You may have heard a lot about a company and be keen to invest in it, but where do you start?
Thanks to online stock brokers, buying and selling stocks online has never been easier. However, for beginners, it may be a confusing process.
If you’ve never bought a stock before, it can be difficult to know where to start and what to look out for when buying shares online.
This step-by-step guide will explain how to buy stocks for beginners and allow you to start buying and selling stocks easily.
We will also explain when to buy a stock, where to buy it, and how to get the most out of your online stock purchase.
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How to buy stocks online: beginner-friendly tutorial
In this day and age, buying stocks is easily done through an online stockbroker.
An online stock broker acts as the middleman between buyers and sellers of stocks, bonds, ETFs, and other investment securities.
The share or investment broker is paid a broker commission and makes money on the spread between the bid and ask price of a stock.
It is also now widespread for online brokers to offer stock trading apps allowing you to invest in stocks from your smartphone.
Opening a stockbroker account is a quick process that takes no more than 5 minutes. The stockbroker you choose will require a few details from you, such as proof of identification and your details.
You will then have to fund your account and from then, buying the stock of your choice is straightforward. If you are interested in stocks with a high upside potential even with small investment amounts, you should consider trading penny stocks as well.
We have illustrated below a quick step-by-step to buying stocks through one of our recommended stockbrokers, Ally Invest.
Step 1: Open your stock broker account
Firstly, open your account with Ally Invest by clicking here. You will then be asked to fill in your basic account information and answer brief questions about your income and risk tolerance.
Step 2: Fund your stock trading account
Your Ally Invest account can be funded directly from your bank account, which makes it easy and straightforward. All you have to do is select the bank and login to authorize the sale.
Step 3: Select the stock you want to buy
It is now time to select the stock you want to buy.
If you have a stock in mind, it should make the process much easier. Most investment brokers will have a search function where you can enter the stock name and make your purchase.
If you’re not yet sure about which stock you want to buy, we recommend that you look for a broker with a good range of analytical tools and data. Analyzing the stock markets will help you to spot opportunities and make a wise investment.
We recommend a stockbroker with a good set of educational tools, as this may help you to understand what makes a stock a strong buy. Ally Invest provides company quarterly/ annual financial reports, also known as SEC filings on the most extensive stocks, which are a good indication of the up and coming stocks that could generate high returns.
When you’ve selected the stock of your choice, simply click on “Buy” and follow the next step. Don’t worry – your account won’t be debited yet.
Step 4: Decide on the number of stocks you want to purchase and your order type
Your Ally Invest trading screen will then display the Bid and Ask price.
The bid price is the highest price that a buyer is willing to pay for that stock. The ask price is the price that sellers are willing to take for it. If you are selling a stock, you are going to get the bid price, if you are buying a stock you are going to get the ask price. The difference (or “spread”) goes to the broker/specialist that handles the transaction.
Choose whether you want to buy or sell the stock, the type of order and the number of shares you want to buy then move on to step 5.
Step 5: Place your order
You must then click on “Preview order” and confirm. Your buy order will then be executed and you should now hold the shares in your stock trading account.
How to Buy Stocks For Cheap
If you’re worried about commissions, rest assured – many sites offer stock trading with very low fees starting at $0. The following 5 stock brokers are reputable sites where you can buy stocks for cheap.
How to Buy Stocks with Credit Card
Generally speaking, most stock brokers will not allow you to purchase stock using a credit card.
As you know, to buy and invest in stocks easily, stock market investors tend to go through online stock brokers.
During account opening and funding, you will be able to fund your stock trading account through an initial deposit. This is generally in the form of a bank transfer.
Therefore, you can absolutely buy stocks with a debit card, but most brokers will not allow credit card purchases when it comes to buying stocks.
The reason most brokers won’t allow this is because there are policies in place in order to protect investors from investing more than they can afford.
Buying stocks with a credit card can also hurt your credit score, which can take years to recuperate.
However, if you are desperate to buy stocks with a credit card, there are a few loopholes you can explore. These options are:
- Discount stocks – Some brokers offer to purchase discounted stocks with a credit card. Although it sounds appealing, it might be risky as you trade on margin.
- Get a cash advance to purchase shares – Online brokers also offer cash advance if you buy stocks with a credit card. You get a loan from the broker with a specific date you must pay back the loan.
- Balance transfer cards – A balance transfer card allows you to transfer high-interest debt from one credit card to another card with a lower interest rate. Once you can approve you have a balance transfer card, you can avoid the high-interest rates charged by brokers.
The disadvantages of buying stocks with credit card
- Fees – In general, credit card fees are high. Online brokers charge additional high fees for deposits and withdrawals through credit cards.
- Interest – If you have a credit card debt, you will eventually have to pay high rates for the credit card issuer.
- Risk – If you trade with a credit card, you borrow funds from your account. That might be extremely risky as you can end up owing money to your bank. If you do, use stop loss and limit order to avoid debt in your trading account.
Should I invest in stocks?
There are good reasons to invest in stocks, but hedge funds are returning 10–15% annually, so why not invest in hedge funds instead?
Stocks are an attractive investment because, among all investment securities, stocks have the best risk-return trade-off.
An investor who takes higher risk expects to be rewarded with higher returns whereas lower-risk investments have lower potential returns. Both stocks and hedge funds have historically delivered around 10 percent returns but the stock investor takes the much lower risk for every $1 of returns.
While both investments earn 10 percent returns, the hedge fund has a beta* of 5 versus 1 for stocks.
Asset Beta 10-year Return
- Hedge Funds 5.00 10–15%
Stocks 1.00 10.5%
Bonds 1.00 2.7%
Simply put, stocks have the best risk-return trade-off among investment choices. This makes stocks one of the best investments.
*Beta is a measure of price volatility. The market beta is one. Hedge funds are 5 times more volatile than the overall market.
How to identify a good stock to buy
If you’re interested in buying stocks, but you are wondering which stock to buy, we strongly recommend good old-fashioned stock analysis.
Buying stocks on a hunch or gut instinct is likely to turn into a money-losing investment venture. The best way to find strong buys is by conducting fundamental stock analysis, analyzing the following 14 criteria.
When to buy a stock
That is ‘the question’. There are many factors to consider before you purchase a particular stock. For example, the timing of buying a stock depends on your investment/trading strategy.
There are four trading/investment strategies: long-term trading, swing, day-trading, and scalp trading.
If you are a long-term investor, the exact time is not as important as a scalp trader, which must take into consideration small price fluctuations. So, before you start trading, you should identify your trading/investing strategy.
Other factors to consider before you buy a stock:
- Economic data – Economic data releases such as Gross Domestic Product (GDP), CPI, interest rates announcement, etc., can affect market sentiment and companies’ earnings.
- Company earnings report – Every public company report a quarterly earnings report which includes net income, earnings per share (EPS), forecast, and net sales
- Company dividends – A company can pay its shareholders a dividend if a profit has been made. As a result, the stock’s price will change.
- Technical analysis – Technical analysis is a trading method to evaluate financial instruments’ prices and identify trading opportunities based on charts and technical indicators.
- Stock’s market volume – Every stock has a volume, which represents the number of traded shares during a specific period.
When to sell a stock
While buying a stock is the easy part of a transaction, selling a stock is more difficult as it triggers an emotional reaction.
When you sell a stock, in profit or loss, you take a hard decision, and usually, even when you sell the stock in profit, you might be disappointed. That is a significant part of trading.
Easy said than done, but here are two tips for selling a stock at the right time that might help you:
- When the trend goes against you, sell the stock.
- When the tend goes with you, hold it until the trend changes.
Other factors to consider before you sell a stock:
- Company’s financial status
- Economic slowdown
- Company’s reports
- Seasonality in the stock market
Top 10 stocks to buy in 2019
Well, some companies are immune to financial crises and economic slowdown more than others.
The following stocks are blue-chip companies with high market-cap, solid revenues, and a stable income.
- The Vanguard Total Stock Market ETF (VTI) – Sales growth is estimated at 33.10% (2020)
- Amazon.com (AMZN) – Sales growth is estimated at 18.8% (2020)
- Facebook (FB) – Sales growth is estimated at 21.30% (2020)
- Axon Enterprises (AAXN) – Sales growth is estimated at 17.20% (2020)
- AT&T (T) – Sales growth is estimated at 0.20% (2020)
- Chipotle Mexican Grill, Inc. (CMG) – Sales growth is estimated at 12.10% (2020)
- Ciena Corporation (CIEN) – Sales growth is estimated at 7.20%
- Starbucks Corporation (SBUX) – Sales growth is estimated at 7.60%
- Brookfield Asset Management (BAM) – Sales growth is estimated at -1.50%
- Enbridge Incorporated (ENB) – Sales growth is estimated at 5.50%
How are stocks valued?
They determine the IPO price by analyzing the:
- Company’s private financial information- Level of investor demand
- Traded price in the private market
The opening up of pre-IPO share trading to retail traders is allowing more accurate IPO pricing to be set.
Uber is an example of a company whose pre-IPO shares were available to retail traders through online brokers.
Before the IPO, the stock was valued at $76 billion, which became the IPO price. In May, the IPO was priced at $45 a share, or $75.5 billion – the fourth-largest IPO in US history.
Public stock pricing
On the day of the IPO, the price declined 8 percent. Once a stock is public, the price is determined by investor supply and demand.
Volume is one indicator of market demand. Ten days after the IPO, the stock was trading between $40 and $42, and the company was valued just under $70 billion, indicating that seller trade volume was slightly heavier than buyer trade volume.
How much capital do I need to start investing in stocks?
Fractional shares have significantly lowered the minimum investment amount. A fractional share is one share divided into smaller components or fractions.
These fractions are sold as separate securities. ETFs have also lowered minimum investments. Because they pool investor funds and do not have high management fees, the issuer can set any amount minimum to invest in a fund.
This means that although online broker minimum deposits vary, you don’t need to have a large amount of capital to start investing in stocks. You can invest in stocks on Robinhood with as little as $5 and in M1 Finance with just $10.
Premium brokers, on the other hand, may require that you have not only a high minimum account balance but also meet an asset test (e.g., minimum assets of $25,000).
How much money can I make from stocks?
Although past performance is never a guarantee of future performance, the historical performance of a security can be, but is not always, a reliable predictor of future performance.
A stock with low volatility (a large-cap value stock) is more likely to replicate past performance than a stock with high price volatility (a small-cap growth stock).
The S&P 500 index provides a good benchmark for a diversified stock portfolio. As mentioned, since 1957, the S&P 500 has earned an annual average return of 10 percent. This means that if you invest $10,000 in the S&P 500 index, you can potentially earn $1,000 per year.
More predictable is the dividend payments a stock will pay. Dividends are the regular distribution of the profits of a company to stock traders. Dividends may be paid out monthly, quarterly, or biannually.
The investor may accept cash dividend payments or reinvest dividends and benefit from the power of compound annual returns. Companies with steadily increasing and reliable dividend payments have historically outperformed the market.
Centrica (CNA), a British utility company, is one of the highest dividend yield stocks.
It pays semi-annual dividends at 8.65%. Another example is Marks & Spencer Group (MKS), which pays semi-annual dividends with a dividend yield of 5.96%. This means that if you invest $10,000, you could be earning up to $596 twice a year.
How much will I get taxed buying stocks?
If you hold a stock for more than a year, you will be liable to pay capital gains tax. Capital gains are the profit you make from the sale of investments, such as stocks and real estate. Your tax bracket determines the amount you will pay.
Pros of investing in stocks
Stocks are the most traded investment security for a number of reasons.
The biggest risk an investor faces when investing in the stock market is the loss of capital. Also called investment risk, it is the risk the price of a security will fall, and you will have to sell it at a lower price than what you paid for it. The best way to manage the loss of capital risk is to manage risks prudently. The following are major stock investing risks and how to evaluate them:
Cons of investing in stocks
The biggest risk an investor faces when investing in the stock market is the loss of capital.
Also called investment risk, it is the risk the price of a security will fall, and you will have to sell it at a lower price than what you paid for it.
The best way to manage the loss of capital risk is to manage risks prudently. The following are major stock investing risks and how to evaluate them: