How to Invest in Stocks: A Step-by-Step Guide for Beginners

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Are you interested to invest in the stock market?
Here are the simple steps that you can follow on how to buy stocks.

 

What Are Stocks?

If you’re newbie and practically have no experience in trading then this is probably the very first question that must be answered.

 

For starters…

A stock (also known as equity) is a security that represents the portion of a company that is owned by its holder.

And because you own a portion of a corporation, you may either gain profits or lose money depending on the company’s market performance.

 

Therefore…

If the company’s stock value rises then you will make a profit but if the value falls then you will incur a loss.

 

How Do Stocks Work?

stocks

Before investing in stocks, it’s important for you to understand how the stock market works.

 

To make it simple, picture this:

A stock market is like a market stall where you can see shares that are put on display and this stall is where all the negotiation takes place for buyers and sellers.

 

Next:

Lets talk about the infrastructure that facilitates the trading of these stocks which are are called stock exchanges.

Chances are, you’ve heard one of these exchanges before in the news such as the New York Stock Exchange, Nasdaq, London Stock Exchange, etc.

 

The thing is:

Any company that wants to list their stocks on a particular exchange will need to undergo a process called initial public offering or IPO.

As the company is able to pursue traders to purchase their shares, they raise capital for the  opportunity to grow their businesses.

And as traders buy and sell these stocks, the exchange does its job in tracking the stock’s current supply and demand which determine the security’s value or market price.

 

So here’s the deal:

If you’re going to buy a stock then you will offer the highest price that you’re willing to pay and this is called the Bid.

By contrast, if you’re going to sell a stock then you will be offering a lower price and this is called the Ask.

And in order for a trade to happen, buyers increase the Bid while sellers do it the other way around by decreasing the Ask.

 

OK, we know what you’re thinking…

There’s no need to be in a physical marketplace in order for you to trade stocks.

You can trade through the internet via an online stock brokerage firm and there are plenty of them.

 

For starters…

There are several ways to get started with online stock trading.

Trading with a bank or stock broker is the most common method for investing and is generally more suitable for the long term.

 

In addition to that…

Another popular alternative is trading online via CFDs or contract for difference, a form of derivative in which you will be speculating on a stock’s price without actually taking ownership of that particular stock and this is ideal for day trading and medium term.

If you choose to trade shares via CFDs, then keep reading to know the next step to take.

 

How to Make Money in Stocks?

The most common way for traders to make money from stocks is by buying and holding securities.

And did you know?

High-profile investors like Warren Buffett have used this strategy.

They benefit from the stock as it increases its value in the long term and trades receive interest and dividends from their investment.

 

Alternatively…

You can make money in stocks via CFDs and this unique derivative product offers additional investing options.

With CFDs, basically you are predicting in which direction a stock’s price will go and it’s either up or down and when you’re prediction is correct then you will get a profit.

Trading stock CFD is bi-directional so you can make money even if the markets are falling.

 

How to Buy Stocks?

Follow this short and step-by-step guide on how to buy stocks for beginners:

  1. Open an account with an online broker.

    In order to trade stocks, you need to have an account first with an online brokerage which has a platform where you can buy and sell stock CFDs.

    Here’s a tip:

    If you’re just starting out, we strongly recommend with one that is beginner-friendly because there are some brokerages out there that are too complex and confusing for newbies.

  2.  

  3. Fund your online trading account.

    Once you’re completed the sign-up process which usually takes only a few minutes or so, the next step is to deposit funds into your brokerage account.

    This can be done via credit/debit cards, bank transfers, e-wallets and other common payment methods.

    The good news is that most trusted brokerages will require you to deposit a minimal amount in order to start investing.

    Making a deposit on an eToro trading account

    Making a deposit on an eToro trading account

  4.  

  5. Open your broker’s trading platform

    Now that you have a starting capital, you can now access your brokerage’s trading platform.

    eToro trading platform

    eToro trading platform

  6.  

  7. Find the stock that you want to trade

    After launching the platform, you can select the stock that you want to trade by going through a list of assets or by using the search bar and entering either the name of the stock or its corresponding stock symbol.

    For example:

    If you’re planning to invest in Apple stocks, then you can either look for Apple on the list or entering Apple or its ticker symbol AAPL on the search bar.

    Searching for Apple stock on eToro's platform

    Searching for Apple stock on eToro’s platform

  8.  

  9. Select Buy and set the amount that you wish to invest

    Click on “Buy” and specify the amount that you wish to invest for the underlying asset. Additionally, you may also set several specific parameters depending the features that are offered to you by your broker.

    Buying Apple stocks on eToro's platform

    Buying Apple stocks on eToro’s platform

  10.  

  11. Execute the order.

    Initiate the trade by executing the order.

    Executing order on eToro's platform

    Executing order on eToro’s platform

 

Frequently Asked Questions (FAQ)

What Are the Best Stocks to Invest in Right Now?

Choosing the best stocks to invest in today will greatly depend on your current financial situation.

In general, here is a table of attractive stocks that are showing impressive relative strength in the current market rally.

 

StockSymbolTrade
Alphabet (Google)  ( )
Trade
Amazon  ( )
Trade
Apple  ( )
Trade
Facebook  ( )
Trade
Twitter  ( )
Trade

 

What Are the Best Stocks to Buy for Beginners?

Stocks that are particularly ideal for beginning investors are companies that have strong balance sheets and competitive advantages such as Amazon, Alphabet (Google) and Facebook.

In general…

It is better to buy stocks that have strong brand recognition and large market capitalization rather than smaller cap stocks that are not well-known in the industry.

 

What are Penny Stocks?

Penny stocks are shares of publicly-listed companies that have low market capitalization and are initially traded for low prices usually at less than $5 per share.

 

When to Sell Stocks?

There are several circumstances when selling a stock is the best thing to do:
 

  1. If the company’s core business model has changed

    A company can undergo many changes over time such as management, CEO, policies, regulations and others.

    This is normal but if you don’t agree on this new path that the company is taking then it would probably be the proper time to sell.

  2. If the share price is well above the intrinsic value (fundamental value)

    There comes a point when a company can reach its intrinsic value or even surpass it.

    This is an opportune situation to close your position while the stock is still advancing.

    In general, selling is the better option if you have shares of an overvalued company.

  3. If you found a much better investment opportunity

    It’s possible that you might spot other stocks that are showing better opportunities compared to the current stock that you have.

    And if you want to gain some capital to invest in other stocks then selling is definitely a good idea.

 

How Are You Taxed on Stocks?

If you have stocks via a brokerage firm and you decided to sell your share for a profit then you will incur a capital gains tax that you need to pay and currently, there are 2 types:
 

  1. Short-term – If you sell a stock after owning it for 1 year or less, your profit will be taxed as regular income based your tax bracket which could range from 10% to 37%.
  2. Long-term – This is the tax that applies on profits from selling a stock that you held for more than a year and the rate could be 0%, 15% or 20% depending on your taxable income.

By contrast:

For stock CFDs, there is no stamp duty to pay since technically, you do not own the underlying asset as compared to traditional shares dealing.

Do take note:

Tax laws are subject to change and depend on individual circumstances. It may also differ in specific jurisdictions or countries.

 

What Are Dividend Stocks?

Dividend stocks are stocks of companies that distribute a portion of their profits back to their shareholders on a regular basis in the form of dividends.

Majority of the company’s net profit is allocated for business operations and the remainder are the dividends that are given back to their investors.

For companies that failed to make revenues, they will still continue to pay dividends in order to maintain their established record of regularly distributing dividends.

 

Where to Buy Stocks?

You can buy stocks from an online brokerage firm. However, there are also online brokers that offer CFD (contracts for difference) platforms where you can speculate on the rising or falling price of company shares.

 

Got a Question?

Post it here and get an answer from one of our experts!

 

Best Brokers for Buying Stocks

Are you ready to buy stocks? So take the next step!

We’ve listed below the most trusted and regulated brokers that we highly recommend for you to trade stock CFDs.

All you have to do is to simply click on the Stocks Page button of your chosen broker and you’ll be taken directly to that broker’s stock trading page.

 

BrokerFeaturesRatingOfficial Site
etoro logo

Read Review

  • Copy investment portfolios of top stocks traders
  • Practice with a free demo account
  • No overnight fees
  • Risk management tools

Min Deposit: $200

Regulation: CYSEC, FCA

 

96

Stocks Page

Open Account

75% of retail CFD accounts lose money.

 

plus500 logo

Read Review

  • Competitive spreads for stocks
  • Trading with as little as $100
  • Fast and reliable order execution
  • Risk management tools
  • Fully regulated by the FCA, CySEC and ASIC

Min Deposit: $100

Regulation: FCA, ASIC, CySEC

 

95

Stocks Page

Open Account

80.5% of retail CFD accounts lose money.

 

avatrade logo

Read Review

  • Up to 1:10 leverage on stocks
  • Safe and secure trading environment
  • Trade for as little as $100
  • Live multilingual customer support during market hours
  • Regulated

Min Deposit: $100

Regulation: CBI, ASIC, FSC, FSA, FSB

 

94

Stocks Page

Open Account

 

xm.com logo

Read Review

  • Intuitive platform for trading stocks
  • Competitive spreads
  • Comprehensive education centre
  • User-friendly functions
  • Fully regulated by the CySEC and IFSC

Min Deposit: $200

Regulation: CySEC, IFSC

 

92

Stocks Page

Open Account

xm.com logo

Read Review

  • Indices spreads for as low as 0.0
  • $5 minimum deposit
  • Comprehensive trading education
  • 24/5 live help
  • Unlimited demo account

Min Deposit: $5

Regulation: FCA, ASIC, CySEC

 

90

Stocks Page

Open Account

 

Trading Forex and CFDs involves significant risk of capital loss. You should consider whether you can afford to take the high risk of losing your money.