Before we start buying stocks, we first have to learn everything there is about them. We have to master the theory that’s behind buying stocks. Moreover, we have to practice until we learn how to avoid mistakes and profit from our trading career.
So where can we buy or sell shares? The answer is — at a stock exchange. In the USA, we have three major stock exchanges. They are:
- AMEX — American Stock Exchange
- NASDAQ — National Association of Securities Dealers Automated Quotations
- NYSE — New York Stock Exchange.
In these exchanges, we can easily buy or sell shares and thus improve the liquidity of the market. What’s more, we can get the best price possible when selling shares and the lowest price when buying shares.
The liquidity will be higher if there is an abundance of shares trading hands on a daily basis. However, we must be aware of one thing: high-risk stocks are those with low liquidity. Those stocks should be avoided as much as possible, as they are practically worthless unless we have someone to sell them to.
Nevertheless, this sort of issue is the future you’s problem. We first have to start with the basics and learn how to buy stocks.
A step-by-step guide to buying stocks
1. Take care of consumer debts first (especially those with high interest rates)
Sure, by buying stocks, we can hope for a good 7% return rate every year. However, if we’re drowning in debt, we will lose money instead. The interest rates on these debts are usually somewhere around 18 to 22%. Thus, it’s highly unlikely we will be able to pay them off, even if our stocks are successful.
2. Research online brokers
Since Wall Street has embraced the newest digital advancements, it’s likely that we will opt for an online broker. However, that doesn’t mean we shouldn’t do some research. In fact, research will help us compare pricing packages and determine which offer pays off the most. Moreover, we can also check out the reviews as well and match ourselves with an online broker that will surely meet all our needs. You will also want to decide if you need a day trading broker, a broker for futures, stocks, etc.
3. Visit the brokerage site
Some brokerage sites will have virtual tours, which is great, as we can use those to get more comfortable with the website itself. After all, we will probably make all our trades online, rather than by talking to a real person (that usually costs more).
A good brokerage website will even have a research platform where we can get real-time quotes and detailed information about some of the companies we’re considering.
4. Make a deposit
Some brokerages exist as a part of a regular bank. However, if that’s not the case with our brokerage, we will need to deposit funds into our account.
The brokerage will give us all the instructions, and they will also tell us how much we should deposit. There’s usually a minimum deposit.
5. Learn what type of orders there are
One of the simplest orders we can make is the market order. Nevertheless, there are other order options as well. If we want to become successful investors, we will have to learn these orders by heart and determine when we should use each one.
Making a market order means that we want to buy a stock at its current bid or ask price. There are also stop sell, stop buy, limit buy and limit sell orders.
6. Place the trade
The stock market is open from Monday to Friday. The working hours are from 9:30 AM until 4 PM Eastern Time. Once we make an order, we must make a note about it so that we don’t forget. It shouldn’t take too long for it to go through.
7. Keep an eye on the stock, but don’t overdo it
Warren Buffett believes that we should all buy stocks from quality companies and then keep an eye on them from afar. That way, we won’t get too emotionally involved. Also, we ought to remember that trading is not how money is made. It’s actually investing that will bring us revenue.
Becoming a pro at buying stocks
1. Have a good investment strategy for each stock
Consider using the following strategies: growth investing, value investing and technical analysis.
2. Don’t risk too much, i.e., pay attention to the market cap
If the market cap is high, then the risk is low, and vice versa. In any case, we mustn’t overexpose ourselves and risk it all for just one stock.
3. Practice patience at all times
Holding onto some stocks for long periods of time can prove beneficial, as they might generate good returns. Thus, we mustn’t be too quick to pull the trigger and sell.
4. Know that there are no guarantees
Investing is a risky game with potentially high rewards.
5. Don’t rely too much on the history of a stock, as it’s not a forecast of the stock’s future
Analyzing the history of a stock is crucial in some cases, but we always need to consider the previous performance of the same stock with a grain of salt.
6. Practice diversification in all aspects: geographically, in asset classes and in industries
7. Know that knowledge is power
We mustn’t ever stop learning and using online resources to get better at trading and investing.
8. Know when to follow the crowd
We need to think for ourselves and know when to jump on the bandwagon and when to head out on our own.
9. Don’t brag, as it’s neither classy nor cool
Everyone has had both massive gains and losses, but it’s always better to keep quiet. We shouldn’t reveal our cards to anyone.
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We never said that buying stocks is easy. However, with just a bit of practice and plenty of learning, we will soon discover how to stand out in the stock market and make lots of money.