How to Buy Common Stock
Getting into investing can be stressful at first. You have so many choices of assets, services and strategies. And the thick jargon of the financial world doesn’t make matters easier. But you shouldn’t let that dissuade you from learning how to buy a common stock.
In truth, investing is like any skill… it just takes a little getting used to. Once you’ve gone through the motions of planning, buying and selling a few times, it’ll start to feel more intuitive.
That’s precisely why we created this video series. Consider it your “first step” as an investor (or a helpful recap if you’re feeling rusty). It’ll take you through the bare necessities of buying a common stock.
In just a few short minutes, our Senior Research Analyst Ryan Fitzwater shows you every step of the process – from accessing an online broker’s website to submitting your buy order.
Let’s break down the steps in writing as well.
1. Open an account with an online brokerage
There is no shortage of online brokerages and apps out there to choose from these days. It’s really up to personal preference which one you pick. Apps like Robinhood (NYSE: HOOD) are becoming increasingly popular because of their accessibility and usability. If you don’t know where to start, check out our list of some of the best investment apps.
Once you have your account set up, you’ll most likely need to add funds to your account so that you’re able to execute your trades when the time comes.
2. Pick a stock you want to buy
Once again, there is no right or wrong choice when it comes to picking what to invest in. It’s all about your personal preference and risk tolerance. For beginners, it could help to invest in something like retail which has brands you’re already familiar with.
With any type of investing it’s important to do thorough research into the company and its financials before buying. All publicly traded companies are required to report this information. So it won’t be difficult to find online. Websites such as Yahoo and Google Finance have these financial statements easily available for most companies.
3. Place the order
First you need to select what action you want. In this case, you’d select buy, but there are lots of other options out there.
Next you have to decide how many shares or how much of the stock you want to buy. Some brokerages will allow you to buy fractions of shares, while others will only allow you to buy whole shares. We don’t recommend putting more than 4% of your portfolio in any one position. It’s also a good rule of thumb not to invest more than you’re willing to lose, as there’s always risk when it comes to investing.
Now it’s time to decide what price you want to set for you order. We recommend setting it somewhere in between the bid and ask price of the stock. So if the bid is $95 and the ask is $100, $97 would be a good price. This is only applicable if you’re setting a limit order rather than a market order. If it’s a market order then you don’t need to worry about setting a price.
If you are placing a limit order, you’ll also need to decided the duration of the order. You can place a day order, which is cancelled at the end of the trading day if the stock never hits the set price. Another option is “good until cancelled”. That means your order will not be cancelled until it hits the selected price or you cancel it yourself.
4. Preview the order
Many trading platforms will give you a preview of your order before you place it. This is a good chance to double check everything and make sure it’s the way you want it. If you aren’t happy with anything, this is the perfect opportunity to go back and change it.
Now all there is left to do is place your order.
Final Thoughts on Buying Common Stock
Investing can be a risky game so if you’re a true beginner, it’s a good idea to use a trading simulator to familiarize yourself with this process. This lets you get a better feel for investing, without putting any of your money at risk.
We hope this guide and tutorial help you become a more knowledgeable investor. Really, it all starts with buying common stock. Now, when you’re ready to buy on your own, the process will be familiar to you.