Some people really think the stock market is just for rich people and brokers. A lot don’t really know it’s easy to acquire stock from their comfort zone. Few things are to be considered when going into the stock market. Clear objectives on why you are investing, a broker to make the trade, what you want to buy, and the amount you’re willing to invest are the factors to be considered when going into the stock market.
A stockbroker is a professional who executes orders in the market and handles transactions for a number of individuals and institutional customers. There are many brokers who make it easy to buy stock online. Not all brokers are reliable, but we highlighted a few among the best stock trading platforms
How to start investing in stocks
A stock is a financial asset that represents ownership in a company and indicates the proportionate claim on its assets and earnings. Buying stocks requires going through a brokerage. A brokerage is an individual that is authorized to buy stocks and also connects a seller to a buyer to facilitate a transaction. A stock brokerage can be a human stockbroker, a financial planner, and an online brokerage.
Financial planners and human stockbrokers are risk-free. They offer best services and give investment advice to investors, but it’s very expensive. Online brokerage is less costly and the best once you have a basic knowledge of the stock market.
Online brokers serve as an intermediary between a buyer and seller of financial instruments. They facilitate the purchase/sale for a fee or commission, and some offer zero trading platforms.
After choosing an investment platform, one of the factors to consider is your aim of buying stock. Most investors buy stock for capital appreciation, while some buy stock for capital preservation.
Capital appreciation is buying stock with the intention of growing your money rapidly and aggressively, while capital preservation is investing in other stocks not to lose the value of your money and to make passive income from the investment. These actually determine the assets in your portfolio and the kind of risk you take in trade.
If you are looking for a Ponzi scheme or a platform where you can get rich overnights, investing in stock will probably be the wrong decision for you. Making money in stock requires investing for months or years. There is a relationship between volatility and time in investment. Investment held for longer periods tends to exhibit lower volatility than those held for a shorter period. Consider other investments like buying a government bond or putting your money in a savings investment account if you are looking for a short-term investment.
Risk is central to the stock market because without risk, there is no profit. Technically, the more risk you take will determine the more rewards or profits you make in the stock market. Younger people have high-risk tolerance because they have a longer time horizon than the older ones. There is no identified strategy to determine the future of stocks, but risks are mainly controlled by diversification.
Diversification is investing in different sectors in stock. A diversified portfolio reduces risk on capital. Imagine I’m holding a non-diversified portfolio where I invest all my capital in HSBC, and its share price drops, it going to affect 100 percent of my capital.
But if I invest in HSBC, Barclay and standard chartered, it’s pretty good but still unsafe to risk because all my investment is in banking sector and they are all related to the UK.
Investing in different sectors is much better than investing in a single sector. A portfolio where your capital is divided into HSBC, Amazon, Vodafone, Adidas, and Iberdrola is very resilient to risk because you’re investing in different sectors and companies that transact in different currencies.
When to buy and what to buy
There is no best time to acquire stocks unlike bitcoin, where those who acquired it as earlier as 2008 are the ones who benefit most from the asset. There is no perfect time to acquire stocks but the right time to buy your stock is now. The earlier you invest, the likelier the stock yield high returns. If you have already know what stock you want to buy, then go through the sign-up process to have an account with one of the brokers.
Selecting stocks to buy is the hardest part of the task. The real challenge to encounter is deciding what to buy between an ETF, individual stock, and mutual fund.
It all depends on financial status mostly. Many giant companies’ stocks might cost three times your capital which you won’t be able to buy their stocks. For example, an Amazon stock costs $3,262, which might be more than what you’re willing to invest, but the best way to acquire the fractional shares of the company is investing in Exchange-traded funds (ETF). ETF is a type of security that tracks an index, sector, commodity, or asset but which can be purchased or sold on the stock exchange the same way a regular stock can. ETF can contain investments like stock commodities and bonds.
For long-term investment, you need a company that will be around in the future. The wide durable moat of a company should be considered before acquiring its stock. A wide economic moat is a type of sustainable competitive advantage possessed by a business that makes it difficult for rival companies to wear down its market share.
Coca-Cola has been in existence for decades and it has high durable strong moat, brand name and economic scale that will make it to be around in the future.
The profitability of a company should be considered when buying stock. It is decided by the return on the capital of the company. Return on capital is the percentage of profit to the capital invested. Public companies share their financial status to the public on a quarterly basis; this is called revenue growth. It’s a graphical representation that shows if a company is on an upward, downward, or flat trajectory. Earning per share is the amount of revenue left after all the company bills have been paid. Earning per share is used to determine whether the stock of a company goes upward or downward.
Some online brokers provide a trading platform where they charge a little trading fee or commission fee per transaction executed, while some operate a zero-fee platform. New investors need highly educated and informative brokers.
Following are some of the best stock trading platforms that give traders insights on trade and provide educational resources that guide them through the early years of investing.
TD Ameritrade is one of the oldest and most reliable trading platforms. It offers an electronic trading platform for the trade of financial assets, including common stocks, preferred stock, and exchange-traded fund. It provides educational resources for new investors.
TD Ameritrade provides educational resources like articles, videos and webcasts. It provides trading and investing services for 11 million client accounts and custodial services for more than 6000 independent registered advisors. It offers excellent customer service, answers phone calls, and replies to emails within hours.
The major problem associated with TD Ameritrade is trading is only allowed in the US market; accounts are mostly limited to US residents and don’t support debit/credit cards and electronic wallets for money transfer. There are other ways to fund TD Ameritrade accounts like electronic bank transfer, wire transfer, and deposit via Mobile.
Fidelity is a great choice and one of the best brokers for international investors. It performs excellently in every category and is a great choice for traders. It provides educational resources for beginners, has a watchlist tool that allows traders to track stock they are interested in.
It easily allows investors to set price alerts for an event like stock rising and falling. Unlike TD Ameritrade, fidelity offers fractional share trading, which allows users to trade over 7000 stocks and ETFs with investing with small capitals. One of the negative sides of using fidelity is margin rates and fees for some mutual funds can be high.
Charles Schwab is one of the best alternatives and best brokers for international investors. It provides best customer services, high-quality research engines and is one of the best brokers for beginners. It offers fractional share trading, which provides many options for a trader in selecting a stock. Disadvantages of Charles Schwab are the high fee for some mutual funds and that it supports only the US/Canada market.
Ally Invest has helpful trading tools and provides an easy trading platform. It offers cash bonuses that range from $100- 3000$ depending on the amount deposited with a low qualifying deposit starting from $10,000. Its trading account is easy to set up and offers a $0 trading cost. It offers only US market trade and low marginal rates. It is a no minimum discount broker, and an account can be open with $1 to start.
E*trade is one of the best brokers for general investors. It offers an electronic trading platform to trade common stocks and preferred stock. It provides a large investment selection, excellent customer support, a commission-free platform, and an advanced mobile app. It is highly efficient and has over 5.2 million active clients. Its disadvantages are trading accounts can only be funded by bank transfers, slow live chart, and it supports only the US market.
A stock is a security that represents the ownership of a fraction of a cooperation. The unit of stocks are “shares.” The brokerage allows an authorized trading in the stock market, and many factors have to be considered before trading.
Investors who don’t have enough money to buy stocks of companies can invest in ETF.
Diversification is a risk management strategy that mixes a wide variety of investments within a portfolio. Factors like educational resources, zero trading platform, fast and reliable contact support, and easy trading platform are factors considered for choosing a broker.