintenance fees, custody fees, and margin interest may also be applicable.
How old do you have to be to trade stocks?
You must be at least 18 years old to open a brokerage account and trade stocks in the United States. However, some brokers, and in certain states, you need to be at least 21 years old to trade stocks.
How much money do I need to start investing in stocks?
The amount of money needed to start investing in stocks will depend on the types of stocks you plan to buy and the amount of money you are comfortable investing. Generally, you should expect to start with at least $1,000. However, some online platforms require a minimum of $500 or less.
How much money can I make from investing in stocks?
The amount of money you can make from investing in stocks depends on the types of stocks you invest in, the amount of money you invest, and the success of your investments. It’s important to remember that stock investing can also result in losses as well as gains.