Has it been your apparent desire to be an investor in the stock market but the complexity, potential risks, price fluctuations have delayed your performance and forced you to think twice?
Here we will discuss the proper ways and some rules to buy shares of the stock you have longed for. So, let’s start our article on How to Buy Stocks.
What is a Share?
Most of the businesses or start-ups set their foot in the world as private businesses and remain so in the upcoming years.
Company owners felt the need of increasing the capital of the company, and for that, they searched for the option of floating in the market.
How to Buy Stocks?
In the process of floatation, the company allows outside investors to invest in their shares giving the investors some benefits.
Another term for the shares is equidity so don’t get confused when the terms are interchanged.
1. Select an Online Broker
To set your foot in the stock market and to get good investment results, the first step which needs to be undertaken is setting up a brokerage account.
However, in these modern days, the job of searching for a brokerage service is made a ton easier.
All thanks to the online based brokerage services which work exactly in the same conventional way as traditional brokerage services.
The services can be enjoyed through apps or online websites. However, to ensure best returns for your investment you must find the best brokerage service which suits your investment goals.
Here are some tips which will help you get a kick start:
Step 1 – Do your research and know your needs
Before getting started with any brokerage service you must spend a few moments and summarise on what is the most important thing you want to achieve from the trading platform and act accordingly to the expectations your investment goals withhold.
Do you research about the trend which is currently ongoing about your desired industry or sector.
As a beginner, your first priority when it comes to investing, should be to achieve and maintain sufficient liquidity.
Liquidity means laying your hands on money whenever it is necessary. Liquidity can be in the form of cash, savings account, quick assets, which can be immediately converted to money.
Beginners when choosing online brokerage service must always tally the basic education benefits, uncomplicated access to auxiliary staff and should always judge the company’s ability for profitable growth.
Another tip for beginners is that before investing you should always carry out some practice trades.
This will help you get a hint about how the market performs and make you aware of the price fluctuations.
If you are a moderate investor and had already gained some experience about the stock market then your main priority should be receiving tertiary education from the company.
You must choose a company where you can get to learn from white collar investors and analysts who have a good knowledge of foundational and technical data.
Hey if you are an experienced investor who has already performed numerous trades in the past and is looking to replace the old company with a new one.
Your main focus should be on the company’s ability of trading derivatives, ability of advanced charting and its market size.
As for beginners, who are inexperienced, it is suggested to buy stocks according to the investment type. First you must decide are you an active or a passive investor.
Active investing requires an aggressive approach and is operated by a portfolio manager or an active participant.
Active investing is for those people who are willing to work full time as an investor. So active investors should find a company which is able to meet their heavy demands.
Passive investors buy much fewer stocks and are generally inclined towards mutual funds. They’re in search of a few solid investments which will support them in the long run.
They need to find a brokerage service which provides them with such quality stocks and shares.
Step 2 – Checking the protocols.
Here are some extra tips for you to help you select an online stockbroker:
Always check whether the stockbroker guarantees protection against fraud.
Check the reviews of the company and people’s thoughts about the company.
Check out the customers review and the experience of the people who are currently benefiting from the brokerage service.
Be aware about the kind of technology the online stockbroker utilises to keep your account safe.
Be aware about the online stockbroker’s security and account protection protocols.
Check whether the website serves two factor authentication.
Check the company’s product differentiability and whether they have different products for meeting different investment goals.
Step 3 – Estimate the fees.
You must judge for yourself whether the fees you are paying is worth the benefits you are receiving.
It is suggested to go through all the features of the brokerage service you are going to enroll yourself in.
2. Research the Stocks You Want to Buy
After successfully enrolling yourself in the online brokerage service, the next thing you need to do is to pick shares of stocks.
Picking stocks is not as easy as it sounds. You first need to put in efforts, do your homework and do a thorough research about the stocks you want to buy.
Searching for good stocks which are capable to return good amount of money is like a fishing expedition. It requires patience and a considerable amount of experience.
It asks for your homework and you need to have an idea about where to look.
There are thousands of deals flashing in front of your eyes but you need only pick the stock aligning with your interests.
Here are some methods which will help you progress:
Step 1 – Set up some investment ideas.
As said earlier, there are thousands of deals flashing in front of your eyes, but it is possible to invest in each and every one of them as a man has limited resources.
Thus to zero in on some of the deals, you need to have an investment idea. You need to liquidate your wealth on potential stocks and not on stocks that have a 50-50 chance of return.
Invest only when you are 100% confident enough. In these cases of decisions, your investment ideas come into play.
You need to take note of a key thing that a well-known business is not necessarily a good business.
You need to bring down the understanding of the market to your ease level.
Step 2– Do your homework and make use of reports
The US Securities and Exchange Commission had previously declared a bill that makes it mandatory for every company to publish reports of their shares.
If you are clever enough these reports are available on the company’s website, so if your clock is ticking fast, you can access these reports which just a few clicks.
The two main types of forms available in these reports are:
The 10K form- it is a complete report of the company’s financial outcomes. This updated annually, so there is no chance that the reports you are viewing is outdated.
The 10Q form- This report provides us with extensive details of the company’s performance. This is updated quarterly to keep you updated from time to time.
Make use of these reports wisely.
Check the P/E ratio, (the price to earnings ratio). This will help you understand the graph of the company’s potential growth
Take advice from experts about the marketing trend prevailing in the short run. This will get you aware about the kind of stocks hey which are in demand nowadays.
Review the basics of the desired shares all the way through and properly understand it.
Know the details of the company providing the desired shares and judge its leadership qualities.Make sure that the share you have chosen is worth investing in.
3. Decide How Many Shares to Buy
The first thing which crosses our mind when it comes to this topic is that the number of shares which are to be bought.
Stock is directly proportional to the resources we have. However, it is not true, factors such as diversification comes into play in this topic.
Here are some key tips hey which will guide you:
Figure out how many resources you can spare to expand and the potential of your portfolio.
Don’t spend all your resources buying shares of a particular stock.
This is the Golden rule of the stock market and it applies to all investors whether amateur or experienced. The rule is of diversification.
You should always try to diversify your stocks, meaning you should buy stocks of different sectors and not particularly depend on one sector.
This ensures that your financial needs are not supported only by one industry and if you incur losses from industry, you can have other sectors to back it up.
Seclude the brokerage fees from you’re limited resources so that you can pay the fees without extra financial struggle.
Use the rest of the resources in the diversification of your shares.Decide how much percentage to expend on shares of a particular stock and divide your capital accordingly.
To be exact, one should buy 15 to 20 shares of a particular stock. This enhances the chances hey of getting a good return on the capital.
Then multiply the portfolio’s economic worth with the percentage you want to assign to the stock.
Amateur investors are advised to hey start slow and setting off by buying a small portion of shares like purchasing just a unit get the experience of owning a share.
You should also consider buying fractional shares if it is supported by your broker. Buying fractional shares means buying a portion of the share.
4. Choose Your Stock Order Type
Investing is not a spoon-feeding task and requires all your attentiveness. Before investing you must know all the types of orders that exist in the market.
Type 1 – Market Order
This is the most conventional type of order. Here the stocks and shares are bought and sold immediately, and cash is transferred at the spot.
Simply, you just pay the cash and take away your desired share. This is the most traditional form of market.
The pros of using market order is that the execution of the order is guaranteed, and you are sure to get profits from it.
But in market order, the price at which the order will be executed is not promised. The nature of the market order is very volatile, and fluctuations occur.
Type 2- Limited Order
Limit order provides the security of price for your desired share. They are 2 subparts of limited order – buy limit order and sell limit order.
Choosing a buy limit order means promising to buy the security at a particular price. Choosing the sell limit order means agreeing to sell the security at a specific price.
Type 3- Stop Order
This order allows to purchase or sell a stock once the cost has reached a specific point. This point is called the stop point.
Once the stop point is reached, the stop order converts to a market order or a limit order.
The pros of using stop order is that it is time effective and stop losses can be executed at any time of the day. This helps incur fewer losses at your shares.
Type 4- Cover Order
This order consists of a mixture of market order and a stop-loss order. This order significantly reduces the vulnerability of risks as it asks you to set a stop loss trigger price (STLP) and the ceiling price.
Type 5 – Bracket Order
Bracket order curbs your losses by locking the profit by commanding two contrasting side orders.
In a buy order the two ends of the brackets are occupied by high side sell limit and low side sell limit order.
And in a sell order the ends of the brackets are occupied with high side buy stop order and low side buy stop order.
5. Optimize your Stock Portfolio
Optimizing your stock portfolio is very important to keep yourself updated and aligned with your goals.
To incur fewer losses from your shares it is important to diversify your share portfolio. It helps you come to a conclusion hey about investment decisions and expand your profits.
While most of us buy stocks hey looking at the numerical statistics of the shares, only wise investors know the secret of investing in share.
Which have the true potential of becoming a hit in the future irrespective of the current statistics.
It can be finally concluded that growth shares outperform value shares.We hope that efforts through the form of this article have helped you in numerous ways and help clear your ideas about investing in shares.