Buying stocks for the first time can be intimidating. It’s really no wonder that most smaller investors prefer to stick with ETFs and other vehicles where professionals do most of the work for you.
However, picking growth stocks, and even day trading, aren’t as complicated as they seem. Making your own investment decisions does require research and a little bit of practice in order to learn the process, true. Once you understand some of the jargon involved and get the hang of using an online investment platform, though, you will find it becoming straightforward and will certainly appreciate the extra control this gives you over your financial future.
Let’s take it one thing at a time.
1. Get started: Open an account
Stocks are bought and sold on stock exchanges, but retail investors cannot trade on these directly. You must first either open an account at a stockbroker or, more simply, join an online trading website. In particular, the latter option has the advantage of offering both “demo” and “live” accounts; the former allows you to practise trading with real market data but imaginary money.
Signing up simply requires you to fill out an online registration form and provide proof of identification and address, then fund your account using a bank transfer. Once that is done, you can start buying stocks and other financial products with only a few clicks.
Today, you are truly spoiled for choice as to which platform to choose. Ideally, novice traders will choose one that supports clients through their journey by offering educational tools, perhaps along with curated research and daily news on what is going on in the markets. In no particular order and fully recognising that many other good websites and apps exist, take a look at these:
2. Research and select the stocks you want to buy
A typical online trading platform features several thousand stocks, but that is not all you have to choose from. You can have access to dozens of types of financial products, including ETFs, CFDs, forex, commodities, options, and futures. It is easy to be overwhelmed, especially as a beginner; some of these markets are complex. Purchasing a stock is relatively simple: if the company you’re buying does well, the share price goes up. So, a good place to start is to think about the firms and industries you’re interested in.
Once you have identified a few promising companies, it is time to put on your analyst’s hat and review their annual reports to gain a global overview of their financials. Moreover, you might be interested in reading the annual letter to shareholders, which provides a general narrative of a company’s prospects and current situation.
After researching stocks and financial products, you can also start thinking about an investing strategy that suits your needs. If you feel stocks should provide you with a consistent stream of income, for example, you should look at dividend stocks. Consider growth stocks if you have a high risk tolerance and are interested in early-stage growth enterprises; these kinds of companies can offer higher capital gains. Filling your portfolio with value stocks, on the other hand, entails locating companies that are undervalued in the hopes of their price correcting upward.
3. Decide how many shares to buy
You do not need a large sum of money to begin investing in stocks. You can always start small and gradually expand your portfolio. Because investment returns are unpredictable, it’s crucial to invest only what you can afford to lose and to precisely define your personal risk tolerance. You may also want to explore fractional shares, as this allows you to buy a portion of a pricey stock when you might not be able to afford a full share.
In short, the amount you should invest depends on your goals, your willingness to take on risk, and your desire to diversify your portfolio.
4. Execute a trade and choose an order type
Now that your account is open and funded, your goals and strategy are set, your research is done, and you know what and how much you want to buy, it is time to act. Depending on the stock you chose and on which stock exchanges it is traded, you must be aware of differences in trading hours.
Also, setting an order type is a crucial part of buying a stock. Here are two of the most important ones:
- Market orders: A market order indicates that you will purchase or sell the stock at the best available current market price. Because this method does not specify a price range for a trade, it will be executed instantly and fully filled. A market order is best used when buying stocks that do not experience wide price swings, or if you want to move as soon as possible.
- Limit orders: A limit order establishes a specific price for your purchase or sale. Only if someone is prepared to sell the shares at the price you specify will the order be executed (and vice versa for short trades). Investors who use limit orders have more control over the price they pay for a stock.
5. Expand your portfolio
Building a portfolio is an ongoing process that becomes more and more intuitive as you gain experience and knowledge. Your investment decisions must always be questioned. Are you exposed to too much risk? Is your portfolio as diversified as it should be? Is it too focused on a specific industry?
Moreover, you have to keep an eye on the companies that you invested in, so you can evaluate if you need to react to recent news and events. Once you’re familiar with stocks, you may also want to explore other financial products or new investment strategies, depending on what your goals are.
Conclusion
Learning about investing is often overwhelming at first, but you will find that there are plenty of educational resources to help answer your questions. It is also highly recommended that you first cut your teeth on a demo platform to evaluate your strategy and become comfortable with the mechanics of trading. In truth, diligent investors never stop learning – understanding how to buy stocks is just the beginning.
