How to buy shares

Buying Shares or Stocks

Buying shares or stocks involves risks and you can lose your money. However, investing in stock is a good investment and one can make a substantial gain in the money invested. The richest men and women on earth have invested in the stock market in one way or the other.

A Computer and Internet

To start buying shares in the stock market, one has to have an interest of trading stocks. The next thing you need is money to invest. You can start with as little as $500. But having been in the stock market, I would recommend a minimum of $7,500. If you can have $100,000, then that would be good of you.

The next thing you will need is a computer. It can be a desk top computer or a laptop computer. I would recommend you get yourself a laptop computer. Once you have a computer, you will need internet connection. These days you can get wireless internet. You can connect to the internet by connecting your computer to a mobile phone with GPRS, EDGE or G3. I would recommend instead of using a mobile phone to connect to the internet you get yourself a broadband modem from your mobile phone company who should be able to provide cheap data rates in bundles. And talking of wireless connection, then you need to have installed in your PC at least windows XP with SP2 and a good anti-virus which should be updated regularly.

Buying Stocks

Spend A Few Days If Not Weeks With A Trading Platform Because There Is A Lot That Need To Be Learnt In The Trading Station
Spend A Few Days If Not Weeks With A Trading Platform Because There Is A Lot That Need To Be Learnt In The Trading Station

Get a Good Stockbroker

The next stop is to look for a good stockbroker with lower trading commissions. You can search for brokers using Google search. What you need to know about brokers is that some are cheaper only when you are buying small quantities of stocks and others are cheaper when you buy stocks in large bundles. For example: A stockbroker “A” may charge a flat rate of $0.1 per share. Another stockbroker “B” may charge a commission rate of $1 per share and $100 for a bundle of 10,000 shares. If you plan to buy stocks in small lots then stockbroker “A” is cheap and if you plan to be buying shares in large lots then stockbroker “B” is cheap in commissions. The choice of your stockbroker depends on what you want and what you want may be determined by the money you have to invest. It’s all up to you.

Interactivebrokers

Here I pick Interactivebrokers as an example of a stockbroker for illustration purpose. Interactivebrokers have the following charges for trading commissions:

1. Stocks and ETFs at $0.005 per share

2. Stocks Options at $0.7 per contract of 100 options

3. Futures at $1.2 per contact

4. Bonds at $1.0 per $1000 face value

5. Minimum cash to open a trading account US$5,000

If you look at the five points above it means if you use Interactivebrokers as your stock brokers, you can be able to trade stocks, stock options, futures, future options and bonds. You should be able to trade the securities online, on real time and on your computer anywhere in the world where there is internet connection. You can trade US stocks, China stocks, Australian stocks, UK stocks, Japanese Stocks, etc, by using the Interactivebrokers.

Buy Stocks on Cash or on Margin

Assuming you have now opened a trading account with the Interactivebrokers, the next thing you need is to do some practice with the Interactivebrokers trading platform which you will download free from Interactivebrokers. You may have to spend a few days if not weeks with their trading platform because there is a lot that need to be learnt in that trading station.

But before you even start trading you will have to choose if you want to be buying stocks on cash or on margin. Buying on margin means 50% of the money you spend to buy stocks is provided by Interactivebrokers as a loan which has a small interest. Only those that trade on margin accounts are allowed to trade stock options and futures. You may think a trading margin account is very good but its not necessarily so.

Buy and Hold

A day will come when you will buy your first shares. You will buy them expecting the price of your share to go up with time. You will soon come to learn that is not always the case. There are millions of traders called the bears who always believe the prices of the stocks should always be going down. Remember that whenever you buy a stock the person selling it to you believes the price of the stock is going down otherwise he would not sell it to you.

Ideally you should buy a stock at price of say $20 and hold that stock for as long as it takes until when you shall be able to sell it at a price above $20. If you bought 10,000 shares at $20 each you will have spent $200,000. If the price goes to $40 you will see yourself as an investor with shares worth $200,000. If the price goes to $10 per share you will see yourself as an investor who invested $200,000 which is now worth only $100,000. This is when trouble will start. The thing is, if the price is below the price you initially paid for your shares the best thing to do is to look at yourself as an investor who hold 10,000 shares of say Microsoft and remove the idea of the value from your mind. Continue holding the shares for as long as it takes and hopefully one day the price will move above the initial price you paid for.

Short Covered Call

But smart traders have other ways of trading. But suppose you would buy your $20 stock on condition you will sell it at $22 after 30 days. Would you like that? Suppose the stock after 30 days its price is $28 and you only have to sell it at $22 thus losing the $6 difference. Would you like that? This is done by using call options and it is called covered call writing. Banks like it and they recommend it and therefore it must be good for you.

Covered writing is known as a "buy write". Covered writing is a safe way to generate extra income from your stock. Short Covered Call should be the first trading strategy you learn in trading options. Short Covered Call is just as safe as simply investing in a stock.

At the end call option expiration, you will keep your stock and sell covered calls repeatedly once the previous ones have expired, thus continually adding to your income. If you become a covered call writers you will make money during periods when your stock goes nowhere. The income that you can generate is impressive. You can expect to make upwards of 40% annually.

But one BIG BUT is that such returns are possible only if the stock goes up and remains there.

16 Top Best Stocks Brokers in US

Below is a listing of 16 Top Best Stocks Brokers in US:

1. Thinkorswim
2. MB Trading
3. TradeStation Securities
4. Interactive Brokers
5. Fidelity Investments
6. OptionsXpress
7. TradeKing
8. OptionsHouse
9. ChoiceTrade,
10. E*TRADE Securities
11. TD AMERITRADE
12. Muriel Siebert
13. Charles Schwab
14. TradeMONSTER
15. Lightspeed Trading
16. Scottrade

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Comments 8 comments

Storytellersrus profile image

Storytellersrus 7 years ago from Stepping past clutter

This sounds great ng- so where do I get the first $500?? lol Seriously, I will have to bookmark this one for some future fantasy.


Ralph Deeds profile image

Ralph Deeds 7 years ago

Most ordinary people with less than a million $ or so should invest in stocks by buying no-load, low cost, tax efficient mutual funds such as those offered by Vanguard. Investing in individual stocks is very risky unless you have enough money to own a diversified portfolio. Ordinary folks who buy stocks are at the "bottom of the food chain," the last ones to find out the good news or the bad news about the companies in which they invest.


Penny Share Trader 7 years ago

To answer the question "How to buy shares?" , its fairly simple create an online account with a reputable company (theres many to choose from) look around find the best prices and trading program for your needs.

Spend a couple of weeks reading as much as you can about shares and when you feel conifent enough to buy your 1st shares DONT. Get a notebook and right down the name of the shares you want to buy, the buy prices and the date. Keep this safe and monitor the socks you have chosen for a couple of weeks, add more to the list as time gose on and build up a simple paper portfolio. If after a few months you can see that your have chosen well and would have made a profit. Then and only then is it time to start and buy shares and build a real portfolio.

Hope this was useful.... GoodLuck


jayb23 profile image

jayb23 7 years ago from India

Very Informative hub. Bookmarked and thanks for sharing da information


MRdivman profile image

MRdivman 7 years ago

Good overview article. Another good idea for new investors buying shares is to look for stocks that pay dividends, since dividend income has been proven to outstrip price appreciation by over 25 times historically.

One of my hubs, Selling Covered Calls, adds to your info here, and gives a trade example and option definitions also. Can we exchange links?


Douglas45 profile image

Douglas45 7 years ago from Winston-Salem, NC

Great site. Great info.


aussieinvestor profile image

aussieinvestor 6 years ago from Australia

As Ralph has already pointed out, diversification is very important. If you can build a portfolio of at least 8 stocks you will reduce the risk of a loss in a single holding wiping you out completely.

However, don't go too far the other way - if you have too many stocks in your portfolio, you'll find it hard to keep track of them all.


Eddy2106 profile image

Eddy2106 6 years ago from Chicago Suburb, IL

Great hub, for a first time buyer.

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