If you decided to get into the stock market and are wondering how do you buy stock, this comprehensive article will answer your question so you can get started on your trading journey as soon as possible. Buying stock does not have to be difficult, and it just takes some steps to figure out where and how to get started. Making sure you have the brokerage and tools available to make your own trading decisions is one of the most important steps to starting an investment or trading journey.
How Do You Buy Stock?
Stocks are usually bought through an investment account at an online broker, a full-service broker, and/or by buying directly from the company itself if this is a possibility. Buying stock is not as difficult as it may seem and can be done in a few steps. Let us go over these steps to buying stock.
- Open an Online Brokerage Account
- Choose Stock to Buy
- Choose Number of Shares to Buy
- Choose Stock Order Type
- Once a Stock is Bought
Open an Online Brokerage Account
The easiest and most common way to buy stock is through an online brokerage account. Opening a brokerage account is similar to other account processes where you have to fill out personal information and show proof of identification. Once your account has been approved, you fund the account by choosing how to fund it, which can be through mailing a check or electronic transfer.
Choosing an online brokerage that meets your specific needs is another important aspect of buying stock. You have to consider the cost of commissions and the type of support offered by the brokerage. Some brokerages are catered to the investor while others are more for the active trader, so depending on your goals you have to choose which brokerage meets your needs.
A cost of commissions is a fee the brokerage charges each time you buy or sell a stock. If you are an active trader, it is best to choose a brokerage that charges little to zero commissions when trading stock. Many of the major online brokerages like TD Ameritrade, Fidelity, and Charles Schwab have reduced their commissions to zero and made it more accessible to trade with regularity.
Each brokerage offers different levels of customer support, educational material, and tools. If you want to speak to live humans when there is a problem, having excellent customer service is an important factor in choosing a brokerage. Large and well-known brokerages will offer extensive research tools and excellent customer service to its customers.
Choose Stock to Buy
Once you have an account set up, it is time to choose which stock you want to buy. You can choose to buy stock from companies you know and love, or also buy stock from companies who you find to have future potential in the economy. When you buy stock, you are buying the right to have a share of the company itself. It is best to buy stock from companies you want to own, not from companies whose stock you hope will go up in value. As the market is constantly changing, you want to know you are holding on to stock from a company you have confidence in for the long-term.
You can start by looking at the company’s annual report, specifically the annual letter to shareholders which details what is going on in the business and provides a good picture of the numbers in the report of the business. Reputable companies will have all the information and tools you need on their websites, such as conference call transcripts and quarterly earnings.
Online brokers usually provide a wide array of information concerning how to buy stocks from their specific platform. You can learn how to easily choose the company and its stock directly from the brokerage itself. Once you choose the brokerage, read through their tutorials or information on how to pick a specific stock, you will have the knowledge to make a decision and buy stock.
Choose a Number of Shares to Buy
The number of shares to buy will depend on your goals as an investor or trader. You can choose to buy stock from just one company or a number of shares from different companies. If you are just starting out, it is a good idea to buy a small amount of stock, maybe even just one share to get the feeling of buying stock and owning it. From here, you can have a sense of ownership knowing the value can go up or down in time. You can then add to this position you have or sell if you see fit.
As an investor, you are more into buying shares for the long haul to then sell at a further date, while as a trader you are looking to make a profit from a shorter hold time. Your portfolio can be a mix of companies that are in different sectors or it can be a mix of companies in a similar sector or just one company. You decide the number of shares you are comfortable holding on to after doing your research of the company.
Choose Stock Order Type
It can be surprising to figure out a way to sort out the stock order type when you have decided which stock to buy. By understanding the basic stock trading terminology, you can go through choosing the stock order type without a hassle. When you set a market order, you want to buy the stock at the best available current market price as soon as possible while with a limit order, you set the price you want to buy the stock at and which you think is a fair value.
The asking price for buyers is the price sellers are willing to accept for the stock while the bid price for sellers is the price buyers are willing to pay for the stock. The spread is the difference in price between the highest bid and the lowest bid price. A stop-loss order is a market order which is previously set and is executed once the stock reaches a certain price, which is when the stop order was set. A stop-limit order is when the stop price is met and the trade turns into a limit order and is filled where price limits are met.
Once a Stock is Bought
Once you buy a stock, decide whether to keep it for the long-term as an investment for the future, or to sell it in a short period of time to make a profit. If you decide to day trade or to keep the stock for some days, then trading is more your thing. You can also do a combination of keeping some stock as an investment and regularly trading. It all depends on your goals when opening the brokerage account. The stock that was bought can be held for years in your brokerage account or it can be held for the day and minutes. Depending on your initial intention when the stock was bought, you can better understand what you will do with it later.
Sometimes stock has to be sold to realize either a quick profit or a smaller loss than if you held longer. When buying stock, the different considerations have to be taken into account because the market changes constantly. If you don’t mind going through the ups and downs of the market, then you can hold on to your stock for years to come given you trust and have researched the company(s) well.
Buying stock is a matter of opening a brokerage account, funding it and researching the companies you trust to be a part of or invest in. Although it can be overwhelming at first, with some practice buying stock will be second nature. You can find out more about how do you buy stock and which companies to look at by joining one of our webinars and learn more about trading or reading one of our free trading ebooks and finding out if our information is valuable to your trading journey.