Anyone who’s purchased a mutual fund knows that professional traders sit at the core of many of these investments, making minute-by-minute decisions about which stocks to buy and sell. If you’ve ever wanted to skip the middle man and purchase your own stocks, there is much to know about research, brokerage accounts and trading orders. However, once you understand a few basic steps you’ll be well on the way to completing your first stock trade.
Write your goals out in actionable, reasonable terms. The National Endowment for Financial Education recommends beginning with your goals before starting on any investment plan. Because stocks are best used for long-term investment goals, having your goals in front of you when picking investments will help you choose better stocks for your particular needs.
List some companies that interest you to form a research pool of possible investments. Don’t worry whether your initial list is full of fantastic investment opportunities. Investment Guru Peter Lynch made a fortune researching first and then buying stocks of companies that made products or provided services that he understood and admired.
Screen your research pool of stocks using tools available at sites such as Yahoo! Finance or Morningstar. Look for healthy companies with consistent growth in earnings and revenues. Review the charts of each company on your list to see recent trading trends. Sift through the news on each company looking for management changes, trading by executives in or out of the stock and new or developing product news.
Open a brokerage account to trade your stocks. If you’re a savvy trader or don’t mind working alone, you may opt for a discount or online brokerage firm to save a few dollars on trading costs. Visit a few different trading sites before settling on a home for your money. If you’d prefer some help picking investments a full-service brokerage might be more useful. Before deciding to hire a broker, visit the Financial Industry Regulatory Authority BrokerCheck website (see Resources) to verify experience and find any outstanding complaints.
Buy the stocks. Use a market order to purchase shares immediately at the prevailing price and a limit order to set a price that the stock must reach before the trade executes. Market orders are popular because you’ll make sure the stock buy occurs immediately, while limit orders are useful when the market is jumping around and you want to avoid overpaying for a stock.
- Many websites offer you an opportunity to trade shares with play money. If you're worried about making mistakes, try one of these investment tools first before investing real money to get your feet wet.
As a former financial advisor to companies and individuals for 16 years, Joe Andrews knows financial planning and marketing from start-ups to personal budgets. He also writes on motor racing, board games and travel. Andrews received his B.A. from Michigan State University in English. He is currently working on a young adult novel.