HOW TO BUY A STOCK BY KELLY GREEN

Transcription

1 HOW TO BUY A STOCK BY KELLY GREEN

2 HOW TO BUY A STOCK WELCOME TO THE WORLD OF STOCK TRADING We understand that buying your first stock can be a daunting process. But if you break it down into smaller steps, it becomes much more manageable. That s exactly what we re going to do for you today. In this report, we ll walk you step-by-step through the process of making your first trade. We ve also included some helpful materials, including a glossary of common investing terms and a checklist of necessary information, in the Appendix. The first thing you need to do is open an account with a brokerage firm. When you want to see The Rolling Stones in concert, you can t just call up Mick Jagger and get tickets. You need to go through a ticket broker. It s the same with stock trading. If you want to buy shares of Tesla, you can t just send a check to Elon Musk. Instead, you must go through a brokerage firm. There s no other way to buy and sell stocks. Since your broker will be finalizing trades on your behalf, it s important that you choose the right broker for your needs.

3 STEP 1 Selecting a Brokerage Firm There are more than 4,000 brokerage firms in the U.S., ranging from huge global firms to small online firms. You ll need to make a selection depending on your individual needs, but we ll walk you through all the factors you should consider when making that decision. There are two main types of brokerage firms: full service and discount. When choosing which type is best for you, there are two main factors to consider: cost and service level. Both factors are interrelated, so it s helpful to think of them in terms of a scale. As you add more frills to the service level side, the price side will go up. Conversely, as you take more services away, the price side will go down. going to need. Will you want face-to-face interaction with a full-service broker who ll sit you down, discuss your ideas, and walk you step-by-step through the investment process? Or would you be comfortable with just an online representative at a discount brokerage who has more limited capacity to help? Or do you want something in the middle? The important thing to remember is that the more you want, the more you ll pay. FULL-SERVICE BROKER VS. DISCOUNT BROKER COST: When we talk about cost, we re talking about the commissions you ll pay on each trade you make through the brokerage. Some are flat rates and some are percentages. Since commissions can range from just a few pennies to as much as $100, it s important to know each brokerage s fee structure before you make your selection. You ll also need to ask yourself what kind of trader you think you re going to be. With commissions charged on each trade you make, your costs will be highly dependent on the frequency of your trading. SERVICE LEVEL: With regard to service level, there are a variety of things to consider. You ll want to think about how much support you re

4 As you can see in the table on the previous page, a full-service broker provides the complete service package. Examples of full-service brokers are companies like UBS or Wells Fargo. These types of accounts come with financial advisers who can look over your goals and provide individualized advice. You ll be able to walk into the office and get face-to-face help. In exchange for this level of service, you can expect to be charged $30 to $100 per trade. If you simply want to be able to place your buy and sell order, then you might just want a discount broker. A discount broker comes without all the frills of individualized advice. Most still offer interesting articles on basic trading, but you ll have to navigate those yourself and decide which apply to you. Using this type of account, you ll place your trades online yourself using the brokerage s platform. The benefit is lower commission costs. These are generally between $5 and $15. However, most companies offer specials for opening a new account. Some will let you trade commission free for a certain period of time, or they ll offer a number of commission-free trades. Since these advantages are only temporary, you shouldn t make it your deciding factor, but sometimes it s a nice perk. See the table above for the top 10 discount brokers according to Barron s. One final thing you might want to consider when selecting a brokerage is liquidity. This is the way traders gauge the speed with which they can turn their investments into dollars they can spend. The faster you can get your money, the more liquid your investment. Some brokerages will make you wait three days to a week before you can access the money you ve invested through them. Others offer debit cards or even online bill paying to make it easier for you to access your funds. The generally accepted recommendation is that you shouldn t invest any money that you expect to need in the next six months. For this reason, liquidity shouldn t be a major consideration. It s just something to think about.

5 STEP 2 Opening Your Account Once you ve decided on a brokerage firm, it s time to open your account. To do this you can walk into a full-service office and speak with an actual person, or you fill out an online application for a discount broker. Whichever type of brokerage you choose, you ll need to provide quite a bit of personal information. So before you begin the process, you ll want to make sure you have it all in hand. To open an account, you ll just need some basic personal information. This includes names, addresses, and Social Security numbers of any authorized traders who will be on the account. When you fund the account, which we ll get to in the next section, you ll need a good bit of financial information. To make it easy for you, we ve created a quick checklist will all the information you ll need so you don t forget anything (see Appendix B). You ll also be asked a little bit about past investment experience and goals. Examples of questions would be number of years of trading experience, or whether your goal is income or wealth building. To open an account that simply allows you to buy and sell stocks, the answers to these questions aren t the most important. We ll cover higher-level accounts in a later report. If you re using a full-service broker, the financial adviser who s assigned to you will use these questions as a starting point to provide individualized advice. But you can also expect at your first meeting to be asked many more questions about your financial situation and life events so your broker can make sure he is giving you the best recommendations. After you ve supplied all the necessary information and provided a signature (which can be done electronically if you re filling out forms online), you ll be asked how you d like to fund your account. Remember: If you re an authorized trader on the account, you ll need to include the information for this account when you file your taxes. So be sure to make a note of that and put it with your tax information.

6 STEP 3 Funding Your Account There are five common ways to fund your new account. The method you choose will determine how soon the money is available for you to make an actual trade. We ll start off with the most common and move to the least common. ELECTRONIC TRANSFER: For an electronic transfer, you ll enter your account information into your brokerage account. The benefits to this method are speed and ability to repeatedly transfer money back and forth. Usually the money clears in three days, and some accounts will clear that money for trading faster after they ve confirmed the validity of the account during the initial transfer. This means you ll need your routing and account numbers, which can be found at the bottom of a check or deposit slip. EXTERNAL BROKERAGE ACCOUNT TRANSFER: If you have shares in another brokerage account and want to consolidate them in a single account, you should be able to transfer those shares. This process usually involves a three-page form that you have to return to your broker. This process usually takes seven to ten days, but it s beneficial if you want all of your investments in one place. WIRE FUNDS TRANSFER: This method would be best if you wanted to transfer money electronically but not enter your banking information into your brokerage account. Using this method, you would enter your brokerage account into your bank s website. DEPOSITING A CHECK: If you d prefer not to use an electronic transfer, most brokerage accounts will let you use an old-fashioned check. You can either mail it in, or if your broker has a physical office in your neighborhood, simply drop it off. Just remember to account for the time that the check will be in the mail as well as the time it will take for the funds to clear. STOCK CERTIFICATE DEPOSIT: The final common option for funding an account is depositing physical certificates. Although stock certificates are not used anymore, if you already have some equity investments, your broker will be able to give you the proper forms to change these shares into electronic shares that you ll be able to see in your brokerage account. After you ve selected your funding method, you should get a confirmation that will let you know when those funds will be available for trading, meaning you re finally ready to make that first trade!

7 STEP 4 Identifying the Shares You Want to Buy Now that you have an account with available money, you are all set to buy your first stock. We ll walk you step-by-step through that process, using etrade screenshots. If you re using a different broker, the online platform will vary slightly, but you ll still be able to follow right along. The first thing you ll want to do is enter your username and password to log on (see figure 1). We ll use AT&T as our example (see figure 2). If you re not quite sure of the ticker symbol that you re looking for, just start typing the company name into the search field. Different options should pop up, and you can choose the correct one from the dropdown. In general, you ll be looking for the ones labeled COM, for common shares. FIGURE 1 This will open to an overview of your account. You ll see how much your account is worth, as well as how much cash is available for withdrawal or purchasing. To make your trade, you ll want to first navigate to the overview of the stock you wish to purchase. For this you can either enter the company name or the ticker symbol in the search box. A ticker symbol is a one- to four-letter combination that designates shares of that company. For example, if you re looking to trade shares of AT&T, they trade on the New York Stock Exchange under the symbol T. Other examples are IBM, which trades under the ticker IBM, and Ford, which trades simply under the ticker F. FIGURE 2

8 You can then click on the company to see the overview of that company s stock. Once at the overview page, you ll see a lot of information about those shares (see figure 3). As you can see in the screenshot at right, there is a lot of information about that company. If you re getting ready to place an order to buy shares, the most useful information is going to be last price. This is the most current price of one share of the company s stock. If you re still determining which stock you want to own, this screen this screen also features a number of useful research tabs as well as the latest headlines (see figure 4). FIGURE 3 FIGURE 4 HOW TO RESEARCH Stock research is easy to find, but good, profitable research is much harder to come by. Braden Copeland has been analyzing and investing in private and public companies for more than 20 years. And in his monthly missive, Building Wealth, he ll show you everything you need to know to build your own wealth. Braden will tell you what s going on in the market, what sectors he likes, which ones to avoid as well as the best way to put this information to use. He ll provide you with specific companies and their ticker symbols as well as recommended prices to get into and out of those positions. He even updates you monthly on how those positions are doing. And with his proprietary Syndicate System, Black List, and Open in Case of Emergency plan all part of a Building Wealth subscription you get some serious bang for your buck. For more information and to get started with a risk-free subscription to Building Wealth click here.

9 STEP 5 Setting Up Your Buy Order Once you know what shares you want to buy and have an idea of the price you want to pay, the next step is to actually place the buy order. To get to the order form, you ll want to click buy on the stock screen. (see figure 5) shares you already own, you ll want to select sell. The other two are for more speculative investors. We re talking about buying shares. So you ll click in the box and select the buy option. The next box you ll fill in is quantity. This is the number of shares, or position size, you want to purchase. To find your position size, you ll need to multiply the number of shares by the share price. When balancing your portfolio, you ll want to look at your position size instead of simply the number of shares you own. You can purchase any number of full shares that you want. But we would like to point out that a round lot is 100 shares. This is the most common unit used to buy a block of shares, but that doesn t prevent you from putting in an odd lot order. FIGURE 5 As you ll note from the order form, buying a stock isn t quite as simple as walking into a store and buying something. There are a handful of options you have to make decisions about. We are going to break them down one by one so you will be able to place your order confidently. First up is order type. This is simply the type of order you want to place. There are four options you ll commonly find here. As we continue across, the next box is already filled in with the stock s ticker symbol. You ll want to confirm that you clicked on the right stock so that you re not placing an order for shares of a completely different company. Our last two decisions affect how our order will be filled and how long it will take for it to be filled. The first two are simple: buy and sell. If you want to buy a block of shares, you ll want to select buy. If you want to sell a block of

10 Price type describes any parameters you want to place on the price that you buy your shares for. (See figure 6) THE THREE BASIC PRICE OPTIONS ARE: Market: This means you ll pay whatever the market price is for the shares at the time your order is filled. Generally these shares can get filled right away since you re agreeing to whatever price the seller is naming as the market price. FIGURE 6 If you ve spent any amount of time watching CNBC or even just watching the price of a particular stock, you know that the trading price can move in the blink of an eye, meaning the price of the shares could change while you re filling out your order page, and then again before your order is actually filled. Market on close: This means that the broker will try to execute your trade as close as possible to the end-of-day closing price of these shares. Your order will then be filled in after-hours trading or the following day. Limit: This option allows you to set a specific price as the maximum amount you re willing to pay per share. Since you re setting a limit price, your order may not be filled immediately, and may not be filled at all. FIGURE 7 Term type describes the length of time the brokerage firm will keep trying to fill your order if you select a price option other than market. (See figure 7) Good for the Day: This option will keep your order open and looking for a seller until the close of the market, which is 4 p.m. Good for 60 Days: This option will keep your order open for 60 days. This means that at any point during that time, if the broker finds a seller, it will execute your order. Immediate or Cancel: When selecting this option, you re telling your broker to only look if there is a seller at the time the order is placed. If there is an available seller for all or even part of your order, your order will be executed. If not, the order will be canceled. Fill or Kill: This is similar to Immediate or Cancel. The difference is that Fill or Kill doesn t allow for an order to be partially filled as Immediate or Cancel does.

11 STEP 6 Placing Your Buy Order Once you ve filled in all the blanks, you re ready to press the place order button at the bottom. You ll want to triple-check all the information here. When you click place order at the bottom, this order becomes a live market order. This means you ll want to be sure all the information is correct. You ll then click the place order button and your broker does the rest! You should get a confirmation that your order has been placed. And then another when your order is actually filled. When this happens, you ll receive an from your broker letting you know your order was executed. Remember, because everything is electronic now, you won t get stock certificates in the mail; instead shares will appear in your portfolio under the account overview tab. Congratulations, you ve now bought your first batch of shares. You re halfway to collecting your profits. Remember, your gains aren t locked in until you sell those shares. We ll cover knowing when to sell in another report If you placed a market order or a limit order that was above the market price, your order may have gotten filled right away. This means that if you go back to your account overview you ll see those shares in your account instead of the cash. If you placed a limit order, you probably won t get your shares right away. Instead you ll wait for share prices to drop below your limit price.

12 APPENDIX A: Glossary Brokerage Firm: Company that executes stock purchases and sales on behalf of an investor. There are two types: Discount Brokers that offer limited services at low cost, and Full-Service Brokers that feature personalized investing assistance for a significantly higher price. Commission: Flat fee or percentage paid to the broker when you buy and sell stocks. Dividend: Part of the company s profits that management has chosen to distribute to shareholders either as cash or additional shares. Not all companies issue dividends. Electronic Transfer: A method of electronically moving money between you and your broker that gives your broker authorization to access your bank account. Equity: Ownership stake in a company. Exchange: Market on which a particular stock is bought and sold. Fill or Kill Order: Order that must be immediately and completely filled or will be canceled. Good for the Day Order: Order that will only stay open until the end of the day. Good for 60 Days Order: Order that will stay open until filled, up to 60 days. Immediate or Cancel Order: Order that must be partially filled or will be canceled immediately. Index: Measurement of a specific section of the stock market. NASDAQ: The second largest stock exchange in the US. NYSE: World s largest stock exchange, located on Wall Street in New York. Over the Counter Market (OTC): Stocks that trade via a dealer network instead of on a centralized exchange. Portfolio: Group of stocks that a particular individual owns. Quote: The current price a stock is trading for on the open market. Securities Exchange Commission (SEC): Regulatory body that governs the securities market. Stock: Equity stake in a corporation. Stock Certificate: Although no longer issued, there are still some in existence. These physical certificates showed ownership of shares and can be taken to a broker and transferred to your online account. Ticker Symbol: One- to four-letter/number combination that designates shares of a stock on an exchange. Volume: Amount of shares that have been traded of a stock in a certain amount of time. Yield: The income return on an investment. Wire Funds Transfer: A method of electronically moving money between you and your broker that does not give your broker access to your bank account. Market Order: Order that will be filled at the current market price. Market on Close Order: Order that will be executed as close as possible to the day s closing price. Limit Order: Order that will be executed if the market price is within the limit parameters. Liquidity: Ease of being able to access money or a stock.

13 APPENDIX B: Information Checklist You ll need the following information for every party who will be listed on the account. Name Address Phone Number Social Security Number Date of Birth Employment Status Citizenship Status Investment Objectives Value of All Assets You Hold Excluding Real Estate How Much Past Experience You Have with Investing How Many Trades You Made in Any Investment Account in the Past 12 Months Federal Tax Bracket (Tables found on IRS website) Bank Name Account Routing Number Account Number