So, you would like to buy stocks, correct? First of all, you should know that trading in the open market is a high-risk game you are playing. Losses can exceed your investment, so tread carefully!
Where can you buy stocks?
If you understood the sentence above and still want to buy play in the open market, you’ll need the assistance of a stockbroker who is certified to purchase securities on your behalf. Don’t rush on the internet and search for directories of nearest brokers or dealers just yet. First, you’ll need to figure out what type of stockbroker is right for you, as there are different types of stockbrokers out there.
Stockbrokers – basic categories
When looking for a stockbroker, you’ll most likely find four basic categories of stockbrokers who are available at your disposal, they are ranging from cheap and simple order-takers to the more expensive upper-end brokers who provide full-service, in-depth financial analysis, pieces of advice on what stock to buy, etc.
- Online/discount brokers – some online stock brokers are known for their award-winning customer support and they are trying to become a better broker every single day, while on the other hand, there are online brokers who are not 100% transparent and will scam out their customers. Some famous online brokers are TD Ameritrade, ETRADE, etc.
- Discount brokers who offer assistance – they are defined as a stockbroker that carries out buy and sell orders at a reduced commission if you would compare him to a full-service broker and they also provide no investment advice.
- Full-service brokers – a broker that provides a large variety of services to its clients. Some of the services can be financial research and analysis, retirement planning, tax tips and tricks, etc. Of course, full-service brokers come with a hefty price tag. Some of the full-service brokers with high reputation are Edward Jones, UBS, Raymond Jones, Merill Lynch, Wells Fargo Advisors.
- Money-managers – defined as a standalone business or a bank that is responsible for managing the securities portfolio of an individual or even an institutional investor. They are also known as “portfolio managers” or “investment managers”.
Okay, cool story bro, where can you buy stocks?
First of all, you should familiarize yourself with how the stock market really works.
The stock market is just like any other marketplace, the price moves up and down depending on two economics forces, supply and demand. When there is a large demand for a certain stock “A”, the price will rise. On the other hand, if there are more sellers than buyers, the price of the stock “A” will fall.
Moreover, no one really knows why the prices go up or down, and no one can predict it for sure. A stock’s price is usually a reflection of the investment community’s opinion on the stock. The price at which the stock is being traded isn’t necessarily the actual value of the company. So, prices of stocks can move based on some hearsay, misinformation, and rumors.
Secondly, to make your investment, go over the company multiple times. Some companies even offer direct stock purchase plans. These “plans” allow you to purchase a stock without using a broker. Furthermore, if you are planning on buying a small quantity of a certain stock, this may be your best option as this approach will save you time and cost of going to a broker.
Thirdly, choose a broker. If direct stock purchase plans are not available and you really want to own that stock, you’ll need to find a certified broker.
Last but not least, you’ll need to open a brokerage account and deposit your funds. To do that, you’ll have to contact a broker and he or she will ask you to fill out a new account form. This form should document your personal information like your name, your address, your phone number, even your investment experience (if you have any) and your risk tolerance.
Every broker is obligated how to report stock trades to the IRS. Be feared of IRS as they are the U.S. government agency that is responsible for tax collection and tax enforcement. You will bed asked to fill out required forms like dividend income, stock sale details, etc. and send them back to your broker.
All you have to do is determine what amount of money you want to deposit into your brokerage account. After that, all you have to do is enter an order and your broker will be notified. When your trade is finished, you will get a confirmation of a successful trade. All confirmations files should be kept somewhere safe.
Although buying stocks is easy enough, even with online brokers such as ETRADE or TD Ameritrade, you should be careful. It is known for a fact that people lost their homes due to bad trades.
Make sure to choose a stock that performs well in the market, look for company’s profit margin, analyze the return on equity, look at company’s past and expected growth and so on. There are millions of factors to look for.