How to Buy Stocks
Stocks are a popular form of investing these days. It helps to understand how to buy stocks before deciding whether or not investing in stocks is right for you.
More and more people are thinking about investing in stocks these days. Whether it’s something you read or something a friend said, they can be a way to make a potential profit and grow your investments.
However, while everyone wants to buy shares at a low price and sell at a high price (for a potential profit), there are many factors you need to consider before taking the next step, including your goals, your tolerance for risk and how market volatility may affect your outcome.
So, what do you need to get started?
Define Your Goals and Strategies
People buy stocks based on different objectives, so you should understand your motivation for this type of investment. You can start by asking yourself the following questions:
- What are your investment goals?
- Are stocks a long-term investment?
- Or do you want to try to make quick money in the short-term out of the stock market fluctuations?
- How much risk are you willing to take?
Answering these questions will help you determine how you want to approach this important investment journey.
Another important consideration is your budget. Are you planning on putting a bit of money in each month? Each week? Or do you have a lump sum that you want to invest at the start and work with that?
This also begs another question around whether you want to control the investments yourself (i.e. self-directed), or if you’d rather hand the reigns over to a financial advisor.
If you’re planning on going down the self-directed route, the information provided here may be helpful.
Choose a direct investing account
If you’re interested in investing on your own, you’ll first need a direct investing account with an online brokerage. There are several different types of accounts to consider, depending on your goals.
Some of the most popular investment accounts include:
RRSPs (Registered Retirement Savings Plan) are typically used to save for retirement. Contributing to an RRSP can allow you to defer taxes on the returns you earn on the investments in the plan and to access the funds in retirement years when you may potentially be in a lower income tax bracket.
A Tax-Free Savings Account (TFSA) can be used to save for short- or long-term goals because it lets your savings grow tax-free. A TFSA can be used to save for various types of goals, like an upcoming vacation or large purchase.
Margin accounts1 can help you boost your buying power by leveraging value in your portfolio. You can borrow against value in the securities you already own to make additional investments and access sophisticated investment strategies, including option trades2 and short selling. However, leveraged trades are not for everyone. Along with the potential for greater returns, comes the flip side of increased exposure and risk.
A cash account could be used to save for a variety of goals, can provide flexibility to easily access available cash in the account and you can trade a variety of securities on North American markets.
Now that you have an overview of some of the types of accounts available to you, the next step is to consider what types of stocks and companies you want to invest in.
Research the companies you want to invest in
It's important that you spend some time building your investing knowledge, looking at the market and researching the companies and sectors you want to invest in.
Do your due diligence. Research sectors, compare companies within the same sector, compare companies of different sizes. The more you read, the better equipped you are to help make an educated choice about where to put your money.
That said, gains aren’t guaranteed, and no amount of research can protect you against unexpected market turns.
Now that you understand what you’re getting into, it’s time to obtain a quote.
Obtain a Quote
After you have short-listed your investment ideas, such as the sectors and companies you want to invest in, it’s time to obtain a quote.
You can access quotes from an online investing platform, such as WebBroker from TD Direct Investing.
While using your online investment platform, you’ll want to get familiar with the following terms, related to the stocks you’re interested in.
Last price: the last-traded price of the security, also known as the market price.
Change: the change between current price and yesterday's closing price.
Bid: the highest price someone is willing to pay to buy the stock right now.
Ask: the lowest price someone is willing to accept for the sale right now
Volume: the total number of shares traded throughout the day
Day range: the highest and the lowest trading prices for the current day.
52-week range: the highest and the lowest that occurred over the past 52 weeks.
Now that you’re versed in some of the terms in a quote, there’s just one step left.
Place the Trade
You've decided which stock you wish to buy or invest in, now it's time to choose the account where you’ll place the trade and ensure there is sufficient cash to do so.
Once that is done, you can open an order entry ticket from your direct investing account.
This can be accomplished in 4 simple steps.
Select the stock name or symbol and desired trade (i.e., ‘Buy’).
Enter the quantity you wish to purchase.
Select your order type. The two most common order types are Market Order and Limit Order.
A Market Order means you want to purchase the stock right away at the current market price. Caution is required when placing market orders as some securities do not trade heavily and placing a market order could result in paying more than you intended.
A Limit Order lets you specify the maximum price you are willing to pay on a buy order, and the lowest price you are willing to accept on a sell order. In other words, for a buy order you won’t purchase the stock unless it trades at or below your limit price. You can use the current market price in helping you establish your desired limit price.
Place your trade (i.e., Buy Order) which means you confirm to buy.
That’s it, you now know the basic steps involved in how to buy stocks.
So, what next? Managing your portfolio.
Manage your Investment Portfolio
Depending on your objective, you may want to set specific times to revisit your portfolio, to help ensure you’re still in line with your goals. Depending on how involved you want to be, this can be done daily, weekly, monthly or even longer.
To make this step easier on you, some online trading platforms like WebBroker can empower you with real-time market data to help you uncover, evaluate and act on your investment ideas as well as provide tools to help you keep track of them along the way.
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