How to Start Buying Stocks
Summary
- Stocks are portions of a company's worth that they put up for sale to the public.
- When you purchase a share of a company's stock, you become a shareholder of that company and are entitled to a proportionate dividend from that company's earnings.
- When you first start out investing in stocks it is best to use the service of a broker.
These days the market offers several ways to invest your money for profit.
However, being ill-equipped with market knowledge can often make investing seem overly complicated.
If you are currently considering your investment options, you need to know about stock investments. Stocks constitute an investment that can pay off very well, but there are minor details that are important to pay attention to.
By fully understanding the ins and outs of stocks you can become one of those celebrated investors you idealize.
Know What Stocks are:
The word stock is used to refer to a company’s shares. These shares amount to a sum total of the assets and revenues of the company.
- We can think of stocks as being an expression of a company’s worth. Companies put up their stocks, or a certain portion of their stocks, for sale.
With the money received through the selling of stocks, companies initiate new plans and projects that could benefit stockholders, consumers, and the company itself. The idea of selling stocks is always intended to contribute to a company’s overall profit-making. The new projects are aimed at generating bigger revenues and net income.
How Does the Stock Market Work?
After becoming more familiar with what stocks are, you might be wondering, how does this whole concept of buying and selling work?
- In the case of stocks, you are not buying a product.
Instead, you are buying a portion of a company’s shares and you yourself are becoming one of its owners. Your investment in the stock market begins when you buy a stock.
- Being a shareholder, you are entitled to a proportionate dividend from the company’s earnings. A dividend is the number of the company’s profits which is to be distributed among the shareholders.
Buying and selling in the stock market are driven by the same rule of supply and demand that fuels all markets.
Moreover, investors' perceptions of a company’s performance and worth also play a part in buying and selling of stocks
Being a stockholder, you can choose to sell your stock to other investors as well. You might choose to sell your own stocks when you see the opportunity for profit in selling, for example, when the company is doing well.
Here’s a video to break it down into 6 easy steps:
Getting Started in Stock Market Investment:
Now that you’ve made up your mind to invest in stocks, you must be looking for the list of steps to get started. We are here to guide you through them.
- First, being a beginner, you cannot do this on your own. If you are serious about learning how to invest in penny stocks you will need a guide inside the market as well. The guide will tell you about Blue chips stocks, Mid-cap stocks and Penny stocks for beginners. Depending on your appetite for risk and the duration of your investment, your guide will advise you on the best stocks to buy.
Investing in the stock market is carried out either through a full-service broker or an online broker.
- You can think of a broker as a person who has the ability to go in and buy and sell securities on your behalf.
Both options are suitable. If you cannot spare the time to do the necessary research on your own, you should go for a full-service broker. A full-service broker will learn all about your financial matters and will guide you through your investment options.
- The more commonly recommended/popular option nowadays is to use an online broker.
We say this because full-service brokers are expensive and having one hinders your learning.
- You become increasingly dependent on your broker.
- If you wish to grow your stock market investments, it is advisable to open an online brokerage account.
- This is very affordable.
Only a small amount must be paid for the services of an online broker. Online brokers do not guide you. They only link you to companies that are selling their stocks and provide you with updated data about those companies and related market research.
Investing Without a Broker:
Apart from the two options mentioned above, there is a third one. You can buy stocks directly.
- This is only possible when a company offers a direct stock purchase plan, and many companies do. This way, you get rid of the middleman and feel more in charge of your investment.
On top of this third option, there is one more way to avoid hiring a broker. You can become part of a company’s dividend reinvestment program.
- In this program, you reinvest the money you receive as dividends by buying more stocks from the company. This breeds a long-term relationship between you as an investor and the company.
Doing the Research:
This is a very crucial step in buying stocks.
Before buying, you must do research about the companies you are interested in. Doing so helps you to decide which company or companies you are going to buy stocks from.
- For this, you must find and analyze the audit reports of various companies. This will help you gather data about their revenues, net incomes, projects, plans, and per-share earnings.
- After collecting this data, you can make a comparison.
You should include a company’s profit-making activity and management team in your research. This will enable you to fully understand a company, which you may later become a part of when buying their stocks. It is also important to understand various kinds of stocks, namely large-cap, mid-cap, small-cap and Penny stocks. Penny stocks for beginners is another interesting topic that has been trending recently.
Buying Stocks:
If you choose to buy stocks directly, you will receive payment through your investment account, whereas if you choose an online broker, you must first make an online brokerage account, which is very much like a bank account.
You will then transfer money to the broker either electronically or through your regular bank account. If you choose a full-service broker, the broker will let you know how to transfer money.
- At this stage, it is important to decide which kind of stock order you want to place.
- There are two kinds of stock orders: market order and limited order.
In a market order, the purchase of stock is made according to the market rate. In limited order, you set a limit on the amount you are willing to pay in order to buy stock. If there is a broker, they will wait until the worth of stock comes in line with the amount you have set.
Once this happens, the buy order will be made. Obviously, a market order is quick, and the purchase is made all at once. You will have to wait in case of a limited order. But if you have a limited amount of money to invest, you will opt for limited order.
Happy Trading!
Buying and trading stocks does not have to be as complicated or intimidating as it looks. Just like any other skill or job it takes time to learn and understand what works and what doesn’t.
If you are willing to set aside the time to learn the skills necessary for penny stock trading you could very easily become a success story for all the investors who will surely come after you.
