The ChoosaBroker Trading Academy
Barring a handful of notable exceptions, almost everyone on the Forbes top 100 billionaires list made their wealth by holding a large block of shares in a private or public corporation. In this guide to investing in stocks, we will explain –
What are Stocks?
Stocks are a type of financial security that gives its holder a share of ownership in a company. They are also called “equities.” Companies issue stocks to raise capital either to expand business or pay-off existing debt. Investors buy stocks with the expectation that their price will appreciate in the foreseeable future.
Stocks are publicly bought and sold at stock markets or stock exchanges. These may be physical establishments like the New York Stock Exchange, or computer networks like the NASDAQ.
Difference Between Stock and Share
Why Invest in Stocks?
- Highest Returns – The most compelling argument in favour of owning stocks is that they offer the maximum growth potential. Amongst the various financial assets, stocks have consistently produced the highest historical returns, easily outperforming both bonds and commodities. Consider the example of the Dow Jones Industrial Average, which over the course of the past 30 years, has appreciated by over 1200%. The price of gold, in comparison, has gained by around 300%, while the widely-tracked Fidelity Investment Grade Bond Fund has approximately returned 600%.
- Dividend Income – A large number of companies distribute their profits to shareholders by paying them a dividend. These dividend payments arrive even if the stock has depreciated in value and represent income for the investor on top of profits he or she may realize by eventually selling the stock.
- Stocks Offer Easy Diversification – An investor can choose stocks from the various industries and sectors within an economy to diversify his risk profile. Diversification can also be achieved from a geographical perspective by opting for stocks from different countries – both developed and emerging.
- High Liquidity – Stocks listed on most major exchanges can be effortlessly bought and sold. This easy liquidity gives investors the latitude to convert their stocks in to cash whenever necessary.
Basics of Buying and Selling of Stocks
- Open a Brokerage Account
– The easiest and the most common way to invest in stocks is through a registered broker. Setting up a brokerage account is as easy as opening a bank account. You will first need to fill out an application form, provide proof of identity and then select how you want to fund the account. Funding can either be done by transferring money electronically or by mailing a check. There is a broad choice of brokers, we have created a best online brokers and best brokers for beginners to provide a balanced view of options to suit your needs.
- Select Your Stocks
– Once you have opened and funded a brokerage account, it’s time to plunge in to the all-important task of selecting stocks. Picking stocks can become a very complicated process. Your aim should be to always keep things simple. A good place to start is by analyzing companies, whose products you have already experienced as a consumer. As the legendary Wall Street investor Peter Lynch once famously said, ““Invest in what you know.” You are liable to make fewer errors that way.
- Choose Your Order Type
– After selecting the stocks you want to buy, you can either place a “limit order” or a “market order” with your broker. A limit order is one in which you instruct your broker to buy a stock at a limited price. For example, if you want to purchase Apple’s stock at $150 a share, and the stock is currently trading at $160, then the broker would wait to buy the shares until its price hits your limit. A market order is when you request to purchase a stock at the prevailing market price.