How to buy stock

how to buy stockStocks are arguable always the best investment over time. They are also arguable a low risk investment. They are however not a low volatility investment which often make people think about stocks as riskier investments then they really are. What this means is that stocks can move a lot up and down. However if you look at them more long term you will find that stocks historically recoups their loses in a couples of years and then continues to gain. Seen over a long time span stocks has been a safe investment. Even more so than many other “safe” investments such as bonds. This makes them high volatility low risk investments. Looking at the short term volatility rather than the long time development of stock is according to Warren Buffet one of the most common mistakes among investors on all levels.

It is important to understand that what I have said above is true for stocks but does not necessarily have to be true for the stock of one unique company. Unique stocks can be associated with very high risk and might never recoup loses in value. It is important to invest in a diverse portfolio that contains a number of different stocks.

It is also important to understand that while stocks have been a safe investment over time. They are not necessarily a safe choice for short term investments. Investments where you know you are going to need the money in a certain time frame. If you know you going to need to liquidate your investment on a certain day and that you will not be able to ride out a market downturn then stocks can be a risky investment. How risky depends on the stock, the time frame and the market conditions.

There are two different ways to invest in stocks. To invest directly in individual stocks or to invest indirectly through a mutual fund. There are a few other more exotic financial instruments  available as well but theses are not suitable for beginners and will therefor not be mentioned here.

stockInvesting in mutual funds is very easy. There is a large selection of different mutual fund available. They all focus on different types of business, different regions and countries, different ethical preferences etc. There is a mutual fund for almost any investment preference. You can either invest in mutual funds through your bank office or through your stock broker. Your stock broker often allows access to a larger selection of mutual funds  than your local bank. They also often offer lower transaction costs.

From this point in the article we will focus on investing directly into individual stocks.

It can if you never purchased stocks or any other financial instrument seem very hard and complicate to purchase and invest in stocks. To think that there are a million different things to think about and that you need a personal broker to be able to trade. This was more or less true 20 years ago. But today this is far from the case. Today it is very easy to trade with stocks and you can do it yourself without the help of a broker. Today there are a lot of different internet brokers that allow you to place buy and sell orders yourself directly from your mobile device or computer. No need to talk to a broker. Just log in to your account and make the trades you want to do when you want to do them.

There are plenty of different brokers to choose from. Which broker that is the best choice depends on a number of factors including what types of stocks you are going to invest in, how large transactions you expect to do and how active you are planing to be as a trader.

finding stockIf you are planning to become a passive trader that performs a few smaller trades each month you should choose a cheap broker. Look for a broker that offers very low transaction fees. You should likely be able to find one that allows you to make transactions for around 1$. These brokers make it possible for you to trade stock efficiently but do not offer any additional investing tools. They help you to invest but not to analyze the market etc.

If you plan to be a more active trader you will need to spend time to find the perfect broker. No one but you can tell you which broker is the right choice for you. It is important that you look at more than just the price. Look for a broker that gives you access to everything you think you are going to need to become a successful trader. Visit as many brokers as you can and compare what they offer.

Different brokers use different platforms that work slightly different. But all of them work in a similar way. If you want to buy a stock all you need to do is to browse the site to find the stock you want to buy. There you will see the rate the stock is trading at as well as the order depth on the buyer and seller side. (The amount of shares that are being offered on the market and at what price) The order depth can help you decide at what price you should buy the stocks.

Once you decided what share you want to buy you can place an order. The order contains the number of shares you want to buy and the max price you want to pay for them. Once you place your order it will be entered into the market. If anyone is willing to sell the shares to you the order will be filled and you have bought your stocks. If no one is willing to sell the stocks at that particular point in time the order will lay waiting until someone is willing to sell you the stock or until the order expire. You can decide when the order expires. If you do not set an expiration time than the order will be placed using the brokers default time. Usually one or three days. You can cancel an order at any time as long as it has not been filled (or the part of the order that has not yet been filled.).

Buying stock is that easy. Anyone who can do their online banking can buy stocks online. The hard part is deciding which stocks to buy. There is a lot of advice and tips available on the internet and in news papers.  To read them is a good place to start.  You should always make up your own mind about which tips to trust and which  to ignore.  If you do your research, follow your instincts and apply common sense  you should do well.