How to invest in stocks
In school we all learn how to read, write and learn a variety of other things. However, one thing schools never really teach students is how to invest in stocks or about how the stock market works. For most investors, learning how to invest in stocks is mostly a self-taught venture.
Despite schools not teaching students how to invest in stocks or much about personal finance, luckily enough, there is plenty of information and resources out there for the beginner investor to get started in the stock market.
Before we get into how to invest in stocks, lets go over on how the stock market works so that it gives you a better understanding on how to invest in stocks.
How the Stock Market Works
The stock market is driven by supply and demand. The number of shares of stock dictates the supply and the number of shares that investors want to buy dictates the demand.
Shares of stock are not actually bought from the stock market, but actually you buy them from (or sell them to) other investors. The stock market is simply an exchange, a place that brings buyers & sellers together.
Most trading of stocks happens on a stock exchange, which is where stocks of companies are listed on. Stock exchanges are where buyers and sellers are brought together to buy and sell stocks. The most well-known stock exchanges are the New York Stock Exchange (NYSE) and the NASDAQ.
As an analogy, you could think of the stock market like eBay. You don’t actually buy an item from eBay, you buy it from the seller, but you need eBay to act as a facilitator between buyers & sellers. Just like eBay, the stock market is a middle ground for buyers & sellers.
Just like on eBay, if you’re trying to buy, then you’re a bidder. In the stock market, the price you are willing to pay for shares is your “bid” price. And investors trying to sell shares set a price at the amount they want to sell their shares, which is called the “ask” price.
» Read More on How The Stock Market Works
Where Are Stocks Traded?
As stated above, stocks trade on a variety of exchanges, such as NASDAQ, NYSE, AMEX, and also in the OTC (Over-the-Counter) and Pink Sheets.
The NASDAQ and NYSE are the two largest exchanges and features stocks with a market cap that range from small to large. Stocks that trade on these two exchanges are required to meet a certain standard and disclose their financial details about their company.
While, stocks that trade in the OTC or Pink Sheets have very little or no requirements to be listed and feature stocks with small, micro or nano-cap stocks. It also features stocks that may have once been listed on the NASDAQ or NYSE and didn’t comply with the exchanges listing requirements or maybe be stocks on the brink of bankruptcy.
» Read More on Stock Exchanges
How To Invest in Stocks
The main way on how to invest in stocks is setting up an online brokerage account, which gives you access to the stock market. You can find a variety of brokers that offers investors a range of services.
Opening up a brokerage account is as easy as opening a bank account. Just about all online brokers let you fill out all the paperwork online so that you can open an account very fast. Funding your account is easy too, you just basically have to transfer funds over from your bank and then your set to go.
Before you open a brokerage account check out their commission rates. Also, note some online brokers might charge a small extra fee for buying stocks that trade Over-the-Counter or trading under $1, so look into that as well.
Commission rates vary from broker to broker. But, just because a broker has very cheap commission rates doesn’t necessarily make them the best broker to choose. Some brokers may have very cheap rates, but have poor execution on trades, low quality tools or platform and horrible customer service. The best brokers offers a a good quality mix of all of those.
There is a huge selection of brokers to choose from out there, some of the most popular ones include: Etrade, Scottrade, TD Ameritrade, Charles Schwab, Fidelity, Zecco, TradeKing and many others. For more information on choosing an online broker read my other article on » Choosing a Broker
However, knowing where & how to invest in stocks is one thing, but knowing the best stocks to buy and when to sell them is another. Remember, before you start buying and investing in stocks, you must do research on the company before putting your money into their stock.
You can’t just go off and start buying random stocks and hoping they’ll go up in value. The point is, whenever investing in stocks, make sure you do research and understand what the company does, its financials and what you are getting into.
If you are looking for a little help on getting started I offer a free Investment Newsletter that is great for the beginner investor & trader.
My Stock Investment Newsletter offers you top stock alerts, trading & investing tips, and exclusive research that you won’t find for free anywhere else. I also send out tips on how to be a smarter investor, how to find your own picks and how to trade stocks yourself. Use the form below.