Well, now you have a brokerage account. You have followed the path laid out for you in my last two articles, and you are the proud owner of an online highway to the stock market. You pick up the mouse with shaking hand. You are ready to make a trade.
It’s a little bit like skydiving. (No, I haven’t tried it, but I can well imagine what it’s like. Work with me here.) You stand in the open doorway of the plane, swallow hard, remember everything your instructor taught you … and jump! I’ve heard that the first time is the worst. Well, I guess if it was really bad, you’d never do it again, so let’s hope your first investment maneuver is better than that!
I’m going to walk you through the process, much as the skydiving instructor walks her client through skydiving. By the time we’re through, buying stocks will be a piece of cake.
So at this point, you’ve filled out the forms, deposited the money that you set aside (whether a specific amount or just the minimum required by the firm) into the account. You should have been notified in some way that the cash you put into your brokerage account is now accessible; it is available to buy something. We’re going to bypass the specific stocks you have researched because this is beside the point for learning how to navigate the Web site of your brokerage to make a trade.
They will give you a username and password to give you initial access to your account. The password is often your social security number. Once you are logged on, you can change both of those, or at least the password to something easier to remember. Go to the “Preferences” section of the Web site, usually found in the “Account” link. If you can’t figure it out, there’s a HELP button or an 800 number for you to call.
Let’s say you want to buy XYZ stock, which is trading at around $10 a share. (I say “around” because a stock’s price fluctuates from minute to minute or even second to second.) You have deposited $1,000 into your new account, and it’s sitting there begging you to spend it. XYZ is a great company, with good prospects for 2007, which you know because you’ve researched it at cnbc.com, yahoofinance.com, forbes.com, marketwatch.com, thestreet.com, or msnmoney.com, or by talking with others, or reading articles, etc.; there are many places to do your research.
Now, back to the navigation/how-to instructions: So, the analysts are saying that it might even double, go to $20 a share by the end of the year. You can’t wait to own a piece of the action, so you’re going to buy some shares.
Here’s where simple math comes into play. (I said “simple,” so don’t panic.) If the stock is trading for around $10 a share and you have $1,000 in your account in cash — that means you can buy approximately 100 shares, right? (See how easy.) But hold on, you also have to pay a commission to the brokerage firm for your transaction. So maybe you’re only going to get 99 shares. If you want to be safe, you could buy only 95 and let the balance sit in the money market (cash) account connected to your brokerage account. (Every brokerage account you open has a money market connected to it. No transaction is exact to the penny when you buy stock, so that extra amount, however small, has to have a place to sit. Or if the stock pays a dividend, the money can be deposited into this segment of your account. Just think of it as a savings account attached at the hip to your stock account.)
On the Web site screen, you click on the link called “Trade.” Each brokerage firm has a different look, so you’ll have to study your own to become familiar with it. This should put you in front of a screen that has a few boxes requiring information. The information you’re going to put in is usually located where it says “Stock Order Entry” or “Stocks,” or something similar.
The first thing it’s going to want to know is whether you’re buying or selling stock. Obviously for the purposes of this article, you’re buying. Click in the “buy” window to highlight or check it.
It will also ask you about the quantity, the number of shares you’re going to buy. Put that number (we said 95 shares) in the box. Next is the symbol of the stock, which you need to know before you make the trade. Put in XYZ. Today you’re going to choose “market” as the order type, which is the next box. Next week we’ll talk about the different kinds of orders you can use. When you choose “market,” the stock price goes away, because the trade is going to execute at whatever price the stock is selling for when your particular order gets to the front of the buying line.
Within a few seconds, you should be able to see the trade you made. You did it! There’s still a lot more to learn about trading online, so meet me back here next week.
Now think about going skydiving, you daredevil, you!