How to Buy Stocks Cheaply
In the past, individual investors had to rely on expensive, broker-assisted trades in order to buy and sell stocks. Since online brokerages do not have to maintain storefronts and are faced with fierce competition, their rates are often much cheaper than well-known brick-and-mortar brokerages. Some discount brokerage firms even offer a limited number of free trades every month. By carefully assessing fees at online discount brokers, you can buy stocks cheaply.
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Instructions
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Open an account at an online discount brokerage company once you've selected the appropriate low-cost broker. You will need to fill out all of their required form. Do so carefully and be sure you fully understand each question. Your answers could have far-reaching tax implications.
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Fund your account via check, wire transfer or electronic clearing (ACH). Meet your broker's initial deposit requirements, which generally run between $500 and $2,000. Pay attention to your broker's funding fees. In general, electronic clearing is the fastest and cheapest method of funding your account. Some brokerages charge as much as $15 for a single wire transfer.
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Place a buy order for a particular stock by entering the ticker and number of shares you'd like to purchase. Your discount broker's lower fees will automatically be withdrawn from your account.
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Tips & Warnings
Selecting the right discount brokerage firm is key. Online brokerages charge vastly different fees for the same services. For instance, some brokerages offer low-cost margin interest rates. Assuming you were to trade on margin, this might make that brokerage cheaper than a competitor that charges a higher fee per trade. Some discount brokerages charge fees for deposits via wire, and some charge high cash withdrawal fees. By carefully weighing the pros and cons of each brokerage and not relying solely on one metric, (such as fees per trade, you'll be able to buy stocks cheaply.
If you're concerned with your brokerage's trading fees, you may need to reduce your total number of trades per month. Investors who make steady weekly or monthly deposits into their brokerage accounts, then immediately invest that money may want to wait longer between each buy order so that more money accumulates in their accounts and the number of costly buy orders is reduced. Weigh this decision carefully against your assessment of the short-term direction in the stock you've picked.
Research all available options in order to buy stocks cheaply. Fees for a single trade can range from nothning to $14.95, even at so-called "discount brokers."
Do not invest more than you're willing to lose. Investing in stocks is inherently risky and could lead to substantial loses.
Watch out for "hidden" or hard-to-find fees at discount brokerages. Some discount brokerages may charge "inactivity" fees, inordinately high margin interest fees or high cash withdrawal fees. In some cases, these extra costs may end up erasing the money you thought you would save when opting with a discount brokerage.
References
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