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How to buy Shares: A beginner’s guide in 2022

  • April 28 2022
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Invest

How to buy Shares: A beginner’s guide in 2022

By Nicole Comendador
April 28 2022

So you want to get in on the stock market action? Congratulations, that’s an exciting step! But first, there are a few things you should know before you buy your first shares. 

Share buying

How to buy Shares: A beginner’s guide in 2022

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  • April 28 2022
  • Share

So you want to get in on the stock market action? Congratulations, that’s an exciting step! But first, there are a few things you should know before you buy your first shares. 

Share buying

 

A share is a unit of equity or part-ownership of a corporation. These are issued by companies as a way to raise capital that is used for their growth, expansion, and operations.

Also referred to as stocks, shares are financial assets made available by a corporation to the general public. Investors buy shares to receive a portion or “share” of profits from the company through dividends or by anticipating the rise of their stock price.

Anyone can buy and sell shares in the stock market, but in order to do so, you’ll need a computer or smartphone, internet access, and an online trading account (more on those later).

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When it comes to buying or selling stocks, there are two main factors that affect how much a share costs: supply and demand, and what other investors are willing to pay for a given stock at any given point in time. 

Share prices are volatile, and despite all the good research and strategic planning one does, the market will be changing unexpectedly. It is a risk that always comes with investing in the stock market.

Another thing to consider is your investment goals. What is your motivation when buying shares? Is it to gain short-term profit by trading or long-term profit by dividends? What is your timeline? Whatever that may be, your strategy and movements in the stock market will heavily depend on that goal.

You’re ready to take the plunge and start buying stocks; however, you’re still a little unsure about how exactly to buy stock. Well, don’t worry—it’s not as complicated as it sounds. In this guide, we’ll talk about everything you need to know on how to buy your first shares and more.

Steps on how to buy shares

1. Open a brokerage account

2. Pick the right brokerage platform

3. Research the stock you want

4. Decide how many shares to buy

5. Calculate the price you’ll pay

6. Buy your first stock – or stocks

 

1. Open a brokerage account

To buy stocks, you’ll need an account that is managed by a licensed brokerage firm in order to execute trades made by yourself or by someone on your behalf.

A brokerage account is an investment account that allows investors to buy and sell various securities such as stocks, bonds, ETFs, and mutual funds. It is an account where people deposit funds used for trading, and it contains their portfolio of investments in a certain market.

There are different types of brokerage accounts available today, which are based on the kind of experience, support, and financial products that they can offer to investors. The most popular type of brokerage account is called “self-directed”. 

A self-directed account allows investors to choose which stocks they want to buy or sell without having an adviser guide them through the process. 

This type of account is great for beginners who want the freedom to invest in whichever company they prefer, doing their own research and trading strategies to achieve their financial goals.

If you want someone else to manage your investments, you can opt for human brokers and financial advisers. These are professionals who do all the trading on your behalf, picking stocks for clients and having access to unique offerings to build a comprehensive portfolio.

Lastly, you can opt to have a robo-adviser that uses technology to automate trades and manage your portfolio. Ideal for new or young investors, it is an algorithm-based account that aims to create an efficient and diversified passive portfolio. 

While it is usually free to register for an account, some platforms would require a minimum amount before you can start trading. 

In Australia, there is a minimum investment requirement of $500 for every new ASX-listed company you want to invest in. This would change based on the market or which country you want to buy shares from.

Opening a traditional or online brokerage account is as easy as opening a bank account. It will have varying requirements, so be prepared before you start with the application. 

2. Pick the right brokerage platform

Just as you need to choose the right financial asset to invest in, you also need to pick the right brokerage platform. You can use different platforms for different purposes, but a good starting point is a traditional stockbroker at an established firm. 

Brokerage platforms are the intermediary between individual investors and the share market or securities exchange. In order to trade or buy shares in an exchange, you must have a broker or a brokerage account to access the stocks of different companies listed in the market.

Here are the best trading platforms of 2022 to consider based on the list released by Finder:

  • Best overall broker: CMC Markets
  • Best low-cost broker: Superhero
  • Best for US stocks: eToro
  • Best for Australian share trading: SelfWealth
  • Best for international share trading: Interactive Brokers Australia
  • Best for beginners: Sharesies
  • Best for active traders: Interactive Brokers
  • Best for ETFs: Superhero
  • Best for long-term investing: SelfWealth
  • Best for penny stocks: Interactive Brokers

You should also consider which market you wish to invest in. If you want to buy shares from an Australian company, choose a brokerage firm that trades on the Australian Stock Exchange (ASX). If you wish to buy shares from multinational companies, have an account with a firm that offers international stocks.

There are several factors that go into choosing the right stockbroker, including (but not limited to): affordability, market access and trading tools. It determines how easy it is for you to trade, how much fees you pay, and how to conveniently manage your portfolio. 

3. Research the stock you want

The first step is to find out as much as you can about the company that issues the stock you want to buy. There are two ways to analyze a stock: fundamental analysis and technical analysis. 

Fundamental analysis determines the intrinsic value of a stock based on external events, industry trends, competitors, and markets. It considers the overall state of the economy and industries to forecast future stock prices.

In practice, news about mergers and acquisitions or expansions, as well as profit loss or business closures, can positively or negatively affect a company’s stock price.

Technical analysis is based on statistical trends that use stock charts to identify patterns to help them assume a stock’s performance. They calculate the price and volume of stocks being traded in the market to predict their future value.

Support and resistance levels, simple moving averages, and trendlines are some of the indicators that investors watch out for when doing technical analysis.

Most investors and traders use a mix of both in their research before they decide on which shares to buy. 

You should look at what a company does and how long they have been doing it, whether they lead their market or are they behind their competitors, and what opportunities or threats they have in their industry. 

You should also consider how well placed the business is financially. How much cash do they make? Do they pay dividends, and what is their dividend history? Check the company’s latest financial statement to determine their current performance, and see if they are profitable or aligned with your trading goals.

If you're looking for something that will give you steady returns over time, then a company with good cash flow might be the way to go. But if you’re interested in making fast money on the stock market, then you’ll probably want to look for companies that are experiencing rapid growth.

4. Decide how many shares to buy

There are a few things that should factor into your decision on the number of shares you want to buy:

  • Your risk tolerance. How much money do you have available? Where will this investment fit in your portfolio? What is your time horizon for investing?
  • The price per share. Is it high or low? When deciding which stocks to choose, it’s important not only to look at their current price but also to consider whether they might increase in value over time (or decrease).
  • Whether or not dividends are paid out regularly by the company issuing them – some do, some don’t!

When deciding how many shares to buy, it’s important to determine exactly how much money you are willing to commit and what you can afford to lose. 

If you’re just starting out and you don’t have a lot of money available, start with only $100 or less. You can always buy more shares later on if you want to put more money into the stock market.

5. Calculate the price you’ll pay

When you place a buy or sell order on your brokerage account, you need to enter the price that you want to pay for each share of the stock. This is known as the buy price for a purchase and the sell price for a sale. 

Stock prices are listed as two numbers: bid and ask. 

The bid is defined as the highest amount that someone will pay for any given stock and it’s always lower than the ask, which is the lowest amount someone will accept to sell a security. 

Aside from the bid and ask price, it is also important to remember that prices stated in your brokerage account will also include brokerage or commission fees for every transaction you make.

To better understand, let’s say you are buying 1,000 shares of ABC at $5 per share. Your total investment would be $5*-/*-,000, however, if you see that ABC has a bid/ask spread of 4 5/8–4 3/4, meaning the best offer out there right now is 4 5/8 but your broker needs to send an order down to find someone willing to sell at 4 3/4, then your total investment for 1,000 shares would be $5,000 + 1.25 = $5,125. Depending on the platform you use, a fee will be added to your $5,125 investment.

This would not be an example of market manipulation; it’s simply how stocks trade in real-time on exchanges around the world every day! Buying shares in an exchange is time-sensitive, so the price you have in mind will not be exactly how much you’ll pay during trading hours.

6. Buy your first stock – or stocks – now!

It is important to remember that investing in stocks comes with risk. 

If you are just starting out, it is a good idea to begin by purchasing shares of familiar companies and building up your portfolio over time. This will allow you to minimize your losses if one stock falls short of expectations while still experiencing gains as other stocks perform well. 

It is also recommended that new investors diversify their portfolios so they don’t put all their eggs in one basket (or invest all their money in one company).

You should not be afraid to make mistakes. Remember, the more you practice, the better you’ll get. Don’t let fear hold you back from your success!

Conclusion

Buying shares in public companies is both straightforward and fast, thanks to the technological advances of online trading platforms.

As online trading portals have made purchasing shares simpler than ever before, this means even the most novice traders can start doing it right now.

At the end of the day, there are a lot of moving parts when it comes to buying and investing in stocks. But when you put it all together, the returns are worth it.

How to buy Shares: A beginner’s guide in 2022
Share buying
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