Real-World Tips on How to buy Stocks
The actual process of buying stocks is not a complicated process. New investors with little or no experience in trading stocks can easily open a trading account through an online broker with a minimum deposit and start placing buy and sell orders. However, in order to earn a profit from trading stocks, investors must learn how to effectively buy and sell stocks. The learning process is not an overnight endeavor, and there is a mountain of information from which new investors can choose. Therefore, it is important to start with some of the basics.
How to Buy Stocks
Unfortunately, investors and day traders cannot just call companies and order stocks. Anyone who wants to purchase stocks must use the services of a licensed stockbroker. However, there are countless categories of stockbrokers, so new investors should understand that it is not as simple as looking up stockbrokers in the phone book.
The categories of stockbrokers include simple order-takers that are not very expensive and require investors to conduct their own research, full-service money managers, online/discount brokers and full-service brokers. Each category of stockbroker offers a varying degree of service, and the amount of money investors can expect to pay depends upon the level of service they receive.
Services Offered by Stockbrokers
Online/discount brokers act as order takers and do not provide any financial advice. Investors craft their trading strategies based on their own decisions and not the advice of licensed brokers. Online/discount brokers do offer charts, graphs and information on companies that helps customers build strong trading portfolios. Most discount brokers charge commissions on a per trade basis.
Full-service brokers sit down with investors and discuss their financial goals and what they hope to accomplish by investing in stocks. Full-service brokers also take the time to get to know their clients personally, which helps the broker understand their client’s emotions and how much risk they are willing to take. Full-service brokers cost far more than discount brokers, but many new investors do pay extra knowing they have professionals by their side.
Money managers are highly skilled financial professionals that primarily handle the larger portfolios of wealthy individuals. Often times, money managers take complete control over an investor’s portfolio and execute trades without prior permission. The fees that money manger’s charge are extensive, and manager’s charge based on an investor’s total assets in a portfolio and not per transaction. This category of stockbroker requires investors to deposit anywhere from $100,000 to $250,000 before they agree to manage a portfolio.
Market Orders and Limit Orders
Once investors decide which stock they would like to purchase, they can choose from a market order or a limit order. Market orders allow investors to purchase stocks at their current market value. Investors that choose limit orders are placing a limit on the price of the stock. For example, if an investor wants to purchase Microsoft at $50/share, but the stock currently trades at $55/share, the broker waits until Microsoft falls to $50/share.
Other Considerations When Buying Stocks
Thanks to the power of the information era and the internet, there is no shortage of information for new investors. However, investors must decide what information is accurate and what information is useless, and there is a mountain of useless information over the internet. Knowledge and experience are the only two proven techniques to profit from trading stocks.