Purchasing stocks is one of the best ways to own equity in publicly traded companies. Ideally, it should help you build your wealth over time. However, most new investors have the notion that buying stocks is a complex process.
Well, the truth is that it is not as hard as you may believe. Here are the steps you need to follow for a successful share purchasing process.
Step 1: Pick a Broker
As you begin your stock purchasing journey, you need to keep in mind that it is mandatory to have a brokerage account. That means that you need to look for a broker. You can opt to go for online brokers like Robinhood or a financial institution like Saxo Bank.
Look out for what services your preferred broker offers in terms of variety. Aside from stock trading, they should be able to offer you other services like retirement saving through an IRA. You also want to look at other things like account minimums and maintenance fees.
Step 2: Set up and Fund your Account
As soon as you sign up for an account, you will be required to set it up. This should take about 15-20 minutes. You will be required to provide some personal and financial details. If you want faster access to the stock market, you can wire funds from a linked bank account into your new brokerage account.
Step 3: Research Stocks
Buying stocks via your broker can be done within minutes. Considering that virtually anyone can purchase stock within a short period, the hindrance to entry is low. This is why it is important to do your due diligence and understand your risk tolerance beforehand.
Selecting individual stocks requires you to be known seeing as stocks carry more risk. Before you buy shares in a company, you want to understand what products it offers, its historical performance, its business model, and how it makes money.
A general rule of thumb is to assume that you are going to buy and hold stocks for a long time, even if that is not always the case.
Step 4: Determine how many Shares to Buy
Stocks determine your ownership of a company. Granted, you may want to own a considerable part of the company, but the number of shares you buy will depend on the availability of funds to invest on your part.
Now, stock prices vary and constantly fluctuate which can leave you utterly confused about what stocks to purchase. The good news is that some brokers offer tools for helping you determine the number of shares to buy.
If it is your first time stock trading, you may want to start by buying just one share so that you can experience the market before committing more of your funds.
Look out for brokers who allow investors to buy fractional shares or percentages of a single share as that allows you to buy expensive stocks in companies like Amazon.
Step 5: Start Trading
At this point, you are ready to begin trading. As such, you want to place an order through your broker’s platform and there, you will be present with the option of picking between a limit order and a market order.
A market order refers to purchasing shares at the best current price and it is ideal when purchasing a few stocks or large blue-chip ones whose prices do not fluctuate dramatically.
On the other hand, a limit order refers to when you purchase shares at your price or better, meaning that you are in total control of the price. However, with such an order, a trade may fail to happen if the price falls to get where you want it.
Such an order is ideal when trading many shares or smaller stocks with greater price instability.
After purchasing stocks, you need to track them as well as the performance of the companies you invest in. Be careful about cashing out too soon as well. Ultimately, you should be comfortable having the money you invest in stocks tied up for a few years.
You need to give your investments time to grow.