Ensure your online trading costs are low
Even before you start investing online, you need to consider trading commissions. Trading expenses can be all over the place when dealing with online brokers. Costs can run anywhere from $5 all the way to $50 and more. If you plan on investing small amounts of money into stocks then you need to make sure your online broker has low trade expenses of under $15 or these costs will eat up all your account balance and wipe out any profits.
When investing online you should also be aware of account fees and account minimums. In order to protect any profits that you make you need to make certain that your account has low account maintenance fees, preferably an account with no account maintenance fees. Numerous online investment companies also have a set minimum account balances. If you account falls below that minimum balance required, you will get charged a fee. Over time these fees can take your balance down to $0! It is crucial to make certain that the online brokerage company you choose has no minimum account balances.
Familiarise yourself with basic online investment terms
Before you start investing you definitely need to understand Basic Stock Terms. The more terms you know, the better your stock market vocabulary and the faster you can learn. Here is a list of basic terms involved with stocks and their definitions, in plain English.
Ticker - The unique symbol used for a company on a stock exchange. For example, Microsoft's ticker symbol is MSFT.
Share Price - Price you have to pay to buy 1 share of stock.
Shareholder - A person who owns shares of stock in a company.
Commission Fees - The fee you have to pay to place a trade to buy stock.
Dividends - A cash payout from a company to its shareholders. This payment is based on the amount of shares you own, the price of the stock and the dividend amount. The payment is usually every quarter.
Risk - The probability of losing money from owning a stock. Risk is usually classified as Low, Medium and High. Or Conservative, Moderate and Aggressive.
Volatility - The amount of price activity of a stock. A stock, whose price goes way up or way down daily, is volatile. You can guess what not volatile is, right?
Prospectus - A detailed financial document a company publishes, for shareholders to see what they are getting their selves into.
Bear Market - A time when the stock market consistently drops.
Bull Market - A time when the stock market consistently rises.
There are many more terms used but these should help you get a basic idea of stock investing. OK, so you got some basic info about investing in stocks. It is time to learn how to buy shares of a stock.
The right way to buy a stock online
The first thing you should do before buying online stocks is find out how many shares you want. Then take the current share price of the stock and multiply it by the amount you want to buy. There are many places you can look to see what the share price is. Google will recognize most ticker symbols if you just enter them in the search box. Once you know the amount you need to spend to buy the shares you want you can place a trade with your online broker.
Diversify your portfolio to minimize risk
Understanding the basics of risk is simple. High risk means there is a higher chance you will lose money from the stock and low risk means there is less risk you will lose money. Controlling risk is the key element in online investing. There are various different strategies for minimizing risk. The most common and easiest one is to diversify. To diversify, means to buy a mixed group of stocks with different levels of risk. This will decrease your chances of losing money.
There are many resources out there to help you pick stocks. Don't listen to any of them unless you do research for yourself first. Luckily for me when I was in college we had a class on E-commerce which talked about the best online business models to follow. They mentioned a company of self made millionaires called The Motley Fools. They went in full detail of how they were successful in their online business of picking stocks. I have been using them ever since and trust their advice. Their philosophy is in long term value investing, which is a much less riskier style of investing.
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