Buying stock on the New York Stock Exchange (NYSE) is not the same as most of the other purchases you make. You can't simply walk onto the floor of the NYSE and fill a shopping cart like you do at the grocery store. Instead, you must hire a brokerage firm to buy the stock on your behalf. Different brokers offer different levels of support and advice to their clients, so it's important to choose the proper level of support for your needs. Once you've hired a broker, you will ask him to buy and sell stock for you whenever you wish to make a transaction.
Hire a Broker
Stockbrokers are the people who actually purchase stock on the NYSE, and you'll need to hire one if you want to buy stock. Some brokerage firms are brick-and-mortar organizations. These institutions offer varying levels of services. Some simply buy and sell stock on your behalf as directed by you. Others combine their brokerage services with financial planning advice. Professional brokers have a deep understanding of the market and will buy and sell stock for you in an effort to maximize the amount of money you make. They are best suited for amateur investors and those looking to minimize the risk of losing money. Brokers charge a fee for their services, however, and the fee increases along with the amount of help you receive.
If you want to save money and feel confident about purchasing stock on your own, consider an online brokerage firm. These firms allow you to open an online trading account. You simply open an account, deposit some money into it and log in when you wish to buy stock. This service is less expensive, as the broker buys stock on your behalf but does not analyze it for you or offer advice. They simply serve as an online bridge between you and the NYSE.
Do Your Homework
Buying and owning stock is an exhilarating experience when the stock price climbs and you see your investment making money. But sometimes stock loses value, and this isn't nearly as much fun to watch. It is crucial to understand that you can lose money in the stock market. As a result, it is best to diversify your portfolio. This means buying stock in several companies and industries rather than putting all of your eggs in one basket. It's also important to thoroughly research a stock before buying it. The world is full of talking heads giving out investment advice. You need to learn which ones to listen to and how to understand what they're telling you. Do lots of homework before buying stock. If all the numbers, charts and stock analyses leave your head spinning, talk to your broker or let her choose for you.
Before pulling the trigger and purchasing stock, have an honest conversation with yourself about your risk tolerance. You can make money trading stock, but you can also lose it. If you're investing for the long term and can sleep at night even when the market takes a downturn, you may want to choose riskier stock. Riskier stock usually generates higher returns. They also can mean bigger losses. If you know you'll live on the edge of your seat after buying a volatile stock, then choose more low-risk options and take it slow. Not every investor is a thrill-seeking day trader with nerves of steel, and that's okay.
Place Your Order
Once you decide what you want, tell your broker what stock you wish to buy and how many shares you would like. When buying, you'll place a market order or a limit order. A market order instructs your broker to simply buy shares of a certain stock. A limit order, however, dictates the price you want to pay for the shares. If, for example, you want to buy shares of Company A but want to pay $10 a share, your broker will watch the market and wait to buy until the stock reaches that price or less. Market order purchases happen quickly, but you may have to wait to get stock under a limit order. If the stock never reaches the price you specify, a limit order could go unfulfilled indefinitely unless you place a time limit on it.
- Keep in mind that you'll pay a commission each time you buy or sell, so that's another point to keep in mind when shopping around for brokers and when figuring your profits and losses. Each brokerage firm has their own set of commission rates.
- When a broker recommends a stock, ask plenty of questions and request a prospectus if you're not certain. A prospectus is generated by the company you're investing in, and tells you all the pertinent financial and company information you'll need to make a smart investment choice.
- Investing in the stock market is incredibly risky if you don't know what you're doing. Take plenty of time to learn about stock investing and the companies you're interested in. Going in "blind" can clean out your account pretty quickly if you're not careful.
- If you are having trouble with your broker or suspect a deal is shady, contact the U.S. Securities and Exchange Commission. Also called the SEC, this government agency establishes rules for brokers and stock trading.