Most ordinary people think of the stock market as a playing field for the richest business tycoons and the most ingenious investment bankers. But it’s a lot straightforward than you may have ever imagined.
All it takes to start investing in the stock market is learning the basics, understanding the lingo, and a LOT of research.
Here’s a simple, step-by-step guide to take to enter the world of stock trading.
1. Open an Account With an Online Stockbroker
Online stockbrokers make the whole process of buying and selling stocks a breeze. The process of buying stocks starts with creating an account with a stockbroker. The process is as simple as creating an account at a bank.
Head over to a stock broker’s website and create your account now. You’ll be asked to enter some important information, provide your identification details, and you’re good to go. The entire process will complete within 15 minutes.
After your account is created, you can add funds to it by transferring them online or mailing a cheque. Once that’s done, you can go ahead and buy stocks through your online account. But wait! There’s a lot of research that goes into buying stocks.
2. Research the Stocks You Want to Purchase
Once your account is up and running, you’ll have to dig deeper before buying any stock. The idea is simple: you want to buy stocks of companies that will surge in value. Warren Buffet would phrase it as ‘buying into a company because you want to own it.’
Understandably, you might get overwhelmed by the massive influx of real-time market data, but for now, you need to select the companies that you want ownership of. Once you’re done selecting the companies, it’s time to get your hands dirty with research.
Most of the information you will need about the company will be available on your stockbroker’s website. Conference call transcripts, quarterly profits, organizational news, SEC filings, and all sorts of other assessment information are all available via the stockbroker’s analytical tools. These websites also come accompanied by tutorials and guides on using these tools to your full advantage.
You must read the company’s annual reports since the annual notice to the company’s shareholders relays an overarching summary of the current situation in that company. You’ll be able to decipher the general narrative and context behind all the numbers in that report, essentially explaining how the business is being run and what is coming down the road.
3. Determine the Size and Number of Stocks to Buy
Since you’re a beginner, you’ll mostly be doing buying for now. It’s best to take your time learning how the stock market works and which stocks to buy. There’s no rush or pressure to buy as many shares or build your portfolio in a go.
It makes sense to start small, like going for partial shares, a relatively new availability. That way, you can get a chunk of the big money stocks from huge, financially sound companies like Google and Apple, without having to splurge massive amounts of cash to acquire shares on your own.
Buying fractional or partial shares are great ways to start your journey of stock trading. By taking this approach, you’ll own your share of stocks at minimum costs. Be sure to check with your broker if they offer partial or fractional stock investment options.
The stockbrokers’ websites even let you convert the currency to shares to help you decide which stocks to buy and whether you could afford them. The size and number of shares you wish to purchase will determine the amount of your capital investment.
4. Deciding the Type of Stock Order
Here’s where you need to grasp some of the lingo and terms thrown around in the stock market. Although the terminologies and numbers could have various complex meanings and underlying implications, the crucial terms to take note of include the following:
- Bid: The amount that the buyers are willing to give for the stock
- Ask: The amount that the sellers are willing to accept for the stock
- Spread: The gap between the lowest ask price and the highest bid price
- Limit order: An immediate request to purchase or sell the stock at the best possible price
- Market order: A quick request to buy or sell the stock at a particular price or better
There are essentially two types of stock orders that you can execute: marker orders and limit orders.
Market Orders
These are made to indicate that you want to buy or sell the stock at the best possible price available. The broker will select the highest possible bid price available for the sellers and the lowest possible ask price for the buyers. The order gets executed and fulfilled immediately.
This is best for buying stocks that don’t go through price swings; otherwise, the prices you end up with may not be close to what you were initially offered. Market orders are used when order fulfillment is the priority.
Limit Orders
These are made to indicate that you want to buy or sell the stock at a particular price or within particular parameters. The order will only be executed if the stock falls within the specific parameters and is executed on a first-come, first-serve basis.
A Limit Order is best for buying stocks from smaller companies that are more volatile. This strategy lowers the risks. Limit orders are used when the price is more important than the order fulfillment.
5. Learn From Experience
The world of stock investments is anything but smooth sailings. There will be shortfalls and challenging times. But as you learn things and gain experience, you’ll understand that the market fluctuations are inevitable and can only be maneuvered around. By staying focused and dedicated, you can weather the stock market’s harshest storms and eventually become a successful investor.
