HOW TO BUY A STOCK

Related Books: How To Buy Stock.

1. CHOOSE AN INVESTMENT BROKER: Different brokers offer different levels of service, different commission schedules and different methods of stock trading. Go to the Yellow Pages- it will be stuffed with possibilities- then make some calls. Select your investment brokerage on the basis of the service you need:

• On-Line Stock Brokers: On-line stock trading offers the lowest commission. In most cases, there is no "broker" to talk to. Stock traders simply log on and enter their transaction from the key board. There will be a customer service department to answer questions about stocks and trading in general. This type of account is used mostly by experienced stock traders!
  
• Discount Stock Brokers: The discount stock broker executes stock trades, at the customers direction, at a commission rate that is lower than the full service stock broker. On-line stock brokers are discount brokers- but many now offer "full service".  The trader is  responsible for his/ her own transactions. Sometimes called a "silent" broker service, this service will answer questions about transactions, and advise on the actual order, but not on which stock to buy or when. Discount brokers also provide telephone and on-line trading.
  
• Full Service Investment Brokers: This type brokerage will actually give you advise as to what type of stocks, bonds, commodities to buy, when to buy and when to sell. A full service broker may offer financial planning, tax shelters or advise of new stock issues or special situations. They can even buy and sell on your behalf. Commission will be higher than a discount broker.

  Popular Brokers: Links

  ---

2. SET UP AN ACCOUNT: Most brokerage account require a minimum amount of cash to open an account. Minimums range from $1000 to $2500! Once the account is opened, a minimum balance is not required. In other words, you can take part of  your money out. NOTE: You will be required to make a trade at least one a year or incure a "non-trading" fee.

• Request An Application: Call  the broker you decided on and request an account application (or fill it out on-line). The brokerage will ask you about options, mutual funds, margin and perhaps a few other things you don't know about. Simply say you want an application only for stock trades (also include that you don't have a clue about the other items).
  
• Read the Application: If you can't get past reading the application, seek the help of a qualified financial planner, or a CPA. If you can't get past understanding the terms and conditions of the application/ agreement then maybe stock trading is not for you (of course many people never read a loan agreement either!).
  
• Select a "Sweep" Account: A sweep account is an interest bearing account where your un-invested money goes, including your initial amount used to open the account. The options are many and vary from brokerage to brokerage. An example: Dreyfus Fixed Income; this sweep account will yield a fixed daily interest rate while your money is waiting to be invested.
  
• Fund Your Account:  Send a check or "wire" the funds to your account.  Expect this to take at least a week.  Even if you have your bank wire the funds, it may take up to 24 hours before it funded.

• Receive Your Password:  Your account is funded- you still have to wait for your password to mailed to you.  As aggravating as it is, most brokerages mail your password to you via US Mail.  You know already know, based on your own past experience  how long this will take.
  

3. MAKE YOUR FIRST TRADE: Hopefully you have done some research, read some books, know your risk tolerance and your investment goals.  Make your trades.  There are several ways to specify your trade. Know them before you make a trade! Your brokerage will help you.

• Specify the Type and Amount of Trade: If you've gotten this far on the page, congratulations!
  There are many types of trades; fill or kill; day order; market order; limit order etc. Your broker will help- call before you trade (or use the on-line help function). Also, the brokerage will usually send an information packet explaining these types of trades.
  
• Specify the Registration:  Registration is how your stock will be registered, or "named". Street Name Registration is common and easiest. STREET NAME means the stock will be registered in the name of the brokerage and  credit will be issued to your account.  ACCOUNT NAME means the stock will be registered in your name and a certificate issued to you. ACCOUNT NAME or JOINT NAME registration is used when the stock purchase will be used to start a dividend re-investment plan. There are different reasons, advantages and disadvantages to registering in a certain way..again, e-mail me, or ask your broker.
  
• Save Your Account Statements: Store every account statement you receive from your broker!  You will need these for tax purposes when you sell!  Failure to save your account statements for future record, will cause you great grief when you try to show how much you originally paid for your stock.

DRPs:  Let The Company Pay The Broker:

There must be a broker, of some sort, to buy or sell stocks! Direct Investment Plans plans use a "broker", called a transfer agent, to execute transactions. You don't pay  the commissions; in most cases the company does!    Want to learn a secret way to invest without large cash outlays? Then you will want to learn about Direct Investment Plans:

Direct Investment Plan (DRP) page

Home Page

Investment Terms You Should Know

Wealth Building Page

Post Questions on the Message Board

mcborum@prodigy.net