How to Buy Corporation Stock
The stock of thousands of publicly traded corporations is traded on stock exchanges like NASDAQ and the New York Stock Exchange. Many more are bought and sold in the over-the-counter (OTC) market. Most people buy corporation stock on these markets by using brokerage firms. Savvy investors also make use of alternative ways to buy corporation stock to reduce transaction costs and enhance their portfolios. Whatever method you use for a particular investment, rule one is to always thoroughly investigate a company before you invest.
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Instructions
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Determine what type of brokerage account best fits your needs. A basic cash account enables you to buy and sell corporation stock, negotiable bonds and some other securities. Margin accounts grant you borrowing privileges that allow you to make leveraged transactions like selling short or buying stock on margin. Finally, you need to weigh the pros and cons of traditional versus discount brokers. Traditional brokerage houses provide a wide range of investment resources and counseling. Discount brokers generally do not, but their fees are considerably lower.
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Open your brokerage account. You must have your Social Security number and some form of government-issued identification, such as a driver's license or passport. Be prepared to provide information about your income and net worth, your current employment and your investment goals. Minimum deposits vary widely. Some online brokers don't have minimums, while many traditional firms require initial deposits of $1,000 or more. For margin accounts, the initial deposits are usually substantially higher. In addition, your credit record will be checked. If you are a novice investor, the broker may limit you to a cash account until you have some experience trading securities.
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Research the company before you buy corporation stock. Read the company's annual report and quarterly updates (normally you can download these from a corporation's investor relations website). Pay particular attention to current and past balance sheets and earnings statements. These summarize a firm's profitability and financial condition. Check publications such as the Wall Street Journal and industry/trade journals for independent evaluations of corporations. Finally, check ratings services like Dun & Bradstreet and Moody's. Corporations with sound financial management and low credit risk tend to have high bond ratings.
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Place your order to buy corporation stock with your broker. All you need to do is make a phone call or enter the information online. However, be sure you understand how to use different order types. Without specific instructions from you, an order to buy corporation stock will be treated as a "market order" and executed at whatever the market price is at the time. You can use stop and/or limit orders (or combine these) to set limits on how much you will pay.
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Consider alternative ways to buy corporation stock. To build a good stock portfolio, you need a variety of stocks. For that you need a brokerage account. But sometimes you may want to buy corporation stock through other channels. For example, your employer may have a company stock purchase plan with low or no fees and perhaps make a contribution to the purchase as well. Another option is a direct stock purchase plan (DSPP). Many large companies offer DSPPs and feature them on their stockholder services webpage. With DSPPs, you buy the stock from the company, not on the open market. As a result, you generally pay far lower transaction fees than even discount online brokers offer.
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