How to Buy Stocks for Beginners

With just a hundred dollars and a brokerage account, most beginners can buy stocks.

Instructions

1

The first step for beginners interested in learning how to buy stocks is to establish a brokerage account. This sounds like a complicated process, but it's fairly straightforward when done online. Also, it doesn't even take much money, in fact some accounts can be opened with a minimum of a hundred dollars. Here's a list of online brokers with low minimum deposit requirements and discount trade commissions:

Sharebuilder.com
Minimum Opening Investment $100.00
Trades $4.00

Scottrade.com
Minimum Opening Investment $500.00
Trades $7.00

Etrade.com
Minimum Opening Investment $1,000.00
Trades $12.95

Schwab.com
Minimum Opening Investment $1,000.00
Trades $12.95

It's important to consider fees when opening a brokerage account, since these can be a significant investing expense.

2




Once your brokerage account is established and funded, you are ready to start researching stocks. Much information is available on researching stocks, however, for beginners, this information can be a bit overwhelming. Here are a few basics.

One type of popular stock research is called fundamental analysis. Many investors believe that by examining the fundamentals of a stock, you can effectively judge whether the stock is being over valued or undervalued by the market. Stock fundamentals include price to earnings ratios (PE), book value, and earnings per share (EPS), as well as others.

Undervalued stocks have the potential to gain in price when the market recognizes their true potential. Over valued stocks are said to be overpriced and may decline in share price, so avoid them.

Now with this being said, you have to consider the fact that there are professional stock traders, money managers, and financial advisors that pick stocks for a living, and they only get it right part of the time. Plus, no amount of research can overcome the damage to share prices that results from corporate scandals, and dishonest company executives. You must understand the risk involved in equity investing and the difficulties that you may encounter.

Much research is required on your part in order for you to make an informed buying decision for any stock.

3




Once you have decided on a stock to buy, it's time to place an order or trade through your brokerage account. However there are several different types of order that you can place to buy stocks.

One type of order is known as a market order. A market order means that you are willing to buy so many shares of a certain stock at whatever price it is currently trading at on the exchange. Market orders usually execute very fast and you usually have no trouble filling your order. But, there is a downside to market orders. They can end up costing you more per share then other types.

As a beginning equity investor, a better type of order for you to use is the limit order. Limit orders allow you to set the maximum price that you are willing to pay for the shares you are trying to buy. Limit orders even let you set your strike price a little lower than the current trading range in order to buy shares during the dips of a volatile market.

Shares usually trade within a narrow range of pricing known as the ask / bid spread. Ask is the share price that traders are willing to take to sell their shares to you. Bid is the share price that other traders are willing to pay. These ask and bid prices constantly change throughout the trading day.

Calculating an order is fairly simple. Here is an example of how to figure a trade:

You have $1,000.00 in your brokerage account at the brokerage firm Etrade.com ($12.95 commission) and you want to invest in Microsoft, symbol (MSFT). MSFT is trading at an ask price of $17.08 a share. You decide that you want to take advantage of a possible dip in prices after noon and that you want to enter a limit order for $17.00 share.

Now figure out how many whole shares you can purchase at your limit price.

Subtract $12.95 from $1,000.00 and that leaves you with $987.05 to invest. Divide $987.05 by $17.00. That equals approximately 58 shares of MSFT that you can buy if your limit order is filled before the end of the trading day.