How to Buy Stocks

from wikiHow – The How to Manual That You Can Edit

Buying stocks is not difficult, but you’ll need a few days lead time if you haven’t done it before!
On the other hand making money consistently from buying stock is very difficult – the fact that most managed professional funds do not beat the index, tells you that even professionals don’t find this easy.
So take everything you read with a grain of salt.

Steps

1. Do nothing until you have chosen a system, rules for buying and rules for selling. So read widely and study. Watch the market and then paper trade ( that is pretending on paper you bought the stocks!) : prove you can make money at stock speculation before you ever part with a single dime. Once money is in your account, the temptation is too high to spend without careful thought.
2. Decide on a system. And then decide on the best vehicle to trade. If stock speculation, not long term investment is what you are after, maybe contracts for difference , spreadbetting or binary betting could be a better way – depending on local laws and tax rules – and how quickly you intend to get in and out of the market. Investigate all of the options.
3. Then if you have decided on trading raw stocks. Sign up with a stock broker on their website. A broker is registered with one or more “stock exchanges” (e.g. NYSE, NASDAQ, etc.) to execute stock trades on your behalf within that exchange’s market.
4. Send the broker an initial deposit of funds. (Your broker needs this money to purchase your stocks.) The usual minimum is $2000 but can be as little as $500.00. Some websites don’t require a deposit at all.
5. Your broker must report your stock trades to the IRS. You will need to fill out the required forms and mail them back to the broker, possibly even before they will allow you to make your first trade. (Your broker will send you the forms.)
6. Select your stock, notifying your broker of the company’s “symbol” (a 1-4-letter code), the price you’re willing to pay per share, and the length of time for which your offer will be valid.

Tips

• Before you buy anything – stop. Watch. Learn. Paper trade. Don’t trust anyone’s advice until you have confirmed that what they say works consistently. If you are considering buying a trading system from anyone, look at some of the reputable financial forums such as trade2win or moneytec. You will find most of them there….and a heap of dissatisfied customers.
• Decide before every trade on a stop loss. And exercise it ruthlessly. Don’t make decisions on the fly!
• Don’t buy too much of one investment, so you be better able to deal with temporary setbacks; balanced portfolios increase in value in the long-term.
• Index funds provide a balanced, low-cost (low/no management fees) way of investing, and have consistent long-term gains.
• Instead of offering a specific amount (and a timeframe) for the stock, you may purchase the stock “at market value”, which executes immediately.
• Although you should “diversify” your stock portfolio by owning stock in several industries, buy stock primarily in industries you are familar with. (tech stocks if you’re a geek, auto stocks if you read a lot of car magazines, etc.)
• Search for “online discount brokers” on a search engine to find a list of brokers that you can use to buy and sell stocks online. Scottrade, Etrade, and TD Waterhouse are just a few of the many options. Be sure to compare their fees and see if they have any hidden fees before signing up.
• “If in doubt, do nought”.

Warnings

• Before buying stocks, make sure you have a decent idea of how to choose which stocks to buy.
• There is plenty of free advice from reputable people. There is also plenty of free and seemingly credible advice that is both misleading and wrong.
• Many of the established text books and bibles on trading – particularly on technical analysis – contain assumptions repeated so often they have gained the status of fact without ever being proven! If you find that hard to believe then download a stock price into a spreadsheet and test the moving average crossing methods repeated in every book on technical analysis and shudder at how much money you would have lost! It just isn’t as simple as it is painted.
• Make sure your broker is registered with the SEC. Stick to the brokers advertising on network TV if you are unfamiliar with the industry.
• Depending on the brokerage fees, it will be difficult (or take a long time) to recoup an investment of less than $1500 on any single stock purchase.
• In addition to the price-per-share that you offer for the stock, your broker will charge you a flat transaction fee, as well as an SEC insurance fee. The SEC fee is about $5. You pay these extra fees when both buying AND selling a stock.
• Realise that people who promote a stock often do so because they want to sell it. In other words they hype a product in order to sell it. This way of looking at things is called “Contrarianism”. So when people say “BUY”, its actually time to “SELL”, or if you don’t hold stock already, it maybe not the time to buy at all! Always DYOR (Do Your Own Research) and then some.
• Most day traders lose money, and very few fund managers beat the indexes over any length of time. Stock trading is easy. Making money is hard. So look for a system, prove it to yourself, and then dont deviate!
• Do not let your emotions or bias cloud your judgment when you are buying stocks. Just because you love Krispy Kreme doughnuts does not mean you should be buying stock in this company. Even the best products can be run by companies with terrible management which will eventually run them into the ground.

Related wikiHows

• How to Get Rich Easily
• How to Keep Your Investing Focus
• How to Avoid Investment Trading System Scams
• How to Manage Your 401k Investments and Choose Your Funds
• How to Invest in Stocks
• How to Choose Stocks
• How to Buy Bonds
• How to Earn Regular Income from Stock Investing Via Dividends
• How to Start an Investment Club

Sources and Citations

• Jim Cramer
• http://www.investopedia.com
• http://www.HowTheMarketWorks.com

Article provided by wikiHow, a wiki how-to manual. Please edit this article and find author credits at the original wikiHow article on How to Buy Stocks. All content on wikiHow can be shared under a Creative Commons license.

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