How to Invest in the Stock Market

Investing in the stock market can be simple. Here's how to invest in the stock market using an online brokerage account. A step-by-step guide to making a stock trade is provided.

Difficulty: Moderate

Instructions

1. Open a stock brokerage account. There are many companies that offer brokerage accounts. Very likely your present bank may offer stock trading accounts. There are a number of excellent online brokers that offer free stock research, low fees for trading, and are very simple to work with to open an account. You will need a minimum initial deposit to open the account. The minimum amount can vary between institutions. As a rough guide, most online brokers will require between $500 and $2500 as an initial deposit in order to open a regular stock trading account. In addition, you'll need to provide the broker with your personal information to get started, such as contact information, social security number, and other financial information about yourself. Though the application process is straightforward can be done online, you may have to sign and mail paperwork back to the broker before you investment account is activated and you are finally ready to trade stocks. All large online brokers will also have a phone number that you can call to help you through the process of opening an account, so don't be discouraged by the process of opening an account. The brokers want the commissions from your stock trades, so they'll be sure to make it as easy as possible for you to get started.

2. Determine the stock that you wish to buy. Obviously how to choose your stocks is way beyond the scope of this article, and it completely depends upon your individual circumstances and needs. Let's say, for the sake of this example, that you would like to buy stock shares in General Electric (this is just for example purposes only, and not an endorsement or recommendation to actually buy GE).

3. Find the ticker symbol for the company. Each company that trades on a stock exchange has a symbol (a group of letters and/or numbers) which represent stock in that company. That symbol is called the "stock ticker" or "ticker symbol" for the company. For example, the ticker symbol for General Electric is "GE". If you don't know the ticker symbol for the company that you wish to buy, your online broker will have a link or other tools which allow you to search for the ticker symbol corresponding to the company that you wish to purchase.

4. 

   Log into your brokerage account, and go to the stock trading screen. This should be easy to find. When you get to the stock trading screen (such as the example screen shown here, which is from Fidelity Investments), you will be asked to enter certain information to make your stock trade. We'll go through these. Here, next to "Symbol", you will enter the stock ticker of the company that you wish to buy. (So continuing our example, you might enter "GE" here). Under "Action" you would select "Buy" if you want to buy shares in the stock. Under "Quantity", you enter the quantity of shares that you wish to purchase. (In order to know the quantity of shares that you want to buy, you have to know how much you want to invest, and the price per each share. Your broker will have a screen where you can enter the ticker symbol for a stock, and it will provide you with a price quote per share. You can then take the total amount that you wish to invest, and divide it by the price per share, to arrive at roughly the number of shares that you will want to buy).

5. Enter an "Order Type". Here is where you have to know a little about how stocks are bought and sold on the market. When the stock market is open, stock prices fluctuate all the time. If you wish to purchase your stock at the currently trading market price, you would place a "market order." This means that if you want to purchase 30 shares of stock in a company, your broker will go out onto the market and purchase 30 shares of stock at the currently prevailing market price for that stock. Caution: Stock prices constantly move, so the stock price can change, sometimes substantially, even in the time it takes for you to enter a stock order and for your broker to then complete the trade for you. In order words, maybe the share price of a stock is $50 when you get a price quote. But maybe, by the time you place a stock order, the price has changed, and is now $55. If you place a market order, your broker will buy the shares at whatever is the prevailing price at the time it completes the order. If you are concerned about these price movements, and only want to buy a stock if the stock is below a specific price, you can enter a different type of order other than a "market order." Instead, you can use a "limit" order. This allows your order only to complete if the stock is trading at or below the limit price that you set. Details about all of the different types of possible order types is beyond the scope of this article. To get started, just remember that stock prices fluctuate, and may change quickly. You need to take this into consideration when you enter an order to purchase a stock.

6. Enter a "Time in Force" on the order. This has to do with the possibility that your order cannot be completed in a specified time. There are a number of different reasons. This is where you specify what happens if your order cannot be completed immediately. For example, if for some reason your stock purchase cannot be executed immediately, you could specify that you want your order canceled. Alternatively, you could leave the order open, so that it is completed at the next possible time (e.g., the next trading day). You can Google the options listed to learn more.

7. Enter any "Conditions" on the order. For a simple order, enter no conditions.

8. Complete your order (possibly "previewing" it -- reviewing it before it is officially submitted) and you're done!

Tips & Warnings

• Different stock brokers offer slightly different options in terms of placing an order. Your order screen and order options may not look exactly like that described above. But the key elements of any order are: (1) the ticker symbol, (2) the number of shares; (3) whether you are buying or selling; (4) the type of order (market, limit, etc.).
• After you place the order, check you account to make sure that the order was completed as you expected.
• You can purchase exchange-traded funds (ETFs) just like stocks, by entering the ticker symbol of the ETF and the number of shares. ETFs are like mutual funds in that they hold a number of different stocks. They offer a great way to have more diversification in your portfolio than with a single stock.
• Remember to take into consideration the cost of the commission when determining the number of shares that you can buy.
• Investing in stocks can be risky. You can lose some or all of your money. Understand the risks before investing, so that you don't learn the hard way. This tutorial is to help you place a stock order, not to determine whether doing so is a good idea in the first place.

Resources

• Stock Investing for Dummies (Amazon)
• How to get Started Investing in Stocks (Amazon)

[mandymarj]

on 7/30/2009 great article for someone like me who knows nothing about online investing!