Buy Stocks in Five Steps!

By Investor / Published on Saturday, 11 Mar 2017 11:01 AM

Ever wanted to buy stocks but did not know how to? Well, this tutorial is made for you. This tutorial five steps through which you can be making big bucks through stocks. For the sake of this tutorial, we are assuming that you know the basic know-hows of stocks.

1. Choose a business

This is probably the most crucial part. Deciding on a company to invest in is not easy. It requires a great deal of thought and preparation. Do not go for a company based on what products they produce and whether you like them or not. Choose a company based on its financial strength. In order to gauge upon the financial strength of a company, you can refer to its financial statements for previous five years at least. Additionally, you can also refer to the earnings per share of at least 5 years as well. You can also refer to the company’s website and look at their shareholder policy. Research about its history, its corporate goals and whether its business practices are ethical or not. Additionally, you can also ask questions from the current shareholders of the company so that you have more insights.

2.Decide which type of stock to buy

Generally there are two types of stocks; preferred stock and ordinary stock. If you buy preferred stock then you will not have any voting rights in the company’s management. But you will be guaranteed a fixed dividend forever. No matter what happens, you will receive the dividends you are promised. Another advantage of preferred stocks is that in any event of liquidation, you will be paid before ordinary shareholders. Ordinary shareholders are the true investors in a company. Divided is not fixed and there may be financial years where ordinary shareholders do not receive any dividends. But they have the ability to vote the company’s Board of Directors.

3. Know where stocks are traded

Stocks are traded on exchanges. An exchange is a place where buyers and sellers interact and buy and sell stocks. Exchanges can be physical locations, like New York Stock Exchange, or they may take the virtual form where all transactions are carried out online.

4. Decide how to buy stocks

There are two ways through which you can buy stocks. You can use a brokerage. Full-service brokers provide personal attention but are deemed too expensive for the majority. Discount brokers, on the other hand, are cheaper in comparison to full-service brokers but they will not give you the personal attention. You will find discount brokers usually online. The other way is to use Dividend reinvestment plans (DRIPs) and direct investment plans (DIPs) which are company’s plans that for the exchange of meager price allow you to purchase shares from the company directly

5.Open an account

Irrespective of which type you choose, you have to open a brokerage account either through the broker’s website or by emailing them. This is followed by placing an order. If you are using the services of full-service broker, s/he will buy the stock for you. Keep in mind that you will have to share your basic and personal information with them. If you are using a discount firm, then you would have to place the order online and refer to them for any queries. If you are using the DIP/DRIP method, you can find the enrollment paperwork on the company’s website or request them to be sent to you through mail. Just fill out the paperwork and you would successfully buy the stock you want.

This concludes this tutorial of how to buy stocks.