November 12, 2019
Your Guide to Buying Stocks

Your Guide to Buying Stocks

People who want to buy stocks, especially when they are just beginning- are surrounded by many apprehensions. There are so many options in the market, and with your hard-earned money at stake, it can be quite a task at your hand. If you are also considering how to buy your stocks, then here is what you should remember. For people who want to step into this world, here is a step by step guide of how to buy stocks for yourself:

Step 1: Open an account for brokerage

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The first and foremost step is to start by opening a brokerage account. This can be done online, and there are plenty of options available to do the same. While you may feel that most stocks are traded in New York Stock Exchange, typically very few transactions take place that way in today’s day and age. The best way is to ensure that you get your stocks with the help of an online stockbroker.

Setting up an online brokerage account is as simple as opening a bank account. You need to fill in the details of your account application, provide an identity proof, and then fund your account in whatever way is convenient to you. You can finance the accounts by directly mailing a check or even by putting in the funds electronically.

If you are also confused by the considerable brokerage world and don’t know which option is worth your money, then use the following two ways to figure out the best choice for yourself:

1) Firstly consider what is the commission they are charging. Do you need to pay a fee every time a stock is sold or bought from your end? For people who wish to place more than ten trades a month, finding a broker with fewer fees is crucial. Commissions can add up if you keep trading regularly.

2) The second point is to figure out how much support do you need. Consider the offerings from the broker’s end. See whether they provide you with investment guidance or the required educational tools or not. Some brokers even give you access to live humans via their helpline or chatbots. This can prove to be quite beneficial for investors who are just starting as available customer service can keep you from making a wrong decision.

Step 2: Shortlist the stocks that you wish to buy

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With the first step taken care of, the second step requires analysis from your end. You can now start picking and researching the stocks you need. One right place to begin is by  reading the performance of the companies. You can start by companies that you already know. Keep the objective of your research very one track- You are looking at companies which you would like to become a part of or become an owner partially.

Warren Buffett, the king of investments once mentioned that you should buy a stock of a company only because you wish to have ownership level in it and not merely because all you are aiming at is the stock to rise. You can start your research by beginning with the annual report of a company. See the management’s yearly letter addressed to the shareholders.

This letter will help you understand a general picture of what is going on in the company and then help you figure out specific numbers entailed inside the report. Post this, most information and the tools you require for analysis will be provided on the broker’s website. For instance, if you need to see transcripts of conference calls as well as SEC filings.

Quarterly earning updates and the recent news can also be found on these websites. Most of the online brokers will also help in providing tutorials based on these tools. These can be used for along with the beginner seminars that cover methods to choose the right stocks for yourself.

Step 3: Quality is matched, now pay attention to the quantity

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When you find the right quality stocks, then consider what the quantity you want to pick is. There should be no pressure in order to to purchase any shares or even fill the portfolio with any of the stocks. We would recommend you to start small. Start by purchasing a single share to get an idea of owning individual stocks. You can keep adding to your portfolio over time as you keep becoming a shareholder of different stocks over time.

Step 4: Pick the right type of stock order


Do not be dissuaded by the confusing terms and words on your brokerage website. Here are certain terms that you should know so that you can choose the right kind of stock order:

  • Ask:

This is a valid term for the buyers. This is the price the sellers are ready to accept when the stock is sold.

  • Bid:

This is a term that concerns the sellers. Basically, it is the amount that the bidders are ready to pay up for purchasing the stock and.

  • Spread:

This term refers to the price which is evaluated post subtracting the lowest asking price from the highest price.

 

  • Stop Order- Stop Loss Order:

Whenever a stock rises up to a set price, the “stop level” or the “stop price”; at which the market order get evaluated and the prevailing price at which the order gets filed is known as the stop order or stop loss order.

 

  • Stop Limit Order:

When the set stop price is achieved, the entire trade converts into a type of limit order. It gets filled up till a point where the preset goals and limits can be achieved.

Step 5: Make the most of your stock portfolio


In case your stock investment journey turns difficult, then remember that the world of stock trading is positive and negative in patches. The key to succeed in this field is concentrating on processes that stay under your control. Just ensure you have the right tools for this process. Here are some pointers to keep in mind to optimize your investments:

  • Keep special attention towards the brokerage fees charged. This can reduce the value returns significantly.
  • Consider expanding your portfolio towards mutual funds. This helps you stay safe and buy multiple stocks in a single transaction.

Additional terms to know:


Apart from this, there are plenty of other trading moves as well as different types of complex orders. However, the two basic order types to know about include the following:

1) Market Orders:


When it comes to a specific type of market order, you are indicating that you can buy or even sell a stock at the most feasible current market prices. A marker order sets no price boundaries in terms of commodities. Your order will get fully filed and then executed immediately unless you are planning to buy a very large quantity of shares and are intending a takeover of the company.

Do not be surprised in case the amount you pay or receive or sell, is not the one you sold before. The bid and the ask prices-both fluctuate continuously throughout the entire day. That’s why a market order gets used while purchasing the stocks which don’t experience price swings.

  • A market order is ideal for investors looking at buying and hold. In such cases, lower differences in the amount are lesser significant, which ensure that the trade gets executed thoroughly.
  • In case, you want to place a trade, after hours when the markets close, then in such a case, the order will get placed at a price of the next day when the market opens again.
  • Check the disclaimer provided in your broker’s trade execution policy. Some of the low cost brokers group all the consumer trade requests. These requests are ordered, and the price levels are decided accordingly.

2) Limit Orders


Based on the side it is being sold from, a limit order tells the concerned broker to sell the shares until the bid keeps rising to the levels that are set. Limit orders can be called as a very useful tool for investors to buy and sell company stocks which are small in size. These limit orders experience the wider spreads and depend on the investor activity as well. They are also good towards investment during the duration of short term stock market votality.

  • When a limit order guarantees the price, then you will get to know in case the orders gets executed. There is no full fledged guarantee that the order will get filled completely. Limit orders get placed on a priority basis. After these market orders get filled, only the stock remains in the limits you have set. They are there for long enough to ensure that the broker executes the trade.
  • Limit orders can be heavy on the pocket for investors in terms of commission as compared to market orders. Limit orders cannot be executed all at once and through the duration of a single trading day. They can however be filed over the remaining days subsequently, with transaction feed levied, daily incase a trade gets made.


All of the aforemntioned information would surely help you decide how to buy your stocks in the right manner. Follow them to ensure that your entry into the stock world is as smooth as possible and you don’t end up losing any of your hard earned money.

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