Purchasing Stocks

There are literally thousands of sites that will tell you that they have a full proof method to picking stocks; lesson one there is NO full proof way of picking stocks. But, you will find it much more difficult to find a stock that will explain the very basics about how you actually purchase stock. This is strange, because one of the top reasons that people like you and I do not purchase individual stocks is because they don't know how to do it and don't understand what it means to “purchase stock”.

There are many definitions for stock, but to keep it simple when you purchase stock you are buying partial ownership in the company. A company will sell stock to raise capital for new projects or for private use. Buy purchasing shares in a company in many cases your “ownership” in the company is used as votes toward the election of the board of directors.

Now how do you actually purchase your first share? The most common and easiest way is to set up an account with a broker. I'll use Scottrade for this example, that's the broker that I use, but there are many out there, so do your research. There are probably several brokers advertising on each side of this article right now. When picking your broker there are several things that you want to check.

• Commission or the cost to purchase shares; be sure to check the price difference in market and limit trades. You never want to make market trades and normally a broker will advertise the cost for market trades, so you will want to check on the price of limit trades. In this example Scottrade currently charges $7 for both limit and market trades.
• Research utilities; make sure that you are getting access to documents and systems that will help you research the stocks that you are buying and already own.
• Stock ticker; if you plan to keep a close eye on your stocks or do some day trading you will want to make sure that you have a good stock ticker that will allow you to watch the market price and make quick purchases. If you plan to buy stocks and hold them for a while, this is not as big of a concern. Scottrade has two tickers; their day trader version requires you to have $25,000 in your account.
• You may also want to check and see if the broker's web site will tie directly into the software you use to track your Money. Scottrade is set up for you to download statements, but not the individual transactions into Microsoft Money. Minimum account balance; some brokers will require you put in X dollars to open an account and in some cases require you to keep your account balance over a certain amount to avoid paying extra charges.

Once you have done your research, picked your broker and opened an account, it's time to put money in the account and start purchasing stocks. That will be the topic of the next article.

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