How Can I Invest in Stocks?
What Is Stock?
Stocks are an equity investment representing part of ownership in a corporation. We have two major types of stocks i.e. common stock and preferred stock. While common stock gives shareholders some voting rights, preferred stock does not. The neatest thing with preferred stock is that it guarantees a dividend payment. Unlike in the past where shareholders were given a paper stock certificate known as security, verifying the number of shares they owned, today’s share ownership is recorded electronically.
Investing in stock isn’t easy. In fact, most expert investors treat it as a complicated business. Benjamin Graham, Warren Buffett’s stock market mentor and a writer once said, “It is essential that you treat your investments pursuit as a business.”
Before you even think of purchasing your first stock, you should familiarize yourself with all the basics of investing. Remember, you can’t grow into a great investor overnight. It takes quite some time for you to master the concepts, and to slowly understand the application.
Things to Consider before Buying a Stock
Decide on whether to go through a face-to-face broker, or an online brokerage firm. Evaluate the stock and decide the price you would like to purchase at, for you to determine the type of order you want to make – either “limited” or “market.” If you want to save on broker fee, you can purchase stocks directly from the company, though most investors buy trade stock through brokers.
How Should You Go Buying Stocks?
First, create an account by making a cash deposit in a brokerage account. Thanks to the current technology as many firms can now offer brokerage accounts, which can be managed online or even with a broker in person.
After opening an account, tell your broker the types and the number of stocks you’d like to purchase. It’s the broker’s duty to execute the trade, and in return, he receives commission- usually, several cents per share.
The beauty of online trading sites is that they charge less commission fee, since most trading activities are done electronically.
Limited Order Vs Purchase Order
As stated earlier, after you’ve selected the stock of your choice, you can make either a “limited order” or a “market order.”
Limited order allows you to purchase stocks at a limited price, while a market order is the one in which you buy stocks at the current market price.
For instance, if you want to buy a stock in Samsung at $60 per share, and the stock is currently trading at $75, then you can make a limited purchase order, so the broker won’t acquire the share until prices reduce to $60. Or, you can as well make a market order, so you acquire the stock at the prevailing price, which is $75 in our case above.
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