In today’s economy, everyone is trying to make a little extra money. One way that people may choose to expand their income is buying stock. While the stock market may seem complicated, in reality buying and selling stock is a relatively simple proposition. However, how much you pay for your stock transactions can vary greatly, and this cost can be the difference between making a profit in the market or losing money. There are several ways you can buy shares in companies on the stock market.
Use a Broker
The first method is to use a broker to buy and sell your stock. This is the most expensive method of stock acquisition, as brokers always charge substantial commissions for this service. This fee is usually charged as a percent of your total purchase price. Full-service brokers offer a variety of services such as annuities, stocks, bonds, and insurance. It is comforting for a first-time stock buyer to have the advice of a professional, although the fees for traditional brokers can be high and you may be subject to pressuring sales talk to encourage you to make specific stock transactions.
You can shop among brokers to find the best rate. With a broker, however, you also have the added advantage of expert advice on your stock purchases; many brokers can give pointers that will help you pick stocks that will grow in value. However, beware of using stock brokers if you only plan on investing a small amount of money in the stock market. The less you invest, the more the stockbroker’s percentage will eat into your profits. For example, if you are investing $10,000 and the stockbroker charges a flat fee of $500 for your transactions, you are paying five percent to your broker. On the other hand, if you are investing only $500, a $50 fee would represent ten percent of your total investment.
Some brokers advertise themselves as “discount brokerage” firms, whose fees are substantially less than those of standard brokers. Their fees can be as little as $7 to $20 per transaction, and are often billed as a flat fee no matter what the size of the transaction. These brokers may be a great option for those who want to make a substantial stock transaction, but investors should be careful to bundle their transactions into one event rather than purchasing stock on a piecemeal basis. This will allow investors to enjoy the benefit of a low brokerage commission fee without nickel and diming themselves out of a profit.
Discount brokers do not usually offer investment advice, and they do not usually sell other products such as annuities or insurance. However, some larger companies have opened discount branches of their brokerage departments specifically to target the market of investors who want to make quick and easy stock transactions. These discount “branches” of various insurance or investment companies may give better service than an independent discount brokerage firm because they are back the substantial assets of the parent company, so overhead and cost are not as much of an issue for them as for an independent broker.
If you choose to purchase stock without the assistance of a broker, you can use a variety of trading methods that charge different fees for their services. One of the most popular types of trading done this way is online trading. There are several online companies that allow individuals to purchase as little as one share of stock for a fee. This fee varies between companies, but can be as little as $4 or as much as $10. Companies such as ING™, Scotttrade™, and e-Trade™ offer online stock-buying and selling services with low overhead, so they can afford to charge you less in fees for your transactions. Like discount brokers, these online companies usually charge a per-transaction fee, so it is wise to do all of your stock buying or selling at once, rather than spacing it out over several days or weeks.
How do I set up a stock trading account?
It is simple to set up an account with one of these online stock traders. You must usually transact a minimum of business, such as a purchase of a single share of stock, and pay the fee when you buy. You can hold the stock as long as you want and sell it when you are ready. Of course, you will not receive any form of advice on investing, although you are free to research the internet and publications such as the Wall Street Journal that offer advice on investments. With some luck and planning, you can be on your way to investing in the stock market with just a few mouse clicks.