The Process of Choosing and Buying Stocks

Buying stocks is a process that seems rather complicated to begin with but is quite simple.

You will first need to open a brokerage account.

This would take around 15 minutes.

You will then continue to add funds to your account and then proceed to buy the stock from different companies.

Let’s take a look at the process step by step.

Choosing an online broker

Once you decide on an online broker, you can then proceed to opening an account and funding the account.

This is the simplest and quickest way to invest in stocks.

However, you can also opt to buy shares directly from the company or to use a full-service stockbroker.

The process of opening an account usually entails you filling an application form.

You will then be required to offer proof of identification.

After this process, you then decide if you want to fund the account.

You can fund the account with either an electronic fund transfer or by mailing a check.

Research on the stocks

You’ve found a good broker, opened and funded your account.

Now it’s time to get to the first steps towards actually buying stocks.

One thing you should always keep in mind when investing in stocks is to buy shares of a company that you would like to own.

Chances are that you are interested in that company because of the way they do business.

You may think that you need to analyze plenty of data. Don’t let the idea of too much data clog your mind.

Start with the companies that you already know about and are interested in – Companies that you know have a bright future and are useful for people.

Next, access the annual report which the management sends to its shareholders. This tells you what the company is doing and the plans that it has.

It will help you understand the numbers when you finally get to the evaluation stage.

Finally, access more information via SEC filings, quarterly, half annually, annual reports, and business news.

Number of shares to buy

Never feel the need to fill up your portfolio or to buy several shares at once.

You can start by buying a single share. This will offer you the feel of owning a company and stock.

Then, as you become more conversant with the process and after you have analyzed your risk tolerance, you can buy more shares.

If you want to invest in companies whose share value has gone up to the four digits, you may want to consider functional shares. Some online brokers offer this feature where you can buy a fraction of a share.

You may also want to consider investing in a broker that offers a tool where you can convert shares into dollar amounts.

That way when you want to invest a certain amount such as $500, the tool will tell you the number of shares that you can buy.

Selecting your stock order type

When you access your broker’s order page, you may come across words and terms that you don’t understand.

This is part of what may make investing in stocks seem difficult.

However, by learning the lingo, it suddenly becomes easy to understand.

Asking price –this one is for the buyers and is the price that sellers are willing to sell the stock at.

Bid price– this one if for the sellers and is the price that the buyers are willing to buy the price at.

Spread – this is the difference between the asking price and the bid price of a stock

Market order – this is an order to purchase a stock at the best price ASAP.

Limit order – a preset order to purchase or sell a stock only when the price reaches a particular level.

Stop-loss order – this order is preset and is executed when the price reaches a certain specific level and is then filled.

Stop limit order – this order is executed when the price reaches the stop level. It is then filled and turned into a limit order.

Note that there are many more different types of market orders. However, don’t get worked up over them.

The most successful stock market investors will use just a handful of those mentioned above.

The two most important orders for the stock investor are market order and limit order

1. Market order

Executing a market order is simple. You will simply press buy or sell which indicates that you would like to purchase at the best available price.

The order is then filled immediately.

Note that the market prices fluctuate within seconds so don’t be shocked if the price you receive is slightly different from the price that was quoted.

This type of market order is ideal for the investor who wants to buy stock and hold it. Here, small price fluctuations are not important.

Also keep in mind that if you placed an order after hours, the quoted price will be at the prevailing prices when the market opens the next trading day.

2. Limit orders

With the limit order, you have better control and buying or selling stocks at your preferred price.

For instance, if the stock you want to buy is currently trading at $50, but you think a better price to buy would be at $45, the limit order will be executed only when the asking price hits $45.

Limit orders are good when you want to buy the stock of small companies. These usually have wider spreads. You also want to make use of limit orders when there is short-term volatility in the market.

Building a portfolio

Having bought your first stock, you are well on your way to becoming a savvy stock investor. You will now need to build and optimize your investment portfolio.

Look into other companies and see which ones look promising. You can purchase their stock and include them in your portfolio.

That said, you can also look into mutual funds and ETFs. Also, consider other types of investments such as bonds.

And remember, young padwan – A diversified portfolio will help even out the risks!