Are you here because you are looking for guidance on buying stocks? We will guide you through. Buying stocks is one of the trading activities that
Are you here because you are looking for guidance on buying stocks? We will guide you through.
Buying stocks is one of the trading activities that can earn you good profits to supplement your income. It can also become a full-time activity should you know when to make the right moves.
Many stock traders still have challenges maneuvering through the stocks market. This is mainly because they rushed into buying stocks without acquiring the requisite knowledge about the trading activities.
In this comprehensive guide, we target not only beginners but also traders that have had their own share of challenges and wish to go back to the drawing board. Not only will you gain knowledge on buying stocks and the markets to target, but you will also learn how to identify a suitable stocks broker to keep you engaged for a more extended period.
What are Stocks
Stocks are units of a company’s value. They are the equity investments representing legal ownership in a company. Stocks include a bunch of shares that you need to buy in order to become part of a particular company.
The main reason you will find stocks on sale in a stock exchange is that the companies are raising money to boost their businesses. However, you cannot buy any stocks randomly without conducting the necessary due diligence. After all, your goal for buying will be so that you can sell it later at a higher price for profit gain.
When you buy stocks, they will either be in common or preferred variations. Common stocks include your shares in a company, which gives you the power to participate in voting activities in the said company. You can also participate in other major decision-making processes.
In contrast, preferred stocks will not give you the powers to vote. It also differs from common stocks in that the stock holders are entitled to an early dividend payment compared to common stocks stockholders.
How to Buy Stocks
To buy stocks quickly and efficiently, you will need a stocks broker that is regulated within your jurisdiction. The reason why you need a stocks broker is that they connect you to various stocks markets globally, so whether you wish to buy local stocks or foreign, you are guaranteed where to find the market.
Note that the stocks’ prices today might not be the same tomorrow. This is due to the supply and demand forces that cause the stocks prices to fluctuate. For this reason, staying connected with the latest trends on stocks markets is an excellent way to begin a successful purchase.
You need to understand when to buy stocks because some of the stocks in the market tend to stay at a constant price or go even lower than the price you bought. This will not be good for your investment since all you will get at the end of it all is a loss.
That being said, below is a quick guidance on how you can buy shares successfully.
- Choose a Stocks Broker
A stock broker acts as a mediator between you and the company selling stocks, so you must seek one for easier accessibility. The stocks broker must be regulated within your region by the primary regulator in the financial market.
Stocks brokers will connect you not just to one, but many companies selling stocks and you will choose the one you had researched on and are sure that you have a great profit potential trading.
- Create a Stocks Trading Account
It’s easy to create a stock trading account on most brokers’ platforms. It will probably take you few minutes to get the process done. You will create a user name and password, fill in your legal names, age, physical address, contact information, and national identification number.
Most traders are concerned about the safety of their personal information. That is why we keep reminding you to use a heavily regulated broker since they are highly encrypted in the sense that even they won’t access your information.
- Verify Your Identity
Now that you have keyed in all your personal details, a notification will be sent for account verification. The fact that you are seeking a safe harbour for your trading activities, so are they seeking trustworthy traders.
This part is mandatory because, among honest traders, there are also fraudulent ones whose primary goal is to use a trading platform as their basis for money laundering. Remember that money laundering is not legal in many countries, and brokers who are found entertaining such activities and risking their licenses being revoked.
- Make a Deposit
If you check the brokers’ fees keenly, you will notice that some have a high minimum deposit requirement, others low, while the rest zero. Once you have verified your identity, make the required deposit and wait o be redirected to the stocks markets.
Note that making deposits requires a payment method, and not all that the brokers allow will be convenient for you. Ensure that your broker has an efficient payment method, whether it’s e-wallets, debit/credit cards, or bank transfers.
- Choose Stocks
At this point, a stocks broker will connect you with the suitable markets to identify the stocks that you wish to buy. You can not manage to peruse through the hundreds of company stocks on offer. Therefore the search function on a broker’s platform will work the magic.
- Buy
Now that you have found the stocks you want to buy, check your budget and choose the number of stocks you wish to purchase. You can also use your broker to buy stocks for you as you please.
Stocks can be bought at market or limit orders. Markets orders let your broker buy the stocks when the prices reduce by a bit of a margin. With limit orders, you set the amount that the price of stocks will reach to make the purchase.
Holding Stocks
So, what happens after you have bought your stocks? Where do you proceed from here? Well, the broker who you used to buy stocks will hold the stocks for you. Just remember that you will incur monthly or quarterly holding charges.
The broker’s work is to store the stocks, and they do not have any entitlement to it. With owning stocks, you are also a member of the company you made the purchase. This means that you are also entitled to dividends which are usually shared among shareholders.
As a stockholder, you are also entitled to know about significant events that affect the company’s productivity. This information will be sent to you so that you can stay informed about any changes that can affect your investment.
Selling Stocks
Selling stocks is not challenging, especially if you have gained an electronic trading certification. The primary goal of buying stocks is to wait for the prices to rise even further so that we can sell them at a profit.
Since the broker you used to buy stocks still keeps the stocks for you, it will be much easier to sell through the same stocks broker. Note that the selling price of stocks will depend on the liquidity of the stocks.
You need extensive market research and analysis so that you can identify the right entry point for selling your stocks. For example, if you are trading stocks CFDs, you can close your position anytime an opportunity for making profits arises.
Ways to Benefit From Investing in Stocks
Buying stocks to sell them at a profit is the best way to make some money on online brokers. There are two ways that you can benefit from this. Either through capital gains or dividends.
- Capital Gains
This is a good strategy when you want to sell stocks. First, you will have to wait until the price has increased to make this move. It is the difference between the selling and buying price of a stock.
- Dividends
A dividend is an amount you gain as a shareholder in a particular company. Every company have different amounts to share amongst the shareholders. This amount will be decided upon by the board of directors, which involves analysing the company’s performance and profits.
Note that some companies do not pay dividends to their stockholders. Therefore, it’s always best to conduct research before choosing a broker and see what factors you are willing to compromise in order to benefit.
Note: Keep in mind that you might end up losing your investment funds if you do not make the right moves. Conducting thorough research is key.
Reducing Risks
Have you ever heard about putting all your eggs in one basket? Well, sometimes that can be a risker move. What we mean is that when investing in stocks, it can be risky to invest in a single company.
This is because the company may go out out of business and cost you your investments, or its stock prices will not increase to the point that you expect them to in order to make a sale.
However, when you diversify your trades, you are investing in multiple companies. The best thing about this strategy for risk management is that in case the stocks of one company falls instead of rising, you still have other stocks to benefit from.
Note that diversification in stocks investment activities is not easy since brokers will charge you differently every time you trade across various companies. However, you can avoid these extra expenses if you invest in a stock market index where each index monitors a stock exchange market.
The following are the common index for stock trading:
NASDAQ 100
NASDAQ tracks the price performance of world-renowned companies such as Amazon. Like the FTSE 100, NASDAQ also manages over 100 companies as long as they are listed in NASDAQ.
Dow Jones
This index is popular in the US stocks market. It monitors the price performance of stocks in over 30 enterprises. These stocks must be available in companies that are listed in the US stock exchange, including NASDAQ and the New York Stock Exchange.
FTSE 100
FTSE 100, also known as The Financial Times Stock Exchange 100 index, is responsible for tracking the price performance of enterprises in the London Stock Exchange. The minimum amount of company to monitor is at least 100.
S&P 500
S&P is among the most popular indexes because of its ability to measure the price activity of over 500 companies. This helps traders diversify their portfolios and have a better shot at gaining good profits.
The companies that S&P 500 monitors must be within the US and listed in the local stock exchange. This means that they must also be listed in NASDAQ and the New York Stock Exchange.
With the above indices, you can analyse the markets more quickly. Their charges are also low, which will increase your chances of better returns.
How to Choose the Right Stocks Trading Broker
Many stock brokers are waiting for you to choose them and start trading. More brokers also enter the markets every day, which makes it even more challenging for a trader to select the best stocks broker.
We also recommend the best stock brokers across various jurisdictions here at bullmarketz.com. While all of them have their pros and cons, you must understand that they are the best to get you started with your stock trading venture.
Finding a stock broker that blends right into your trading activities is not an easy task. To help you in this process, use the following factors to choose a suitable stock broker.
Regulations/Licenses
Most countries’ trading laws will only allow you to buy stocks using a broker that is regulated by their leading financial regulator. Some of the top regulators are:
- The Financial Conduct Authority (FCA) in the UK.
- The Australian Securities and Investments Commission (ASIC) in Australia.
- Cyprus Securities and Exchange Commission (CySEC) in Cyprus.
- Securities and Exchange Commission (SEC) in the United States.
Trading with a regulated broker is also safe for your trading funds. There are lots of fraudulent brokers in the stocks market, so if you are not keen on your choices, you may end up getting duped.
User reviews
Another essential element when choosing a broker is user recommendations. Their opinions about a broker are always honest, and you can sample a few of these comments to know the kind of broker you are about committing to.
User reviews are easily found on App Store and Google Play. Through reviews, you will know if a stock broker is for budget-conscious traders, markets allowed, fees/commissions, and more.
Trading platform
The best stock trading broker’s platform should be user friendly for both newbies and professionals. Most brokers have a modern design platform to keep you glued. Such platforms contribute a great deal to making your trading experience exceptional.
Stocks Trading Instrumnets
Having you access a diverse range of markets is a plus. The platform should also support you with trading tools, including risk management and educational resources to help you along the way.
For you to confirm what a stocks broker is offering, you can sign up for its risk-free demo account. Take your time learning and understanding the trading tools and markets in the platform.
Commission/Spread
Some stock brokers will offer you commission-free investment activities on their platforms. This does not mean that you get to trade for free because there are other charges such as spreads and transaction fees.
Whether you want to go long or short, having a budget should be very important. Some brokers have hidden charges, so be sure to confirm this element as well.
Long vs Short Trading in Stocks
When you buy stocks to sell in the future for a profit, you are going long on stocks trading. However, when you go short, it simply means that you are hoping for the value of stocks to decrease.
If you bump upon a stocks broker that allows both long and short trading activities, you need to consider using them. Such brokers will diversify your portfolio hence increase your profit potential.
Most traders take on long positions compared to short positions because it carries fewer risks. However, as they say, “the risker the investment, the higher the profit potential”. We believe that with thorough market research, anything is possible.
Conclusion
It is easy to buy stocks if you know how to analyse the markets. We have witnessed many traders become successful with buying and selling stocks, so we assure you that it is an excellent investment.
Note that buying shares is a long term investment and can take over two years to close your position. Do not fret, though, because while waiting for the right time to sell your stocks, you can still enjoy the gains you get from the company’s dividends.
Ultimately, continue researching the trading markets and stay updated with the latest trends. Also, know the activities of the company that you bought stocks from. Any change in a company’s pricing might jeopardise the whole trade.
Read more about him by visiting his LinkedIn profile or contact us directly to learn more about the team.Our Author:
Adam Jarfjord is a Swedish day trader, investor, and copywriter. He works as head of content at BullMarketz.com and has been providing editorial content within the financial sector for more than 5 years.
COMMENTS