How to Buy a Stock
In today’s digital world, brokerage companies usually offer their services online via their websites. This is by far the least expensive option to start buying stocks. Investors can open an online account in as little as a few hundred dollars.
Once you have chosen a broker, you have to fund your account with them which you will then use to buy stocks. You do this either by depositing funds to your accounts or giving them your banking details.
Now that you have the technical side of buying stocks covered, we’ll cover the actual buying process. Just like a commodities market, the stock market has pre-determined trading hours. The New York Stock Exchange and the Nasdaq National Market, for example, are open for trading from 9:30 a.m. to 4:00 p.m. Eastern Time. There are After-hours trading (AHT) or trading beyond the regular hours of the market but it is generally not advisable as there are less liquidity and severe price fluctuations.
During the trading hours, determine which stock you want to purchase. A company’s stock is assigned a unique abbreviation to identify it in the market. Also called ticker symbol or stock symbol, it may consist of letters, numbers, or a combination of both. Most notable are GOOGL for Google Inc., FB for Facebook Inc., JPM for JP Morgan Chase, and AMZN for Amazon.com Inc.
Once you have determined the stock symbol of the company you want to purchase, you then have to identify its board lot. Board lot is the standard number of shares defined by the stock exchange to facilitate easier trading. These are commonly in multiples of 100. So if you want to buy a company’s stock for $10 per share with a board lot of 100, you have to pay a total of $1,000 for the trade. ($10/share x 100 board lot).
Next, you have to know the current bid and ask price for the stock you want to buy. The bid price is the current price the buyers are willing to purchase a share of a company’s stock. The ask price, on the other hand, is the price the sellers are willing to sell a share of a company’s stock they own. The bid and ask prices are not fixed and are determined by supply and demand. If more investors want to buy a certain stock but there are only a few sellers, the bid price would go up. Consequently, if there are a lot of sellers and only a few buyers, the share price would drop.
To buy a stock, you place a bid order with your broker. On this order, you indicate how much you are willing to pay for each share of that stock. You may place a “market order”, which means you are willing to buy at the current prevailing price of sellers, or you may set a “limit order” in which you specify the amount you are willing to buy that stock. Once your buy order gets a “match”, it gets executed and the stocks of the seller are then transferred to you. This is all done electronically and in real-time.
By InvestorGuide Staff