A Beginner’s Guide to Stock Buying

A Beginner's Guide to Stock Buying
A Beginner's Guide to Stock Buying

As a beginner wanting to buy stock, you’ve decided to invest in the stock market and have some thoughts about which stocks to purchase. But how do you go about purchasing those stocks?

How do you go about purchasing stock?

Fortunately, purchasing your first shares of stock online is a simple and quick process. Here’s a step-by-step guide to getting started with stock investing.

1. Establish a brokerage account

To begin, you’ll need a brokerage account to purchase shares. When choosing an online stock brokerage, keep the following two factors in mind:

What the brokerage firm offers: Does the brokerage firm provide all of the products and services you require? Some brokerages provide excellent teaching materials to new investors. Others offer stock research and analysis tools. Some online brokerages have physical locations where you can get help in person. Perhaps you value other characteristics, such as the option to trade overseas stocks or purchase fractional shares.

The brokerage platform’s user-friendliness Is the brokerage’s platform simple to use? If you want to trade from your mobile device, the brokerage’s mobile interface must be simple to use. Many of the larger brokerages allow you to use play money to test out their trading platforms before investing, so try a few to see which one you prefer.

Trading commissions have been eliminated by the majority of large online brokerages, including Charles Schwab (SCHW -3.59%), Fidelity, and others. For most investors, this effectively removes cost from consideration when selecting a brokerage platform.

After you’ve decided on a brokerage, you’ll need to fill out a new account application. This is usually quick and simple, but you’ll need photo identification, such as a driver’s license, and your Social Security number.

If you want to finance your new brokerage account using your checking or savings account, you’ll also need your bank account details. You have the option of opening a conventional brokerage account. You can also open an individual retirement account (IRA), which comes with some great tax benefits.

Another choice you may have to make is whether to grant margin privileges to your new brokerage account. You can buy stocks with money borrowed from your brokerage if you have margin privileges.

To be clear, most investors should refrain from investing on margin. Establishing margin privilege, on the other hand, can provide some additional benefits. If you have margin privileges, for example, you can start trading in your brokerage account before your deposited funds have cleared.

2. Determine which stocks you want to purchase

We won’t go into detail in this post on the many strategies for analyzing and picking individual stocks to buy. However, the next stage is to decide which stocks you want to buy.

Here are a few pointers:

Follow a “buy and hold” strategy: Only buy stocks that you intend to keep for a long time. Don’t buy a stock simply because you believe it will perform well in the coming weeks or months.

Diversify your investments. Don’t put all of your money into one or two stocks. Even if your first investment is tiny, diversify your portfolio by purchasing a few shares of several different stocks. With the advent of commission-free trading, having stocks in a variety of companies costs nothing more.

3. Determine the number of shares to purchase

To figure out how many shares to buy, decide how much money you want to put into each stock that interests you, then divide that amount by the stock’s current share price. You may access stock prices on your brokerage’s site by searching for the ticker symbol or the company name.

If your brokerage deals in fractional shares, you can buy a stock for any dollar amount, regardless of its share price. Only a few brokerages permit the purchase or sale of fractional shares. If your broker doesn’t, you’ll have to round down to the next full number of shares to figure out how many you can purchase.

As an example, suppose you want to put $1,000 into Microsoft (MSFT 0.94%). You look up the share price of Microsoft and discover that it is $330. By dividing $1,000 by this share price, you can purchase up to 3.03 shares. If your brokerage does not deal in fractional shares, you would buy three shares of Microsoft stock.

4. Select an order type

There are various order types for stock purchases. The type of stock order you submit indicates the parameters under which you want your broker to transact on your behalf. For buy-and-hold investors, the optimum order type is often a market order, which advises your broker to buy the stock immediately and at the best available price.

You could, however, put in a limit order instead. This tells your broker the highest price you’re willing to pay for a stock. For example, suppose a stock is currently priced at $20.50 a share. You only want to buy it if the price is less than $20, so you place a limit order. If the stock price falls below $20, your broker will only acquire shares on your behalf.

5. Submit the stock order to your brokerage

Access the appropriate part of your brokerage’s portal to place a stock order. Then provide the necessary information.

Whether you wish to purchase or sell shares, your brokerage will usually ask for the business or stock ticker name. You’ll also specify a monetary value or the number of shares you want.

If you use a market order, your stock purchase should be completed in a matter of seconds after you click the “place order” button. Your portfolio should be updated promptly to reflect your ownership of the newly acquired shares.

6. Create a portfolio

The last stage in this procedure is to create your investment portfolio. You can keep adding money to your brokerage account and investing in equities you want to own for years now that you have a brokerage account and understand the basics of how to purchase and sell stocks.

Finally, it can be tempting to track the success of your investments on a daily basis (especially at the beginning). However, it is critical to keep a long-term perspective.

You may and should read quarterly reports and sign up for news notifications. However, if the value of your stocks falls somewhat, don’t sell in a hurry. And if the value of your stocks rises by a few dollars, resist the impulse to sell. Buying shares in great companies and holding them for as long as the firms stay great is the best and easiest way to grow wealth over time.