How to Buy Stocks Online? How to Know What Stocks to Buy?

How to Buy Stocks Online?

The process of buying stocks has been made accessible through online trading platforms. Here's a step-by-step guide to help you understand how to get started:

Choose an Online Stockbroker:

To begin your stock-buying journey, you'll need an online brokerage account. Setting up this account is quick and usually takes around 15 minutes. Once you've completed the account application and added funds, you'll be ready to invest. You can perform stock transactions through the broker's website with ease. Alternatively, you can explore options like using full-service stockbrokers or purchasing stocks directly from the companies.

Research Your Investment:

Once your brokerage account is funded and ready, it's time to delve into the process of selecting stocks. Begin by researching companies you're familiar with from your own consumer experiences. The goal here is not merely to chase rising stock prices but to identify companies you genuinely want to have ownership in. Warren Buffett's advice of buying into a company for ownership rather than short-term gains is worth keeping in mind.

To dive deeper into understanding a company's prospects, start with their annual report and management's letter to shareholders. This provides valuable insights into the company's narrative and context for the financial figures presented. Online brokers usually offer essential tools and resources like SEC filings, conference call transcripts, and tutorials on stock selection.

Determine Your Investment Quantity:

Feeling uncertain about how many shares to buy? No worries, there's no pressure to buy a specific number of shares all at once. Consider practicing with paper trading using a stock market simulator. This helps you get comfortable with buying and selling without risking real money. When transitioning to real investments, you can start small, perhaps by purchasing just a single share. Another option is to explore fractional shares, where you can invest in portions of expensive stocks.

Execute Your Purchase Order:

Executing your purchase order might seem daunting, but it's straightforward once you understand the basics. Key terms to remember include "ask" (the price sellers are willing to accept), "bid" (the price buyers are willing to pay), and "spread" (the price difference between bid and ask). There are two primary order types to be familiar with:

• Market Order: This involves buying or selling a stock at the current market price, ensuring quick execution. It's suitable for stable, less volatile stocks.
• Limit Order: With a limit order, you set a specific price to buy or sell. It gives you more control over the execution price, making it ideal for smaller company stocks or during market fluctuations.

Additionally, you might come across terms like stop orders, stop-limit orders, and dollar-cost averaging. While these offer more complex strategies, focusing on market and limit orders is often sufficient for most investors.

Enhance Your Investment Portfolio:

With your first stock purchase completed, your investing journey has begun. To maximize your investments, consider broadening your knowledge about the investment landscape. Explore options like mutual funds and retirement accounts (IRAs) alongside your brokerage account.

Mastering the Selling Aspect:

Selling your stocks comes down to achieving satisfactory profits or fulfilling cash needs. It's crucial to set clear, long-term investment goals to guide your decisions. Avoid selling during market downturns to prevent locking in losses. While selling is an essential part of investing, remember that a long-term perspective often leads to better outcomes.

How Old Do You Have to Be to Buy Stocks? 

Is there a specific age requirement for teenagers to engage in stock market investments? Typically, individuals need to be at least 18 years old to directly participate in the stock market. Nevertheless, there are alternative approaches available. Legal adults have the option to open a custodial account with a brokerage in the name of a minor, acting as the custodian, and subsequently make stock market investments on behalf of the teenager, either with or without their involvement in the decision-making process.

This arrangement is of a temporary nature. Once the minor comes of age and is no longer considered underage, the custodial account and the assets within it automatically transition to their ownership, allowing them the freedom to manage and invest those funds as they see fit. In most jurisdictions, brokers typically don't permit individuals below the age of 18 to establish accounts that grant access to stock market investments.

If you are younger than this threshold, you would need a parent or legal guardian to open an account on your behalf. Once you attain the required age, the ownership of this account would naturally transfer to you.

How to Buy and Sell Stocks?

Buying Stocks:

When it comes to acquiring stocks, the process typically involves enlisting the assistance of a stockbroker. Directly contacting a stock exchange to purchase stocks isn't feasible, which is where a stockbroker steps in. Whether through a human broker or an online platform, you have the ability to handpick the stocks you want to buy and stipulate the manner in which the trades should be executed.

There are two primary categories of stockbrokers to consider: the full-service broker and the online/discount broker. Each option offers distinct advantages and considerations for those looking to dive into stock trading independently.

Selling Stocks: 

Similar to the process of buying stocks, selling them also requires the involvement of a stockbroker. This intermediary is essential since direct interaction with a stock exchange for selling purposes is not a straightforward option. Utilizing the services of a stockbroker, whether through a human agent or an online platform, empowers you to select the stocks you wish to sell and determine the specifics of how the trades should be carried out.

In this domain, you have two primary types of brokers to choose from: the full-service broker and the online/discount broker. Each category has its own set of features and advantages, catering to varying preferences and needs for individuals interested in managing their own stock trades.

Direct Stock Purchase Plan (DSPP):

Aside from the traditional brokerage options, there exists a distinct path known as the direct stock purchase plan (DSPP). This arrangement enables investors to directly procure shares from specific public companies without relying on a conventional broker. The process of buying stocks online through a DSPP circumvents the need for an intermediary.

However, the utility of this method is somewhat restricted. It necessitates maintaining individual DSPP accounts with each company in which you hold stocks, creating a potential administrative burden. Additionally, the landscape of online brokers has evolved to provide commission-free stock trading, making this alternative less appealing due to potential complexities and costs associated with managing multiple DSPPs.

How to Buy Stocks Online Without a Broker?

While it's not feasible to buy stocks entirely without a broker, you can engage in self-directed trading by utilizing broker-dealer platforms. This avenue permits you to circumvent substantial brokerage fees while still actively participating in the stock market.

Choosing Your Trading Account Type:

Embark on your stock trading journey by first determining the type of investment account that aligns with your objectives. Opting for an online brokerage platform, such as Futu, Inc., can equip you with the necessary tools and resources to navigate your investments effectively. After making your selection, it's crucial to set up your account and subsequently transfer funds from your bank account to provide the initial capital for your investment endeavors.

Researching Potential Companies:

Thoroughly research and handpick the companies you intend to invest in. Delve into the specifics of the stocks that capture your interest, including recent business press releases and correspondences directed towards shareholders. While this task might appear daunting for individuals without formal financial training, rest assured that numerous resources are at your disposal to offer guidance.

Defining Your Budget and Making Selections:

If you're considering investing in multiple companies, it's wise to establish a budget allocation for each organization. This practice enables you to visualize the extent to which you can acquire shares in a given company. It's worth noting that some companies, especially those facilitated by online brokers, allow investors to purchase fractional shares. This option proves advantageous for companies with notably high stock prices, enabling you to initiate your investment journey on a smaller scale.

Once your budget allocation is determined, the next step is to decide on specific stocks. Accomplished traders often employ stock screeners to detect patterns and acquire data necessary for making informed trading decisions.

Executing Your Stock Purchase:

With your investment choices and budget finalized, it's time to execute your purchases. Online brokerage platforms grant you the convenience of monitoring your investments through a unified interface while keeping tabs on their performance. Moreover, these platforms ensure that you remain informed about company communications and relevant resources meant for shareholders, thus enabling you to stay updated on your investments' progress.

When the moment comes to make your purchase, you're presented with two primary order types:

• Market Orders: These orders are fulfilled instantaneously at the prevailing market price. Given that prices can fluctuate within seconds, exercising caution during buying and selling is paramount.
• Limit Orders: These orders are executed once the stock price reaches a predetermined level. For instance, if you wish to acquire a stock valued at $60 when it drops to $50, you can issue a limit order specifying this condition. Bear in mind that limit orders have an expiration timeframe and do not guarantee a fixed execution price. Instead, they ensure fulfillment at the limit price or potentially a more favorable rate

How to Know What Stocks to Buy?

Investors who actively engage in trading often express frustration over the substantial time and effort they invest in pinpointing suitable trade prospects. With a vast array of stocks available – the New York Stock Exchange alone boasts over 2,700 options – the task can indeed be daunting. Yet, there are five key steps that traders can take to streamline this process.

Gauge the Market Landscape:

Before committing to any position, it's vital to grasp the larger market dynamics. Statistics indicate that approximately 75% of stocks tend to move in tandem with the overall market. This analogy of a rising tide elevating all boats holds true; purchasing stocks during a market upswing could potentially enhance the odds of a successful trade. Keeping an eye on significant indices' moving averages, reflecting price trends over specific periods, aids in gauging market momentum. Additionally, being attuned to potential market-altering events such as Federal Reserve policies or earnings disclosures is paramount.

Identify Favourable Sectors:

Once armed with a general market overview, the focus should shift to sectors and industries exhibiting promise. A prudent approach involves tracking the performance of the 11 sectors classified by the Global Industry Classification Standard (GICS). By observing sectors that have excelled recently, one can discern potential opportunities. In instances where an impending challenge is apparent, turning attention to sectors with defensive traits, like Health Care and Utilities, might be wise. 

Employ Stock Screening:

Having identified an appealing sector, the next phase entails pinpointing individual stocks. Utilizing screening tools, accessible to Schwab clients, facilitates the process by allowing filtering based on criteria such as analyst ratings, price trends, and sectors. This phase may entail distinguishing between growth-oriented and value-driven candidates. Growth stocks often command higher valuations reflecting their potential, while value stocks tend to have lower prices relative to their current fundamentals. Depending on preferences, focusing on growth metrics like historical or projected growth rates, or on value indicators like low price-to-book or price-to-earnings ratios, can guide this selection process.

Scrutinize Fundamental Aspects:

With a condensed list of candidates, a deeper analysis is required. Delve into investment commentaries associated with each company. Be vigilant for potential red flags such as product recalls or legal disputes that might adversely affect stock prices.

Conversely, take note of factors such as product launches or pending takeovers that could trigger price increases. Evaluating earnings, financial statements, and ratings, including Schwab Equity Ratings® for individual stocks, aids in drawing meaningful distinctions between options. Striking a balance between in-depth research and identifying unique features that set apart one stock from another is key.

Analyze Chart Patterns:

As the list is refined to the most promising contenders, analyzing each stock's trend line becomes pivotal. A general guideline suggests entering trades during either an upward trend or capitalizing on dips if credible reasons point to temporary declines.

How to Buy Penny Stocks?

Navigating the world of penny stocks entails grasping their low share prices, typically under $1, and acknowledging their speculative and high-risk nature due to limited liquidity and market capitalization. In the US, you can acquire penny stocks through major exchanges or the over-the-counter (OTC) market, demanding thorough research to align with your investment goals.

Understand Penny Stocks:

Penny stocks are shares that trade at a low price, often below $1. These stocks are considered highly speculative and risky due to factors such as their lack of liquidity, wide bid-ask spreads, small market capitalization, and limited public information.

Decide on Your Approach:

Before purchasing penny stocks, determine whether they align with your investment strategy and portfolio goals. Given their riskiness, it's crucial to assess whether they fit within your overall investment plan.

Research the Stocks:

Thoroughly research the penny stocks you're interested in. Look into their financial health, market trends, and any available news or disclosures. This step is essential to make informed decisions and manage the inherent risks.

Choose a Buying Method:

In the USA, you can buy penny stocks through either traditional major exchanges or the over-the-counter (OTC) market. Unlike listed stocks, OTC stocks lack a central exchange, so you'll need to choose which method suits your preferences.

Using Traditional Exchanges:

If you opt for traditional exchanges, identify penny stocks listed on well-known exchanges. Ensure you understand the trading process and the associated fees. This method offers more visibility and regulation compared to the OTC market.

Exploring the OTC Market:

For the OTC market, research unlisted penny stocks. Due diligence is vital here, as the lack of regulation can lead to higher risks. Look for information on OTC stocks from reliable sources.

Consult Educational Resources:

Utilize educational resources to enhance your understanding of penny stocks. Investopedia offers a comprehensive guide for beginners, covering topics like stock analysis, candidate selection, and account setup. Wall Street Survivor also provides a guide on buying penny stocks.

Construct Your Portfolio:

Incorporate penny stocks into your investment portfolio cautiously. Given their volatility, it's advisable to limit your exposure and balance your portfolio with more stable investments.

Monitor and Adapt:

Continuously monitor your penny stocks and the market conditions. Be prepared to adapt your strategy as new information arises. Staying informed is key to managing the risks associated with these stocks.

How to Buy Dividend Stocks?

Purchasing dividend stocks follows a straightforward process akin to acquiring any other stock. Investors initiate this procedure by establishing a brokerage account, conducting research on their chosen dividend-paying stock or fund, and subsequently executing the purchase through the broker's order entry system.

Establish a Brokerage Account:

• Begin by setting up an account with a brokerage firm. This can usually be done online and is a relatively uncomplicated process. Different brokerages may have varying account requirements, so pick one that aligns with your preferences.

Fund Your Account:

• Once your account is approved and operational, you'll need to deposit funds into it. This can be achieved through various means, such as ACH bank transfers, wire transfers, checks, or by transferring funds from another investment account.

Select Your Dividend Stocks:

• Leverage the stock screening tools provided by your chosen brokerage to identify stocks that pay dividends and meet your specific criteria.
• Apply filters to identify stocks with the desired dividend yield. It's important to compare this yield with prevailing interest rates and the yields of other stocks within the same industry or sector.
• Consider multiple factors, including industry, market capitalization, risk assessment (using tools like Beta), and technical analysis, in order to pinpoint suitable dividend stock candidates.

Monitor Your Investments:

• Keep a watchful eye on the performance of the dividend stocks you've chosen. Regularly assess the overall performance of these stocks, as well as the sectors and industries they belong to within your portfolio.
• Continuously monitor dividend payments and strive to invest in stocks with a history of increasing dividend payouts. It's crucial to analyze a company's ability to maintain dividends based on its earnings and financial stability.

Receive Dividend Payments:

Dividends are typically dispersed quarterly. There are four key dates associated with dividend payments:

•    Declaration Date: This date announces the exact dividend amount and outlines the relevant dates pertaining to the dividend distribution.
•    Ex-Dividend Date: The first day when a stock is traded without the entitlement to the upcoming dividend. Purchasing the stock on or after this date means you won't receive the next dividend payment.
•    Record Date: This date follows the ex-dividend date and designates the shareholders eligible to receive the dividend.
•    Payable Date: On this date, the actual dividend payment is issued to the shareholders.

When Should I Sell a Stock?

Knowing when to sell a stock is a crucial aspect of effective investing. It's advisable to establish an exit strategy even before acquiring a stock. For instance, you might opt to reevaluate your investment when the stock shows a 20% gain or a 10% loss. This strategy prompts a thorough examination of whether the investment remains viable, considering both the stock's current market value and the company's present standing.

Such a premeditated exit plan serves as a buffer against emotional decision-making, preventing attachment to a stock and acknowledging that business circumstances can evolve and companies might face setbacks.Long-term investors are generally encouraged to refrain from selling unless specific conditions necessitate it. Such circumstances could include financial obligations or the intention to leverage tax-related strategies like loss harvesting.

The latter involves selling certain investments at a loss to counterbalance gains during the year. Warren Buffett, a respected investor, advocates for a buy-and-hold strategy over frequent buying and selling. His philosophy underscores the importance of selecting stocks that you would comfortably retain for a decade or more.

In the face of market turbulence, which can trigger anxiety, historical patterns and the overarching trajectory of capital markets provide a strong rationale for staying committed to your investment path. Ultimately, allowing transient market volatility to dictate long-term decisions contradicts the principles of steadfast investing and prudent financial planning.

Where Can One Purchase Stocks?

The avenue through which one can procure stocks primarily involves participation in exchanges—licensed venues where buyers and sellers converge, often facilitated by intermediaries such as brokers. These intermediaries, as recognized members of the exchange, leverage their access to execute the buying and selling of shares on your behalf.

Prominent examples of exchanges in the United States encompass the New York Stock Exchange (NYSE) and the Nasdaq market, both of which provide platforms for a spectrum of companies to list and trade their shares.In instances where companies are of smaller stature, possess less fluid shares, or exhibit modest market capitalization—sometimes colloquially known as penny stocks—an alternative approach emerges.

These entities may choose to engage in over-the-counter (OTC) trading across platforms like the OTC Pink Sheets. However, it is crucial to recognize that this OTC market operates with a less stringent regulatory framework, thus harboring higher levels of volatility and risk. Consequently, individuals who opt to navigate the OTC market should exercise heightened due diligence, equipping themselves with comprehensive understanding to make informed decisions amidst the increased uncertainty.