Investing in the stock market is an excellent way to earn extra income. You can be an active trader and watch for dips and surges in the market or be a passive investor and wait for your assets to increase in value in the long run.
A lot of people say that investing your money in the stock market is better than having it sit idle in the bank. The rewards are definitely better with the former, but the risk is relatively greater, too. It’s up to you if you want to take the chance for the possibility of your money’s exponential growth.
Here are the basic steps on how to buy stocks online:
1. Find a Broker
Stockbrokers are licensed professionals who can purchase securities on your behalf. Traditionally, you had to call your broker every time you wanted to buy and sell stocks. This made the process more lengthy and, often, inconvenient.
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Today’s generation of brokers, on the other hand, serve as consultants who give you professional advice on the perfect portfolio setup for your lifestyle and financial goals. They consider your age, marital status, risk tolerance, income, assets, and debts, among others.
There are also online brokerages nowadays that give you a more hands-on approach to your investments. These platforms give you full control over your assets at the cost of a minimal service fee.
Discount Brokers with assistance are another option that you can consider. They have the same functions as online brokers, but they offer more in-depth support, which is useful for investing beginners. Think of them as the online counterpart of traditional stockbrokers.
Find the right broker type for you and your financial goals. Read reviews on potential brokers to ensure that you can trust them with your money.
Alternatively, you can check out this step by step guide on how to buy stocks online without a broker.
2. Understand the Different Types of Stocks
Through stocks, you are putting money into a public company. These assets are typically issued as one of two major kinds of stocks: common or preferred stock.
Here’s an in-depth look at these two types:
- Common Stock – This is the typical arrangement for most stock investments. With this, you are purchasing ownership of a company. If you buy a lot of shares, you get to be one of the people who’ll make decisions on the organization’s future.
- Preferred Stock – Preferred stock works similar to bonds, where your investment serves as a loan to the public company. Investors are paid with a fixed dividend. They are still able to make decisions for the business.
Common and preferred stocks are then further categorized into company size, industry, location, and style. Remember to diversify your stock portfolio. This means that you should purchase different types of stocks to lessen the risk when the market dips.
3. Choose the Number of Shares You’ll Buy
It’s better if you start low and work your way up when it comes to investing. As with any other venture, the process entails a learning curve. Don’t give yourself a target on the number of stocks that you’ll purchase. Instead, study the market and understand its inner workings until you’re confident of putting in a substantial amount.
4. Determine the Stock Order Type You Want
After deciding the type and number of stocks you’ll buy, you should know the different stock order types to finalize the transaction. You should also understand the terms “ask” and “bid.”
Ask is used to inform buyers about the lowest price that a seller can accept for their stocks. Bid, on the other hand, gives the highest amount that an investor is willing to pay for a particular asset.
These are the different stock order types:
- Market Order – Submitting a market order form means that you want to purchase or sell stocks in the current market price in the soonest possible time.
- Limit Order – With a limit order, you can determine the price point that you want to pay for a particular stock. The transaction will only push through once the share’s price arrives at your specified price point.
Investing in the stock market can be daunting for most people, but you just need to research thoroughly before diving into this venture. Find a good broker and understand the different types of stocks and orders that you’ll encounter along the way.
With this, you can earn extra income from your savings. There may be risks involved, but the potential exponential growth of your money is worth it.