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How to Buy and Invest in Stocks in 2019

Last Updated: 05. September 2019
How to Buy and Invest in Stocks in 2019
5 (100%) 5 vote[s]

Thanks to online stock brokers, buying and selling stocks online has never been easier. However, for beginners it may be a confusing process. You may have heard a lot about a company and be keen to invest in it but where do you start?  If you’ve never bought a stock before it can be a difficult to know where to start and what to look out for when buying stocks online.

This step-by-step guide will explains 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.

Want to buy stocks now?

Follow our quick guide below if you are ready to buy stocks today.

  1. Sign up to Ally Invest
  2. Fund your stock trading account
  3. Select the stock you want to purchase
  4. Decide on the number of stocks you want to buy and your order type
  5. Place your order
  6. You now own stocks

How to buy stocks online : beginner-friendly tutorial

In this day and age, buying stocks is easily done through an online stock broker.   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/or makes money on the spread between the bid and ask price of a stock. It is also now very common for online brokers to offer stock trading apps allowing you to invest in stocks from your smartphone.

Opening a stock broker account is a quick process which takes no more than 5 minutes. The stock broker you choose will require a few details from you such as proof of identification and your personal 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 great upside potential even with small investing 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 stock brokers, 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

After registration, the stock broker of your choice will typically require you to fund your account in order to buy stocks, including giants such as Amazon and Google. Your Ally Invest account can be funded directly from your bank account which makes it easy and simple. All you have to do is select the bank and login to authorise the sale.

Step 3: Select the stock you want to purchase

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 on which stock you want to buy, we recommend that you look for a broker with a good range of analytical tools and data. Analysing the stock markets will help you to spot opportunities and make a wise investment.

We recommend a stock broker 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 largest stocks which are a good indication of the up and coming stocks that could generate great 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 amount 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 – there are many sites that 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.

Interactive Brokers

Account minimum: $0

Fees: $0.05 per share

Pros
  • Low fees and commissions
  • Wide selections of markets and products
  •  Great customer support
  •  Large selection of research tools
  •  Regulated and trustworthy broker
Cons
  • Limited selection of withdrawal methods
  • Complicated pricing model
  • Charges inactivity fees

Robinhood

Account mininum : $0

Fees: $0

Pros
  • A free stock trading site
  • Robinhood’s mobile application and web-based platforms are user-friendly and easy-to-use.
  • No deposit minimum requirements
  • No hidden fees
  • Regulated broker
Cons
  • Not possible to short stocks
  • Basic charts
  • A limited selection of account types
  • No phone or live chat
  • No demo account
  • Available only for residents in the United and Australia

tastyworks

Account minimum : $0

Fees: $5 stock trades and $1 on options trades

Pros
  • Low trading fees
  • Advanced trading platforms and trading tools
  • Great customer service
  • No hidden fees, no inactivity fees
  • Regulated broker
Cons
  • Covers only the US market
  • Charges withdrawal fees
  • Confusing pricing model

eOption

Account minimum : $500
Fees: $3 per trade

Pros
  • Low trading fees
  • Available for international investors
  • Great customer service
  • Stable web-based trading platform
  • Easy-to-use trading platform
  • Offers automated trading
  • Regulated broker
Cons
  • Limited educational materials
  • Limited news and market data
  • No commission-free ETFs

Lightspeed

Account minimum : $10,000

Fees: $4.50 per stock trade

Pros
  • Low trading fees
  • Great trading tools
  • Advanced trading technology
  • A wide selection of markets and products
  • Offers informative education section
Cons
  • Strict requirements to open a trading account
  • Not suitable for beginners
  • High minimum deposit

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, in order 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 normally in the form of a bank transfer. Therefore, you can absolutely buy stocks with 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 have a negative impact on your credit score which can take years to recuperate. However, if you are desperate to buy stocks with 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 basically 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 cards 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 cards 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 basically 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 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.

Understanding the power of compound annual returns: Investors who reinvest their money compound their returns. The 10-year S&P 500 return is 12.3 percent without dividends reinvested. With  reinvestment, the return is 14.6 percent, or on a $10,000 investment over 10 years, an additional investment gain of $7,169.74 ($39,070.25 – $31,900.51).

How to identify a good stock to buy

which 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, analysing the following 14 criteria.

Earnings per share (EPS)
Tells you how much the company is earning for each share you own. An increasing EPS is an indication the company’s profitability is improving.
Net earnings/Number of shares issued
Companies don’t generally share the number of shares issues since it’s a hard number to nail down, however larger companies tend to require more capital to fund their business so are likely to issue more shares than smaller ones. You can estimate a company’s number of stocks by dividing their company value by the stock price.
Price-to-earnings ratio (P/E)
Is a handy metric for comparing whether the price of a stock is cheap or expensive relative to its peers.
Share price/Earnings per share
The price of a single share of a number of saleable stocks of a company.
Price/earnings to growth (PEG)
Takes into consideration the future earnings growth potential of the company. Forecasted estimates are used for future earnings. Compare this figure to analyst estimates.
P/E ratio / Earnings growth for period X
The P/E shows whether a company’s stock price is overvalued or undervalued.
EBITDA
Earnings before interest, taxes, depreciation and amortization reveals how profitable a company is before accounting deductions.
Book value (BV)
The value of a company after all assets are sold and liabilities paid back. Value investors use it to determine the intrinsic value of a company.
Total assets/Total liabilities
A successful company should have more assets than liabilities, meaning the assets it owns can provide more benefits than the company’s obligations. A company whose liabilities exceed its assets is probably in trouble and it would be wiser not to invest in it.
Market value
Is based on the value the market places on a stock, which is determined by supply and demand.
Current market price X Outstanding shares
A company can be enjoying increasing profitability but not be operating effectively.  It may have healthy earnings growth and a solid book value, but no cash to pay its suppliers tomorrow. Here are some ratios to analyze the cash position of a company.
Price-to-cash flow (P/CF)
Is an indication of how much operating cash a company is generating. It is an important metric for pre-profitability companies without earnings figures. Large cash expenditures such as share buybacks or acquisitions can affect the cash liquidity of a company.Current share price / Cash + Cash equivalents.
Current ratio)
One of two key liquidity ratios, it measures the company’s ability to pay short-term debt with short-term assets such as cash and receivables.

Quick ratio
Called the acid test, this ratio includes assets that can be converted to cash within 90 days.

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/investments 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 Growth Domstic 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 of time.

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 to sell 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, there are some companies that are immune to financial crisis and economic slowdown more than others. The following stocks are blue-chip companies with a 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?

Pre-IPO pricing

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

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 is the profit you make from the sale of investments, such as stocks and real estate. The amount you will pay is determined by your tax bracket.

Short-Term Capital GainsLong-term Capital GainsCapital Losses
For stocks held for less than a year, you will be taxed at your ordinary tax rate on any capital gains.
Taxes range from 0 percent if your income is under $39,375 to 20 percent if your income is more than $434,551.
Any capital losses can be used to offset capital gains. If your capital loss is $2,000 and your capital gain $1,000, you only need to pay tax on the $1,000. Capital gains on stocks held in an IRA or other tax-advantaged account is not taxed.

Pros of investing in stocks

Stocks are the most traded investment security for a number of reasons.

  • Compound annual returns
  •  An attractive risk-return tradeoff
  • High liquidity
  • Diversification
  • Fractional trading
  • Low fee online stock trading

Cons of investing in stocks

The biggest risk an investor faces when investing in the stock market is 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 loss of capital risk is to prudently manage  risks. Following are major stock investing risks and how to evaluate them.

  • Volatility – Stock prices constantly fluctuate. Beta is a measure of a security’s volatility relative to the whole market. This metric is provided in many stock profiles.
  • Credit risk – Bond investors face the risk of default if a bond issuer cannot make interest rate payments. Risk is measured by credit ratings ranging from AAA for investment grade to BBB- and lower for non-investment grade bonds, also called junk bonds.
  • Country risk – Countries receive sovereign ratings. These are issued by the major credit rating agencies. Emerging markets are especially vulnerable to geopolitical risk.
  • Counterparty risk – On an online trading platform, the broker is your counterparty. Trade with licensed and insured brokers. SIPC insurance will cover your investment loss up to $500,000 in the event the broker goes out of business.
  • Leverage – Brokers will specify how much you can borrow beyond your account balance. Though a broker may offer 1:100 leverage, a non-expert investor should never use this high of leverage.
  • Currency risk – Foreign stock trades are subject to currency translation fees. If you buy UK stocks with US dollars and the USD depreciates, you will pay more for the stock.
  • Liquidity – If there are not enough buyers or sellers of a stock, you may have to pay a higher price to buy or sell at a lower price. In the worst case scenario, there will be no counterparty to trade with. Monitor the trade volume in the security you want to trade.
  • Interest rate risk – When interest rates rise, the value of fixed income securities tend to decline, and vice versa. When interest rates fall, investors will sell stocks and buy higher returning bonds.
  • Market risk – Investors have little control over market risk. Factors that have recently affected the stock markets include the US-China trade war, a drop in oil prices, and a flash crash caused by program trading.

FAQs

Why have I been charged a fee on a “no fee” stock trade?
In some countries a tax or duty, often called a stamp duty, is charged when shares are bought. In the UK, the stamp duty on electronic purchases of stock is 0.05 percent. In the US and many European markets, no stamp duty is charged.

Why have I been charged an ETF fee?
Investment companies charge management fees to cover the operational costs of ETFs. Even a no fee broker will be obligated to pass on these fees.
Can I buy stocks directly from a company?
Some stocks can be bought directly from a company through a direct stock purchase plans (DSPP). These plans may set up automatic purchases and dividend reinvestment at regular intervals.
What is a limit order?
A limit order states the price at which you want to execute an order. The shares will be automatically sold at this price. If the price of the stock rises and hits the take profit level, the trade is closed at a gain.

What is a stop-loss order?
A stop loss order is a limit order stating the price at which you want to execute an order. The shares will be automatically sold at this price. If the price of the stock declines and hits the stop loss level, the trade is closed at a loss.
Do I need a margin account?
Brokers lend money to traders to allow them to buy more securities. The cash and securities in a brokerage account serve as collateral for the loan. Investors should not use the full amount available to borrow if it is beyond their risk tolerance. Compare the interest rates brokers charge on margin accounts, as they can vary greatly.
What is leverage?
Leverage refers to the amount of debt-to-capital a trader assumes by borrowing on margin. It is represented by a ratio. For a ratio of 1:30, if you have $100 in your brokerage account, you will be able to invest up to $3,000.
Am I missing anything?
Views expressed are those of the writers only. Past performance is no guarantee of future results. Trading comes with severe risk. The opinions expressed in this Site do not constitute investment advice and independent financial advice should be sought where appropriate. This website is free for you to use but we may receive commission from the companies we feature on this site.
Maggie Smith

Maggie is an investment expert with 10 years experience in dividend stocks and income investing. She has a PhD in Financial Markets and Investment Strategies and has contributed to a number of financial portals, writing stock market analysis pieces and reports on technology stocks and IPOs.

10 Comments

  1. Thank you for writing this detailed guide. It has helped me in making the right decision. I have decided to go to InteractiveBrokers. Just one last thing, what are the trading fees on this platform?
    • Hello Ramxx, we are glad to hear that you are interested in starting trading on InteractiveBrokers. InteractiveBrokers has a very easy-going fees structure on trading with only $0.05 per share going from your account to the platform.
  2. I think I’m ready to start investing through Ally Invest. Can you please let me know about the minimum account deposit and minimum account balance on this platform? Thanks in advance.
    • Hello Mariya56, we are very happy to hear that you are interested in Ally Invest as it is one of the best online brokers out there. If you are opening a self-directed margin account, you will need to deposit at least $2,000 in your account. As for self-directed brokerage cash account, no minimum deposit is required to start.
  3. Is there possible that any of these platforms trade in cryptocurrencies as well as stocks? I am an experienced crypto trader but new to stocks. I would like to keep all of my tradings on one platform.
    • Hello Nike19, we highly appreciate your question. If you are looking for a platform that allows you to trade in cryptocurrencies as well as stocks, then we would highly recommend you to go with Robinhood. The platform is one of the best online brokerages in the world and does not have any trading fees.
  4. I am not really sure what kind of portfolio I would want when I start trading. So, I guess I’m looking for an online broker that lets me customize my investing portfolio easily and without any cost. Which one would you recommend to me?
    • Hello Leana38, we highly appreciate your query. Based on the situation you have described to us, we would highly recommend you to use M1 Finance. It features a Robo advisor that lets you make customize your portfolio based on your preferences and risk tolerance.
  5. I’ve heard that there are online brokers that let you trade without any commissions or hidden charges. Is that true? Please answer ASAP.
    • Hello areena_334, it is true, there are a number of online brokerages out there that don’t charge any trading fees from its users. We would highly recommend you to use Robinhood if you live in the United States or Australia.

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