The stock market is a loose term that can refer to all the securities that are traded in the financial market place. Most stock transactions are handled by stock brokerage firms and are facilitated through stock exchanges such as the New York Stock Exchange or the NASDAQ. In bygone days, stock market investing was a strategy for the rich, but with the advent of online trading and discount brokerage firms, most people with a few hundred extra dollars can open a stock account.
Determine your investment goal. It's as simple as deciding how much money you want to have in investments at the end of specific period of time, such as 10 years from now, or when you turn 55. Ask yourself some hard questions about how you handle your finances. Develop a household budget. Create a net worth statement: List of all of your assets and debts, then subtract your debts from your assets to determine your net worth. Now that you know where you are, you know how much you need to invest to reach your goal.
Determine your investing temperament. Do you like to roll the dice, or does the thought of losing money in the stock market keep you awake at night? How much risk is too much risk? Do you want a steady stream of income, do you want your stocks to appreciate in value, or would you like a combination of the two? Be honest, because your answers will affect the kind of stocks your broker will recommend.
Determine whether you are comfortable making your own investment decisions, or want to rely on the research and recommendations of a professional. If you like to make your own decisions, open an account with an online brokerage firm that provides stock trading resources, but does not provide advice. If you're not confident in your ability to pick your own stocks, open an account with a full-service brokerage firm with brokers who will assess your situation and make recommendations.
Research stock brokerage firms to determine whether they meet your expectations for service. Verify that a firm is a member of the Financial Industry Regulatory Authority, and that any representative you will work with is appropriately credentialed. Find out how you can fund your account, what kind of services the firm offers and what kind of fees it charges. Consider that commissions on stock trades at a full-service firm will be considerably higher than those charged by discount brokerage and online firms.
Fill out the firm's brokerage account application. You must be a legal adult, typically 18 years old. Provide your name, address and other contact information. Since the brokerage firm is required to report your profits to the Internal Revenue Service, you must provide your Social Security number or other tax identification number. Proof of your identity may be required for the brokerage firm to comply with the Patriot Act. Provide your income and other financial information, including your aversion to risk, that you developed during Steps 1 and 2. Choose a cash account or a margin account. A cash account requires you to pay up front for stock purchases. A margin account allows you to borrow money from the brokerage firm to make investments. Read the application carefully and make sure you understand all of its provisions before you sign it.
Fund your account. The minimum amount required will vary, depending on the type of account you open and the brokerage firm. Minimum deposits may range from a few hundred dollars to several thousand dollars. Most firms require the deposit to be made by check or electronic bank transfer. Begin making stock purchases once your account has been funded.
Items you will need
- Personal identification such as a passport, drivers license, Social Security card
- Personal information, including employment, income and financial data
- Investing in stocks involves an element of risk. You may lose some or all of your investment. Past performance is never a guarantee of future results.
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