How to Buy Shares: A Beginner’s Guide
September 23, 2021
If you are ready to start investing into the stock market but are not sure of the processes, you have come to the right place.
Here, I’ll provide you with a step-by-step guide on how to buy shares.
1. Open a brokerage account
You will need a brokerage account to buy shares. The easiest way is through an online stockbroker.
Opening a brokerage account is as easy as setting up a bank account but here are two things to keep in mind: 1) Brokerage offerings such as international market exposure, fractional shares purchase, and 2) whether the brokerage platform is user-friendly.
If you’re more experienced, there is also the need to establish the need for access to margin for your brokerage account.
2. Research stocks
Once you’re done with the administration details on the brokerage account opening, it is time to dive into the business of stock picking.
Stock selection is not rocket science but you need to understand the business models of the companies that you are looking into as well as the lingo in the investment community.
Start reading the company’s annual reports, the operating fundamentals of the business as well as the competition that exists in the industry.
A couple of pointers here: First, identify your investment strategy based on the type of investor you are. This way, you’ll know if you are looking for a “buy and hold” long-term strategy or for short-term trading opportunities.
Secondly, diversify your holdings. The adage “don’t put all your eggs in one basket” never gets old when investing.
3. Decide how many shares to buy
To decide on how many shares to buy, you first need to determine how much money you want to invest in each stock that you are interested in.
Then, you divide this amount by the stock’s current share price. You should not have to worry about buying a certain amount of shares or fill up your entire portfolio immediately.
The best practice is to start small and get a feel of what investment in the stock market is like for you.
If your brokerage offers fractional shares purchase, you can purchase any dollar amount of a particular stock regardless of the share price.
This means that you can buy a portion of a stock, rather than a full share for pricey stocks, using smaller investment amounts.
4. Choose an order type
The type of order you place to buy stock is an instruction to your brokers to transact on your behalf under certain conditions.
There are various order types and some are quite complex but most investors use the following two orders:
- Market orders – This means that you instruct your broker to buy the shares immediately and at the best available price, and;
- Limit orders – This indicates to your broker the maximum price that you are willing to pay. If ABC’s stock price is trading at US$50 a share and you are only willing to buy the share at US$45 a share, your limit order tells your broker to hold tight and execute your order only when the ask price drops to US$45.
When you are selling, a limit order tells your broker to only sell your shares once the bid rises to the level that you are comfortable with.
5. Build your portfolio
You can kickstart your investment journey with your first share purchase but this is only the beginning.
With your own brokerage account and basics in investment, you can continue to buy shares to build up your investment portfolio.
At the initial stage, you will be tempted to monitor your portfolio performance every day but it is important for long-term investors to look beyond the short-term uncertainties.
Your stock portfolio performance will definitely see its ups and downs but what’s important is for you to invest in companies with great managements, business models and strong recurring revenues.
It is also important to gradually understand more about other investment options. Getting your own brokerage account is exciting but really, this is just the beginning. The exciting part comes next!
I hope that these step-by-step guides on how to buy shares help you to know what to expect as you get started with stock investing to build your wealth.
You can join our community to learn more about how to get started investing.
Billy is passionate about the capital market and believes in investing for the long haul. Prior to this, he was an economist at RHB Investment Bank, covering Thailand and Philippines market. He also worked as a financial journalist at The Edge Malaysia and has experience working with an asset management firm. Aside from the capital market, Billy loves a good conversation over a cup of coffee, is a fitness enthusiast and a tech geek.