How to buy and sell stocks (steps for beginners)

What will you need to start buying and/or selling Stocks?

  1. Select an online broker. Stockbrokers could be either discount brokers or full-service brokers. The difference is that discount brokers offer fewer transaction costs and have cheaper plans as compared to full-service brokers. Some discount brokers offer ZERO commission trading. Full-service brokers offer various financial services like technical assistance, an investment advisor to guide you etc.
  2. Open a trading account with the online broker. You need this account to hold your stocks in the depository. Opening a trading account is more or less the same as opening a bank account. You need to fill in application forms and provide legal IDs.
  3. Deposit money in your trading account. This process is the same as depositing money from one bank account to another.
  4. Learn to use the online broker’s platform. You need to learn how to use the platform so that you can screen stocks

How can you buy a Stock using an online broker?

To buy stock on your own, you have the following options –

  1. Open the stock screener of your broker’s platform
  2. Identify the stock you want to buy. Most brokers provide some fundamental financial information about the stock.
  3. Use the available buy stock function on the platform to place the buy order for the stocks you selected in Step 1.
    1. Determine and enter the number of Shares you want to buy.
    2. Determine and enter the price of each share you want to pay. This is your Bid price.
  4. Wait until your order is executed. The broker now will try to buy the shares on your behalf at your given price. Upon a successful order execution, the cash amount will be deducted from your account and equivalent shares will be credited. Note that for foreign stocks, brokers may take a longer time (i.e. 1-2 days) to settle the order due to currency conversion.

How to sell a stock using an online broker?

Selling the stocks is the same as buying the stocks. First, you must own stock to sell that stock. You have to use your brokerage account to place the order to sell the stocks.
To sell stock on your own, you have the following options –

  1. Go to your stock depository. The Depository holds all stocks you currently own.
  2. Select the stock you want to sell.
  3. Place the sell order through for the stocks of your choice.
    1. Determine and enter the number of Shares you want to sell. Note you can not sell more shares than you own.
    2. Determine and enter the price of each share you want to sell for. This is your Ask Price.
  4. Wait until your order is executed. The broker now will try to sell the shares on your behalf at your Ask price. Upon a successful order execution, shares will be deducted from your depository and an equivalent cash amount will be credited to your account. Note that for foreign stocks, brokers may take a longer time (i.e. 1-2 days) to settle the order due to currency conversion.

How can you make money from Stock?

Buying and selling stocks are not the only way you can make money. There are various ways one can make money through the stock market. Followings are three major ways:

  1. Share Buybacks- The share buyback is a program through which a company buys its own shares and then destroys those shares. For that reason, current shareholders increase the ownership percentage of the company without spending any more money out of shareholders’ pockets. Companies notify buyback of shares beforehand.
  2. Dividends – Dividends are cash that is distributed among all the shareholders from the profits of the company. If you are holding let’s say 100 stocks of IBM that pay a regular quarterly dividend of 1.24$, then you will be receiving 124$ each quarter the company declares the dividend. Generally, companies notify when they wish to declare a dividend and set a record date (cut off). If you buy the stocks of that company before the record date, you will receive the dividend as well.
  3. Capital Gains – When you sell your stocks, the profit you have earned is capital gains. It can be Long term capital gains called LTCG or short-term capital gains called STCG. These capital gains are taxable as per your country’s tax laws.
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