Your Helpful Guide on How to Buy Stocks

Your Helpful Guide on How to Buy Stocks

Buying stocks can seem complicated and overwhelming but it can be quite easy.

how to buy stocks

So you’ve decided to invest in the stock market but you don’t really know where to begin.

Well, you’ve come to the right place. 

While buying stocks can seem overwhelming at first, it’s actually pretty easy and any average joe can start investing with a small amount.

But before we take on how to buy stocks, let’s review what the stock market is all about.

What Is the Stock Market?

The stock market is basically an exchange or an auction house.

Here people can list stocks or shares of their companies that represent ownership in the company.

Listed shares can then be sold to prospective investors for the highest bidder just like an auction.

Investors get a share of the company and the company gets infused with money to use to develop and improve their business. 

There are two types of investments in the stock market: individual stocks and mutual funds.

While individual stocks represent one company, mutual funds are a diverse portfolio of different companies with multiple stock options.

For our purposes, we’ll take a look at how to buy stocks is easy as one-two-three.

What Do I Need to Do?

how to buy stocks

In order to know more about how to buy stocks, first, you will need to sign up with a brokerage firm.

You’ll need a licensed stockbroker that can do trades on your behalf.

This will ensure that all your transactions are monitored and regulated by the right overseeing bodies.

Now you may also be asking where to buy stocks online.

The great thing is that there are many online stockbrokers.

Setup is easy as it usually takes around 15 minutes to enter your details.

Once your account is up, you just need to put some money into your account.

You’ll then be ready to invest in individual stocks from the available list of companies.

But before that, there is one thing you have to do first.

Do Your Research on Which Companies Are Performing Well

Now before you invest and learn how to buy stocks of a company, it’s always prudent to do your research.

Why? This is because investing in stocks can actually be quite risky.

Willy-nilly investing in different companies just because they sound good is not a good strategy in investment and diversifying your portfolio.

You want to avoid investing in companies whose outlook and performance is going down as you wouldn’t want to lose money if that company’s stock goes down or if the company goes bankrupt.

You will want to read up on company performances and see which companies have good outlooks and seem to be performing well not just in stock prices but in actual operational performance.

It’s also good to read business newspapers and journals to see which companies to look out for.

Companies that are performing well are likely to have share prices to go up as well which is going to be good for you in the long run. Buy now, then sell later at a higher rate. 

Popular businessman Warren Buffet had once famously said, “Buy into a company because you want to own it, not because you want the stock to go up.”

The reason behind this is that it gives you much more of a personal stake in the success or failure of that company rather than just with the idea of what stocks will go up.

No one can deny that Buffet has done well for himself with this rule on how to buy stocks.

Once you have all that research, along with the analytical tools available online, you will then be able to safely choose a company stock to put your money into. 

Decide on How Many Shares to Buy

how to buy stocks

Your next step is deciding how many shares of a stock are you going to buy.

Remember that the more of a stock or share you own the more you have at stake with the company you are buying from.

This also means that if the company tanks, so does your investment.

Most financial advisors and fund managers will suggest that you don’t put all your eggs in one basket but instead diversify your investments to protect yourself from losing all your money.

This also means that even if one of your stocks tanks, your others can hold you up especially if they perform well.

We suggest you sit down with a financial advisor or research before you make a decision and keep a moderate amount of money in shares of a company rather than just putting everything in. 

Another option available now to online stock brokerage are fractional shares.

Rather than invest in an entire share, you may consider investing in just a fraction of that stock.

This allows you the option to keep a minimal investment with the option to increase your investments later on.

Companies such as SoFi Active Investing, Charles Schwab, and Robinhood are just some of the brokers available that are also offering fractional shares purchases.

Know the Stock Order Types

Now, when you are ready to make your investment, you might get confused or overwhelmed by all the numbers and the terminologies.

Don’t be. Here’s a quick cheat sheet for you to understand the terms.

how to buy stocks

If you really want to get better acquainted with how to buy stocks, then you need to know the different kinds of stock order types.

It can be confusing at first but many stockholders and investors get by with two order types: market orders and limit orders.

Market Orders

When making a purchase of a stock with a market order, you are saying that you will run with the best available current market price for that stock.

Market orders value making sure that orders are fulfilled in the trade rather than waiting for a better price.

This means that when you buy or sell a stock it’s as good as done.

Not unless you are buying like a boat-load of shares because you are attempting a takeover of a company.

However, prices may not exactly be at the rate that you place that market order.

Why? It’s because stock prices tend to fluctuate with the day and the bid and ask prices can change from time to time.

This is why market orders are best when buying or selling stocks that don’t have huge price swings.

This means it’s great for large and steady blue-chip companies rather than smaller, more volatile companies.

It’s also a good idea that you check with your broker’s trade execution disclaimers as many low-cost brokers bundle their customer trade requests which can influence the price of shares.

This is because your trade requests may not be executed right away.

Limit Orders

A limit order on the other hand gives you more control over the prices that you want your trades to happen.

While market orders are more concerned that the trade actually happens, limit orders focus on ensuring you get the price that you want.

This means if a share is trading at $100 and you want to buy it only if it becomes $95 then the purchase only gets executed when that happens.

Limit orders are best for smaller companies especially stocks that tend to swing more widely than traditional blue-chip stocks.

Choose this option if you want control over the exact price you want when you buy or sell shares.

Final Thoughts

At the end of the day with a bit of research, and following the steps on this guide, it will be easy for you to know how to buy stocks and where to buy stocks online.

Buying stocks can seem complicated and overwhelming but it can be quite easy.

You just need to familiarize yourself with the process and try out different investments including buying mutual funds.

Before you know it you will become an expert and you can make the stock market work for you. 

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Author: John Benares

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