How To Buy Stocks - A Ready Reckoner

How To Buy Stocks - A Ready Reckoner

By Megha

When you are a novice in trading in investments, it can be hard to find out how to buy stocks. To purchase shares, an investor will require the help of a broker. This is because a normal individual cannot take advice from any financial markets exchange on how to buy stocks. When an individual uses the services of a stockbroker, whether an online platform or another person, they can opt for the investment that they wish to sell or buy. They can also decide how the trade shall be handled. There are a couple of types of brokers that one can choose from. These include a discount broker and a full-service broker. In this guide on how to buy stocks, we will describe how a person can utilize these methods to buy shares on their own.


1. How to Buy Stocks: Start an Account


An account with a broker is the best method to purchase shares. An individual may like to be an investor who enjoys reading up on firms and finding out about the financial markets on the whole. Then, an online account with a broker is a good choice to start purchasing stocks. The online brokers give tax-advantaged accounts and taxable accounts. If investors want to purchase shares to fund their retirement, they can go for an individual retirement account. It gives some advantages in tax. These include tax-deferred growth of the investments and probable tax credits on the returns on tax. If the investor is investing until the day before retirement, you have already maximized their retirement accounts. They can seek a taxable brokerage account. They do not give the tax advantages that IRAs have.


But they also do not have any restrictions on how much cash they can deposit or when they can withdraw their funds. The broker may also want to find out if the investor needs a margin account. The broker gives you the money to purchase shares with such an account. This gives experienced investors the chance to purchase more shares with less personal capital for some interest and more risk.


2. How to Buy Stocks: Research the Stocks You Want


There are innumerable publicly traded firms that give shares on the financial markets. That makes it very tough to find out which shares to purchase. A method to research the stocks you might like to purchase is to adopt a specific strategy. This includes purchasing a portfolio of dividend stocks or purchasing growth shares. Growth stocks are shares of such firms experiencing strong growth in revenue or profits. They often tend to be young firms with a lot of space to grow. This also includes firms serving the financial markets with a lot of potential for growth. The shares of a growth stock may sometimes be expensive. But investing in the growth stocks assumes that there will be continued strong growth and give robust gains in price as time passes.


Value stocks are such shares priced at a certain discount and stand to see growth in the cost as the financial markets find out their true value. With value investing, the investor is seeking shares that are on sale. These shares have price-to-book and price-to-earnings ratios. The goal is to purchase shares that are under-priced and keep on holding them for a long period. The dividend stocks pay out a share of the earnings to shareholders in periodic dividends. When the investor purchases such stocks, the aim is to get a steady stream of income from the investments. It does not matter whether the prices of the shares go up or down. There are some sectors that are more likely to pay out dividends.


How to Buy Stocks: Execute Your Trades



After the investor has opened an account with a broker and found out the shares they would like to purchase; it is now time to undertake some trades. Before you get started with purchasing a stock, you should find out some details about the process. Buying a share is a little more complicated than pressing a buy button. An investor has to choose the type of order and give instructions on how to buy stocks you choose. A market order is the type of order that gives instructions to the broker to purchase stocks instantly at the lowest price present. The present cost of the share that the investor sees when they enter a market order is not usually the cost of executing the market order. The cost of the shares can change immediately. The order only instructs the broker to get the lowest price present at that moment.


In a limited order, the investor can name the cost. The buy only gets executed if the share declines to that price or lowers within a given period. The share may never reach the specific cost before the expiry of the limit order. Then the trade gets canceled. If the investor has a small balance in the account because the prices of shares are quite high, the investor can opt for fractional shares. The investor can invest as little as some dollars in the shares with fractional stocks. There are a number of brokers that give fractional shares.


How to Buy Stocks: Use Cost Averaging


The issue with the financial markets is that the prices are volatile and keep fluctuating. The investor may need a share that is quite well priced at present. But nobody can say for sure whether the price will be lower or higher tomorrow. Cost averaging gives the solution to this issue. The investor can purchase the shares with a certain amount of cash at regular periods. The investor may pay less per share on average over a period. The cost averaging methods permit the investor to get started purchasing shares correctly, with only a small amount of money, rather than just waiting to build the balance. This removes the investor's risk of buying either very low or high because the purchases are being spread out over a long period.


For instance, cost averaging can be used to purchase the target stock at four dollars per share in the beginning, six dollars per share in the following week, and eight dollars per share in the week after. The average cost of the share becomes six dollars. This is a better method than purchasing all the shares at eight dollars and then experiencing a fall in the share price. Also, investing the same amount each time would give you more stock at four dollars per share than at the other prices. Selling high and purchasing low is the rule for purchasing shares in the financial markets. You may have heard this a lot of times. But it can be very challenging to follow practically. It can also be quite difficult to determine the fair price for a given share. Recurring purchases of stock that use the cost averaging method assists the investor in sidestepping the challenges and making investing a routine practice.


How to Buy Stocks: Find Out When to Sell


The best time to sell the shares is when the investor requires the money. The investors who are in for the long term should have a good strategy that revolves around any financial goal and a certain timeline to achieve that goal. This means it should have a plan to start using the investments and utilize the money they have accumulated when the timing is correct. This also means finding out when the investor should sell a share has little to do with the activities of the share or the wider financial markets at that present moment. The average investor does not have to worry about watching price movements unless they are day trading and get a quick profit.


Suppose the investor is uncertain whether to keep a losing share or not. In that case, they should think about why they purchased it and find out whether anything has changed fundamentally. If that is not the case, a decline in the price might be a good time to purchase some more shares.



When you learn how to buy stocks in the financial markets, it starts a beautiful journey of successful investments. But if things take a turn for the worse, remember that every investor in the world goes through some turbulence. The main factor is to win in the long term and concentrate on the things that can be controlled.