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Purchasing stock is exciting—you become a partial owner in a company that you love, you can gain dividends, you can vote on important corporate decisions and (hopefully) you can sell your stock at a profit in the future.
Day trading has become a common hobby, and with the spread of the internet, almost anyone can purchase stocks and bonds from the comfort of his or her own home. Learn how to make your first trade and begin investing in the American stock market.
Luckily, it's not too difficult. Just follow this guide and you'll be on your way to trading stocks in no time.
Step 1: Choose a broker
Before you decide which stock you want to purchase, you need to choose a broker. A stockbroker is your ticket to purchasing the equities you want. You’ll need a broker to coordinate transactions on your behalf.
Most brokerage firms offer online stock trading platforms so you won’t have to make your way to Wall Street to find the broker that’s right for you.
There are a number of factors to consider when choosing between brokers, including minimum account balances, commissions, educational offerings, and customer service hours.
Here are a few of our favorites.
Benzinga is compensated if you access certain of the products or services offered by eToro USA LLC and/or eToro USA Securities Inc. Any testimonials contained in this communication may not be representative of the experience of other eToro customers and such testimonials are not guarantees of future performance or success.
Step 2: Understand order types
There are a number of different types of stock orders you’ll need to understand before you make your first purchase. When you buy your first stock, your broker will ask you which type of order you’re looking to place. Two of the most common stock order types include:
Market orders fulfill a request to buy a particular stock as soon as possible at the cheapest available price. You know what you want, and you want it now. If you place a market order “after hours” (typically after 4 P.M. EST unless it’s a holiday) the order will be filled at the opening price the next day.
Limit orders are a request to buy a given stock, but only when and if the price of the stock falls to a predetermined price. You can place a limit order in advance but remember that there is no guarantee that the order will ever be filled (for example, if the stock fails to drop to the requested price).
Though there are other types of orders that can be used when buying and selling stocks, chances are high that you will be using market orders and limit orders exclusively until you get the hang of trading.
Step 3: Choose a stock you’d like to buy
Now comes the fun part—deciding which stocks you want to purchase. Browse through your broker’s trading platform and review your options. Don’t let the massive number of available equities overwhelm you.
First, try researching companies that you know and enjoy to get a hang of reading charts and reports. Don’t feel pressured to find the next Amazon.com—instead, buy into a company that you’d like to own a part of.
When you’ve found a stock you like, look up the company’s annual report. You’ll want to invest in a corporation that you believe has strong leadership and a solid plan for the future.
Step 4: Decide on the number of shares you’d like to buy
Some beginning traders feel like they need to make a massive purchase to negate their broker’s commission fees.
However, you should never financially exert yourself or buy more than you can afford in order to save money. Starting small (even as small as a single stock) can be a great way to get into the market and feel what it’s like to go through the ordering process.
Step 5: Place an order
The specific steps that you’ll need to go through to make your first purchase will vary depending on your broker’s platform, but you can generally expect to choose your order type and the number of shares you’re looking to buy, confirm your purchase with your broker and see your equities arrive in your portfolio in a matter of hours.
Though most investors dream of raking in the millions trading stocks, the truth is that it can take years to reach this level of success. Many are unprepared to deal with the rough patches that come along with a fickle market, so it’s important that you never invest more than you can afford. Don’t feel intimidated by the massive amount of information overloading your senses—at its core, purchasing and selling stocks is a relatively simple process that has become easier with advanced automation.