How to buy shares on the stock exchange

May 9, 2022

Level: Beginner

Reading time: 4 min

If you’re looking for ways to invest, the stock market is a good way to start. It has been proven as one of the reliable markets in terms of the profitability of long-term investments. That said, you should remember that even relatively stable markets have their bad days.

One of the 10 worst days on Wall Street was December 1, 2008, when the National Bureau of Economic Research declared recession. In just a day, the Dow plummeted 679 points — by 7.7%. So, if you’re looking to buy shares online, you need to accept the risks and follow some rules.

Here are the instructions to start your investing journey the proper way.

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1. Select a stockbroker

There are different ways to carry out operations with securities. But as a retail investor, you’ll always need to work through a middleman — a broker.

Look into organizations that provide brokerage services — banks, financial firms, and specialized brokerage companies. To make the right choice, figure out commissions on the investments you’ll use most, and compare account minimums, tools, features, and the education hub.

2. Open a brokerage account

If needed, register an account with your broker and fund it. The process should be fairly straightforward, taking no more than a few minutes. The verification procedure may vary depending on the platform, but in general, you’ll need to provide basic information about yourself and some form of identification.

How to create a trading account

If you decide to operate without an exchange, you’ll need to sign an agreement with your broker. Besides, it’s vital to report your investments to the registrar that keeps records of shareholders after an issuer offers securities to the public.

3. Research the stocks you want to buy

So, you know where to buy shares; now you need to decide which companies to invest in. All results will be your responsibility. The broker will simply send your orders to purchase at your request; they are not in charge of the decisions.

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Find companies with a business model and industry that you understand. And then, look through their financials — earnings growth, D/E ratio, P/E ratio, dividends, etc. — to determine whether they have a competitive advantage.

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Everyone has their own trading style, but some principles are critical for success. Make sure you’re following these basic rules of trading.

4. Decide how many shares to buy

If you’re only starting out in the stock market, it’s better to keep the investment amount to a minimum. Even if you have a lot of confidence in the company, you should never put all your capital into one asset.

The number of shares will depend on how much the stock is worth. Suppose you have $100 set aside — you can buy 100 shares worth $1 each or one share of another stock trading at $100.

5. Place an order

Choose between market and limit orders:

With a market order, you’ll buy shares at the current price. The order will be filled almost instantly unless you’re trying to buy a million shares at once.

With a limit order, your order will be filled in at your desired price. You may need to wait longer, but it can help you get a better deal.
You can place the order and indicate all the details for it at the trading terminal or via some other platform that your broker uses.

As long as you hold your position, your broker should also transfer the dividends for the shares you own. When the company pays its shareholders, the funds will automatically be deposited into your brokerage account. If you decide to sell the shares in the future, this order is also carried out by the broker.

As you become more familiar with the stock market, take time to dig into other areas of the investment world. Most experienced traders diversify their portfolios to maximize their potential returns. Consider investments with varying risks, buy different types of asset classes, and rebalance your portfolio regularly.

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