How to Purchase Cheap Stocks Online
Purchasing stock online is a simple and easy process. You just sign up for an online account at a brokerage, fund the account, do your research on which companies/stocks to buy, and start buying and selling stocks. If you are particularly interested in cheap (i.e., undervalued) stocks, there are a few research techniques you can use to uncover relative bargains.
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Instructions
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Set up your account at an online brokerage. There are dozens to choose from, and the prices and services offered are very similar for the most part; Scottrade, Fidelity, TDAmeritrade, and Charles Schwab all have good reputations.
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Fund your brokerage account. The minimum to open an account is usually $250 or $500. You can either send a check or arrange a bank transfer. Either way will usually take at least 48 hours before the funds are available.
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Research the stocks you are interested in purchasing. If you already have a specific industry or company in mind, then you've got a jump start. There are many resources online to research companies, but the research section of your online broker's website is a great place to start.
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Compare both the price to earnings ratio and the debt to equity ratio of the companies you are researching to several peers in the same industry. Comparing these two benchmark financial ratios gives you a good idea of the relative price of the stock. You can find the basic financial ratios of companies either in the research section of your broker's website or the Yahoo.com finance page. For example, if you are considering investing in Pfizer, you should compare the P/E and D/E ratios of Pfizer to those of Merck and Johnson & Johnson (i.e., other large cap pharmaceutical companies). Also, remember that a stock can also be undervalued because of an over-reaction to some recent bad news (e.g., bad earnings report, etc.), and will often return to fair value in a short period of time.
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Purchase the stock by placing an order online with your broker. There is a small fee ($5 to $10) each time you buy or sell stock.
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References
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