My brother-in-law recently decided he wanted to buy some Visa shares (V) following a discussion we had around the positive outlook for the company. However he has never bought shares before and asked me about the process. So this post is for him and others new to the stock market. It may look complex with all those charts and numbers but the good news is that in today’s digital age, buying and trading shares is simpler than ever. Just follow these two steps:
1. Find and Sign up with an online broker
For most people who just want to trade shares, the best bet is to sign up with a reputable online broker. You can sign-up with a full service broker who provides trading advice and executes the trades for you, but they can charge a lot and you need to be investing some serious money to really warrant the cost of their services. To just buy and sell shares, an online broker is the best and cheapest option. The key thing is to select a broker with the lowest brokerage rates (the cost of the transaction to buy or sell a share) AND one who does not have any account keeping fees. There are lots of brokers out there but the one I use and which has among the cheapest transaction costs is Optionshouse a well known online broker that is great for first time cost conscious investors or for those who only do a handful of trades in a month.
Most brokers offer similar services and have transaction fees ranging from $0 to $12. Finding the right one is a matter of visiting the sites to get a feel for the user interface (most sites have free demo’s). Pay attention to the fee structure and how it works with your trading style. If you are an infrequent trader, look for zero maintenance or inactivity fees. If you plan on actively trading (>10 trades a month), you will want frequent trader rates.
Another point to note is that when you sign up for an online account you will also have to have to fund your brokerage/trading account. You should do this electronically via your normal savings/checking account. Makes life much easier in the long run when moving funds for buying and selling shares. [See this article for a list of the best online brokers]
2. Research, Order and Monitor
It should take about 30 minutes or so to complete step one based on the broker you selected and 2-3 days to get the funding and relevant paperwork finalized. Now comes the fun part – buying the stock. Here is my most important piece of advice before you do this – Research before you buy!!! Your online broker should have lots of free research available on the stock and you can do a simple web search to find out more information about it. Buying a stock takes less than one minute, research is where all the time and effort is spent. To improve your odds of becoming a successful investor in the long term, research is key. See this post for signs on when to buy a stock.
Once you have decided which stock to buy, log in to your online brokerage account. It is through this account that your online broker will execute the share transaction process on the relevant trading exchange. America has multiple stock trading exchanges, but the biggest and most well known are the New York Stock exchange and the NASDAQ. For your purpose you don’t need to worry about which stock the exchange is traded on and how your order gets routed. Your online broker will do this for you. Because stock names can be very long, each one is assigned a symbol. You will need to know this for trading it, but all the online brokers (and leading financial websites) provide an option for you to look up the stock symbol. For example, V is the stock symbol for Visa.
To actually buy a stock look for the “Buy”, “Trade” or “Place a trade” option. You will be asked to enter the following :
> Stock Symbol - V;
> Quantity – number of shares you want to buy;
> Order Type – The two main options you should consider are “Market” or “At Limit.” Market means buying the share at the prevailing market price. At Limit means you set a limit for the price at which you will buy the share. For volatile shares, use the at limit option to reduce your exposure to large swings;
> Expiration – This is when you want the trade to expire. My advice is set it to “Day” or “Today only”. You can always reuse the order to place it again , but if you leave the expiration for too long, you may forget about the trade and inadvertently buy the shares.
Before you place the actual order, think about above and how much you want to invest. If you wanted to buy $5000 worth of Visa stock at $70 (at the time of writing, it is now closer to $140! So great investment), you would use the following values:
- Stock Symbol = V; Quantity = 71 (5000/$70); Order Type = “At Limit”; Expiration = “Today”.
Once you place the trade, this order should get filled as your buying price is higher than the current price. You will get an email or mailed confirmation when your trade is successfully executed. The transaction fee will be added to your overall order once the trade is successfully executed.
You can monitor your stocks via your online broker or use Yahoo finance to set up your portfolio watch list (I do both). Make sure your monitor your stock to ensure it is heading the right way. Selling a stock is as easy as buying it, making the decision to sell is the hard part. You should also be aware of the tax implications from trading shares. I will cover these in upcoming posts.
So there you go, you now have the basic framework to complete your first trade. If you get stuck or need more help leave a comment on this post or use the “help” option your online broker provides.
Happy investing returns!