Buying stocks online has never been easier. There are countless brokers through whom you can purchase stocks. The ferocity of the competition between these platforms has meant that there are more and more incentives to offer for users. These may come in the form of sign up bonuses or through lower commission rates.
Just over a decade ago, all stock purchases would have been done through phoning into a broker to do it for you. The internet age has brought with it the opportunity for anyone to take a more active role in managing their own purchases. One of the key advantages of this is that you have access to live rates. It presents the opportunity to enter and exit positions in a calculated manner. This article will look at how you can buy stocks online.
Find a good broker
A good online trading platform can make or break a trading career. There are several things that a trader should consider. The main thing to consider is that your stockbroker is regulated in your region. For example, traders in Australia might want to choose a trading platform that best suits Australians. You should also know what financial markets you want to trade. Let’s say you want to trade CFDs and you live in Australia. Which trading platform would be best? Research lists and reviews like this one: publicfinanceinternational.org/best-online-trading-platform-australia. From your research, you should have a list of the top brokers. You also want them to have a fair commission rate on the stocks that you are looking to purchase.
Sign Up and Make a deposit
Once you have found a broker that you like, the next step would be to sign up. This is a fairly straightforward thing to do. There is either signup or login option prominently placed on the official website. The signing up process involves providing your name, address, email and other details.
You may have the option to sign up for a demo account. A demo account requires less information to be accessed. This is a trading account that gives you access to a trial version of the platform. It is through this account that you can test out the broker’s platform. You can place some trades using a virtual currency.
A demo account is suitable for beginners and experienced traders alike. For beginners, it presents an opportunity to get familiar with the new platform. It also allows you to use the virtual currency to test out your trading skills before you risk any capital. Experienced users will only require some time on the platform to test it out.
To move from demo to a live account, you will be required to make a deposit. Most brokers have a minimum amount that they require live accounts to have in them. It is at this point that you will also be required to confirm your identity. Most brokers will need you to upload an official identification document and a proof of residence. The ID can be your passport, driver’s licence, residence card or a national ID card.
For proof of residence, the broker will require you to upload a utility bill or bank statement from the last 3 months. It can take between a few minutes to a few hours for these documents to be verified. The verification is sometimes automated, which makes the process quicker.
Making a deposit requires that you use your bank details or a debit card. The process is instant. Enter the amount that you would like to deposit, and the account from which it should be taken. Once the deposit has been made, you are ready to start looking at some stocks.
Research some stocks
Now that you have signed up to the platform it is time to find some stocks. Think of this as a form of arbitrage. You are looking to buy at a lower price and sell at a higher one. That is the simplest way to look at it. There is some research that must be put into it before settling on the right stocks.
Most broker platforms will also feature business news that would potentially influence the value of any stock. For instance, the release of new products will always draw interest in Apple’s stock. Similarly, the announcement of how well sales have been for the quarter will affect the value of stocks.
By following sales news ahead of time, you would have an idea of how well the sales have been going. Based on this, you can decide whether it is a good time to invest in said stock. You would then look to sell after the announcement has revealed the true value of the stock.
In a sense, you are purchasing stocks that are either undervalued with the aim of selling them when they rise in value. Or those that are likely to rise in value. Innovative companies are usually at the forefront of stocks that are likely to rise over time.
Some of the things to consider include the performance of the stock over the last 5 years. It gives you a good idea of the stock’s trajectory. It is worth looking at the company’s leadership. A recent change in leadership can be a cause for caution on the market or a reason for great progression.
Shortlist the one/s to buy
As you go through the market, shortlist any stocks that pique your interest. You will return to these with a more curious eye.
Think about your goal for each stock
Seeing the potential of any stock is one thing. It only starts to turn into a profit when considered in the view of a strategy or goal. Start by shortlisting each stock as either a short term buy or one that you would hold long term.
A long term stock is one that you would be looking to purchase now with a view of holding for a while. This can be for a year or indefinitely. The indefinite ones could be stocks that pay dividends.
Short term stocks are those that you would purchase with a view of making a fairly quick exit. These are the ones that day or swing traders focus on. Day traders enter stocks based on the positions at the start of the day. They look to exit said positions by the end of the day and make a profit.
Swing traders use technical analysis to identify stocks that have dropped in value but are bound to bounce back. They purchase these stocks at these low valuations looking to hold them for short to medium term. This can be for a few days or weeks. It largely depends on being able to perfectly time the exits and make a profit.
The final thing to take into account is that even the best traders do not win them all. It is wise to have an exit strategy in place. A lack thereof is usually the cause for the financial loss even among the most experienced stock traders.
It is important to have an exit strategy. This can be in the form of a stop loss. A stop loss is a set point at which you would cut your losses in any trade. For instance, if you were to purchase a stock at $150 with the view that it will rise to $200. A stop-loss may be placed at $80. If the stock’s value was to go in the opposite direction, you would not lose more than the stop-loss point.
Choose a position to enter and exit
When you have an exit strategy set, you are good to pick a point to enter and to exit. An entry point is an ideal point at which you would purchase a stock. This can be somewhat automated, depending on the platform that you are using. In the case of automation, you would view it as follows:
If stock A was to fall below point X, buy it.
If stock A was to then rise above point Y, sell it.
The above automation will consider the value of stock A. You would base this consideration on the current value of the stock. If it was to fall below the point that you have chosen, you would be of the opinion that it is bound to bounce back. It is within this bounce-back that a profit is made.
Most beginners will not look to automate it. A minimalist approach to the use of software and tools at the beginning is encouraged. You would, therefore, keep an eye out on several stocks, to be purchased at any point when they have fallen to the range that makes them attractive.
Warren Buffet famously advised that the best time to purchase is when most people are selling. Selling of stock at mass causes it to devalue. If the stock is a good one, it is bound to be purchased again as confidence is restored. While most people steer clear of these stocks, you make an analysis and a cautious purchase.
Manage your expectations
We would not have done this topic justice if we do not cover managing expectations. This is an insidious factor that filters through the minds of beginners and experienced stock traders alike. What is it that you expect to get out of each stock that you purchase. Get rich quick stocks are so rare, that successful traders may go through their careers without having encountered them.
A good goal is a growth at a good pace. Based on picking the right stocks to buy, when to enter positions, as well as perfect times to exit them. You should be well on your way to doing well with the stocks that you purchase.