Copy Paste Experiment: The Basics of Trading a Stock

In the previous lesson (Lesson 4), we learned about how markets and exchanges work. Now, we will talk about how you, the investor, can go about buying financial products. Let's start with stocks, the most basic product you buy on an exchange. Stocks are a type of security that represents ownership in shares issued by a publicly traded corporation. Stocks are unique among security types in terms of the rights that they give you. Owning shares of stock gives you...

the right to vote in shareholder meetings.
the right to receive dividends (which are the company's profits) if and when they are distributed.
the right to sell your shares to somebody else.

Additionally, if you own a majority of shares, your voting power increases so that you can indirectly control the direction of a company by appointing its board of directors.

The stock market is sometimes called the equity market. This is because when you buy stock, you are buying equity (ownership) in the company, read on.

How Do I Buy Stocks?

In order to buy stocks, you can either use an online broker or seek the assistance of a stockbroker who is licensed to purchase securities on your behalf.

Online Brokers

Most people these days use online brokerages rather than traditional human stockbrokers. For online brokerages, the cost is usually based on a per transaction or per share basis, allowing you to open an account with relatively little money. Popular online brokers include TD Ameritrade, Charles Schwab, E*Trade and Optionshouse. They are easy to use. You go to one of these company's sites, sign up for an account online and transfer funds into it, rather like opening a bank account, only you don't have to physically walk into a bank branch. Once your account has funds in it, you can place an order. You can either pick the stocks you know you want or use the search feature to filter stocks by criteria. Most online brokerages work in a way similar to the Investopedia Stock Simulator, explained in this helpful article.

Full Service Brokers

Full-service brokers are the traditional stockbrokers who take the time to sit down with you and get to know you personally and financially. They look at factors such as marital status, lifestyle, personality, risk tolerance, age (time horizon), income, assets, debts and more. Full-service brokers then work with you to develop a financial plan best suited to your investment goals and objectives. They can also assist with estate planning, tax advice, retirement planning, budgeting and any other type of financial advice, hence the term "full service." They can help you manage all of your financial needs now and for the rest of your life, if need be. Full-service broker fees are typically much higher than online broker fees.

This lesson will focus on the online brokers and do-it-yourself methods.

I'm new to this. Can I sell or buy stock by myself?

The short answer is, yes you can. However, there is also the question of should you buy stocks in individual companies. Read More

I have only $500 to invest, am I limited to buying only penny stocks?

Regardless of how much money you have available to invest, it is very important to understand that penny stocks are generally of highest-risk stocks in the market. Read More

How can I purchase stocks directly from a company?

The following is meant to cover some of these instances, which include direct stock purchase plans, dividend reinvestment plans (DRIPS) and employee stock purchase plans (ESPPs). Read More

How do I buy an over-the-counter stock?

The first step an investor must make before they can trade in OTC securities is to open an account with a brokerage firm. Read More

Investing for Beginners

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