Buying Stock: How to Start Trading Stock

Whether you just got your first job or are well established in your career and planning for retirement, investing in your future will always pay off. The first thing that comes to most of our minds when we hear the word “invest” is the stock market, so that is what we will focus on. Specifically, this article is targeted towards those who want to start investing in the stock market. Consequently, it will cover the steps to get started, rather than focusing on specific strategies after you get your feet wet.

How do I buy stock?

When you buy stock, you are purchasing a portion of the company. As a result, you become a partial owner. In order to buy stock, you must first create a brokerage account. There are numerous options to choose from, such as Fidelity, E*TRADE, and Robinhood. Where you choose to open a brokerage account is a personal and subjective decision; however, I recommend choosing a broker that charges no trade commissions. Each time you buy or sell stock, you pay a small fee or “commission.” However, most brokers now have a $0 commission, so take this into consideration when making your final pick.

Fund Your Brokerage Account

After opening your brokerage account, the next step is to fund the account. This is accomplished by linking a bank account and completing an electronic funds transfer. When you link a new account, the broker will typically make two small deposits in your bank account, which you will then have to input these two deposit amounts into your brokerage account to validate the account. Since these deposits have to post to your bank account before the account validation process can be completed, you can expect to wait a few business days before funds are available to transfer.

Buy Stock

Once your brokerage account is funded, the next step is to purchase stock. In order to do so, you will first need to know the ticker symbol for the stock you want to purchase. You can easily find the ticker symbol with a quick web search. For example, the ticker symbol for Coca-Cola is “KO.” Once you know the ticker symbol, you are ready to place a trade. Next select the order type, which will be “buy” or “sell.” Since this is a new purchase it will be a “buy” transaction. The next decision is to determine the quantity you wish to purchase.

Trade Type: Market vs. Limit. Once this is complete, choose the order type. The two primary trade types are market and limit. A market order is filled at the current trading price, so the stock is purchased immediately. A limit order purchases the stock only if it falls below the specified price. For example, if Coca-Cola is trading for $47 and you place a limit order for $45, then your order will not be executed unless the stock price drops to $45 or less.

Duration: Day vs. Good Until Cancelled. The final criteria for completing your purchase is to select the term or duration. The basic durations are “day” and “good until cancelled” (GTC). A day trade will be executed during that day if all your criteria are met. If not, then it will expire when the market closes that day. A GTC order will remain in place until your criteria are met and the stock is purchase or until you cancel the order. In the above example, if you place a day limit order for $45 and the price only fell to $46 by the end of the trading day, then your order would not be executed, and the order would be cancelled. In contrast, if you placed a good until cancelled order, the order would remain open. If the price fell to $45 two weeks later, then the GTC order would be executed.

Conclusion

Purchasing stock is a great way to prepare for the future and ensure your money is working for you. The process to complete a purchase is relatively straight forward; however, the harder part of the process is selecting what stock you want to purchase. There are several different strategies on how to select stock. The primary factor influencing this decision is how much risk you are willing to accept, which will dictate the most appropriate investment strategy.