Buying and selling stocks was once thought of as an endeavour that was reserved exclusively for corporations and wealthy investors. However, in recent years it has become increasingly common for normal people to trade and invest on the stock market.
The modern digital age has also seen the arrival of online brokers that allow users to make investments and engage in stock market trading at the click of a button, either on their phone or on a computer. And, with so many brokering apps now available, there are more individual investors and stock market traders than ever before.
But what exactly is online trading? How should you pick an online broker? How do you ensure your money is kept secure whilst online trading? And how do you buy stocks online?
We are going to answer all this and more as we explore, how to buy stocks online.
How can you buy stocks online?
When buying stocks online most people opt to do so via an online broker, though you can buy stocks in some companies directly from the company. If you choose to buy via an online broker you will first need to register an account with a reputable firm and then transfer money into your brokerage account.
Once you have transferred your money into your account the process for buying stocks will vary depending on the broker you choose. However, all online trading platforms should be simple to navigate and come with clear procedural steps on how to complete the process.
We will explore this in greater detail later, but let’s first return to basics and find out, what exactly are stocks?
What are stocks?
Stocks are the shares that the ownership of a company is split into. Owning a stock means that you own a portion of a particular company’s assets. Individual units of stocks are known as shares, though the terms “stocks” and “shares” are often used interchangeably.
Stocks are usually traded (bought and sold) on stock exchanges. With the rise of digital technology, an increasingly large number of stocks are traded by individual investors via online stockbrokers.
When a company “goes public” it means that it opens itself to the stock exchange and the stocks can be bought by wider traders as it is now a publicly-traded company.
How much are stocks?
Stock price varies significantly and can range from £0 (if the company has large debts) to thousands of pounds.
The price of stock is largely determined by the performance of the company. The better the company performs, the more expensive its stock is, and vice versa.
However, there are some instances in which a company’s stock is not reflective of its success. So it is always important to investigate the history of the company whose stocks you are looking to trade to ensure that they have been stable and consistent over a period of at least a year.
Where to buy stocks online
If you are looking to buy stocks online for the first time, you will need to know where exactly to find them. So, you will be pleased to know that your options are plentiful and that there are hundreds of reputable brokers on the net.
The first thing to do is to research a number of online brokers and find out what – if any – commission they take, what markets they operate in, and how other users have found their experience with the brokers.
Some of the best known online brokers include:
- Charles Schwab.
- Fidelity Investments.
- TD Ameritrade.
- Interactive Brokers.
- Merrill Edge.
Opening an account with these brokers is simple and should only take a few minutes.
You then need to transfer money from your bank account into your brokerage account so that you have finances available to invest when you want to. Transferring money is simple and can be done through electronic payment via the brokering app or website.
How to choose an online broker
When choosing online brokers and trading platforms you should consider what exactly it is that you want from them. Generally speaking, there are two main types of brokers:
- full-service brokers
- discount brokers
Full-service brokers will charge an extra premium but will offer you a financial adviser who can look after your money for you and offer advice on how best to invest it. You can leave your money entrusted with the adviser or you can request that they simply offer recommendations that you can then decide whether or not to pursue.
Your other option is to choose a discount broker. Discount brokers are designed for people who want to invest their money themselves without professional advice or assistance. Discount brokers are cheaper than full-service brokers and any costs are usually based on a per-transaction basis.
Most online brokers are discount brokers, though there are still plenty of full-service online brokers to choose from.
Do online brokers take a commission?
Some online brokers take a commission or a brokerage fee that is usually set at around 1% – 2%. Other brokers charge a fixed fee on every transaction you make.
However, increasingly, online brokers allow users to purchase stocks commission-free. Some brokers have particular commission-free stocks, whilst others don’t charge on any stocks. These brokers have other methods of ensuring their own income such as advertising, interest payments, or rebates from market makers.
How to know what stocks to buy?
This is the million-pound question. How can anyone ever know which stocks are good to buy and which should be sold?
Well, the short answer is that they don’t. Markets can be highly unpredictable and there are factors at play that can turn the fortunes of an otherwise stable market in the blink of an eye.
However, there are still many things that you can do to ensure that your money is kept as safe and secure as possible.
Before you buy any stock you should research the companies that you are looking to trade. As we have seen, most online brokers are discount brokers so they don’t have financial advisers on hand to offer you advice as and when you need it. So you will need to get savvy with knowing what to look out for.
When researching a company, be sure to take a look at the company’s annual report as well as their most recent quarterly reports too. This should give you a better idea of how the business has been performing. You should also take a look at the share price and dividend rate over a period of time to make sure that the company has remained relatively stable and consistent.
Before you buy any stocks you should also make sure that you are able to explain how the company you are investing in makes its money and what its position is in relation to its key market competitors.
Once you have carried out the necessary research you can then make the purchase.
What are trade orders?
Once you have decided which stocks you want to buy you then need to place a trade order.
The type of trade order you choose matches you with a seller who has the same order criteria.
The two most common types of trade orders are:
- Market order. A market order means that your trade will be executed instantly at the best possible price. With a market order, there are no price parameters around the order, meaning that the price you ultimately pay could be different from the quote you most recently received. This type of order is best for companies that are highly liquid and that trade lots of shares because it means your order isn’t likely to alter the stock price by much.
- Limit order. A limit order means that your trade will only be executed at a set share price or better. This gives you more certainty about the price you will ultimately pay, but it also means that there is a risk that the price will never reach your limit. Limit orders are best for stocks that don’t trade many shares, so your order is likely to influence the price of the shares.
How much can you make from stocks?
Stocks can return huge dividends for investors who invest wisely and remain in the market for a long time.
Many people use stable stock investments as their sole source of income or as an additional source of income on top of their regular salary.
There are also traders who have made hundreds of thousands or even millions in a single day from trading their stocks at opportune moments.
However, there are also many people who have lost significant amounts of money through trading or investing in stocks when the market didn’t go their way. And there are even some companies that have remained stable for many years only to collapse in just a few days, for example, many of the banks during the 2008/09 financial crisis.
So it is always wise to remember that trading and investing in stocks is essentially a gamble and that while it can return large amounts of money, you can lose money on the stock exchange as well.
Is buying online stocks safe?
Buying online stocks is completely safe as long as you use a reputable online broker.
You can research the history of a broker by checking that it is registered with Companies House. From there, you can investigate the history of the director to ensure that no one has had any fraudulent dealings with them before.
You can also research the broker’s history with the Financial Conduct Authority (FCA). The FCA is the UK’s financial regulator that was set up to protect both industry participants and consumers from malpractice within the financial industry.
Do you need a broker to buy online stocks?
Buying stocks via an online broker is the easiest way to invest online. However, there are many companies that allow investors and traders to buy stocks from them directly without the need of a middle-man.
That said, as we have seen, many brokers have commission-free stocks and the platforms they operate are simple to navigate. So for most people, this is usually the best option.
How much money do you need to buy stocks online?
Most online brokers don’t have minimum financial requirements to open up an account with them and many stocks can now be bought for just a few pounds.
One of the benefits of online trading and investing is that it has opened up the market to regular people who can now browse and navigate the world of financial markets themselves and with very little money.
You can now buy and sell shares from your smartphone or laptop by simply setting up an account with an online broker. You can then use their trading platform to make stock market trades and investments with ease.
Some of these brokers can offer you financial advice on how best to manage your stocks, while others will leave you to make your own decisions regarding what to invest and trade.
While online trading has opened up the world of financial markets to regular people allowing them to reap the benefits of wise transactions, it is important to remember that you can still lose on the stock market even if your trades and investments seem completely safe. So always be sure to research your stock decisions before committing and make sure you find an online broker that suits your needs.