Are you considering buying shares for the first time and want to know how to go about it?
This article will explain various ways of buying shares, including buying shares online without a broker, the cheapest way to buy shares and how much money you need to buy shares.
“Most people get interested in stocks when everyone else is. The time to get interested is when no one else is. You can’t buy what is popular and do well” – Warren Buffet
Buying shares can be a great way to make money or even save money, depending on which way you look at it. In fact, investing regular savings into shares can be a very effective strategy; here’s why: Think about the way you currently save money. You might be putting $500 per month away into a savings bank account? or tucking hundred-dollar bills underneath your mattress? By doing either of these, you are losing so much in potential earnings. Plus, how often do you dip those sneaky hands of yours into your savings when you’re a bit short of cash?
The beauty about investing in shares is that, as a whole, they tend to earn more for you than your bank account will over the long-term AND you’re less likely to do a sneaky transfer for a holiday or night out on the town because selling down shares takes a few days and will cost you a little.
Another benefit of buying shares as part of a regular saving plan is what’s known as dollar cost averaging. Dollar cost averaging refers to the fact that, by buying a parcel of shares say, every month, you are averaging out the price that you buy the shares at and effectively reducing the risk of entering the stock market at the wrong time. For example, if this month you bought 80 shares in a company trading at a price of $25 and next month you bought 80 shares in the same company, but it’s price had dropped to $22 and then in the month after you again bought 80 shares in the same company trading at a price of $24, then the average price you paid for your 240 shares was $23.66. Dollar cost averaging smooths out your purchase price.
Anyway, let’s get into it and start answering some of those burning questions you have.
How Much Money Do I Need To Buy Shares?
Great question! Because this really is the starting point, isn’t it? You need to know that magic figure you need to save towards before you can buy your first parcel of shares. Well, currently the minimum amount of money that you need to buy your first parcel of shares is $500 – a very affordable sum. See, you’ll be buying shares in no time!
How To Buy Stocks and Shares on the Stockmarket
Okay, so you want to know how to start buying and selling shares. There are two main ways of buying shares.
Your first option is to get in touch with a stockbroker. A stockbroker serves 2 purposes. Firstly, they have the ability to (and are licensed to) buy and sell shares on the stock exchange on your behalf. Secondly, they can provide you with advice on which shares you should be buying and selling.
All stockbrokers will charge a fee known as ‘brokerage’ for buying and selling shares – even if they do not give you any advice on which shares to buy and sell. If you know which shares you want to buy or sell, you can instruct the broker directly to carry out your wishes. This is known as an ‘execution only’ service. An execution only service may be cheaper than a full stockbroker service, because it doesn’t come with recommendations on which shares to buy and sell.
There is likely to be a stockbroking firm in your local area. So, if you prefer speaking with a real person and aren’t too good with the internet or technology, then a stockbroking firm may be your best option. Google ‘stock broker’ followed by your suburb/city.
Option 2 is to sign up online with an online broker. This allows you to buy shares online without a broker (well not a real stockbroker person anyway). Simply type in ‘Online Broker’ into Google and you will be spoiled for choice with online broker companies; I’m sure some of them will even sound familiar to you. Just make sure you choose an online broker who deals in your country’s stock market. Click here for a list of the world’s Top 20 stock exchanges.
Once you have set up an online broker account you can begin buying and selling shares on an execution only basis. However, if you want some advice on what to be buying and selling, you might consider subscribing to a stock research provider where you can get daily, weekly or monthly recommendations and tips on which shares and companies your should be buying and which ones to sell. Simply type in ‘Stock Research Subscriptions’ into Google and you will have plenty of stock research companies to choose from. Just make sure they are providing research on for the market that you will be trading in.
Another way of buying shares on the stock market is when a company intends on listing for the first time. So, when a private company decides to become a public company for the first time, they will issue a prospectus with ability for the public to buy shares in the company before it lists on the market. This is how to buy shares in a company directly.
There you have it. That’s 3 different ways how you buy shares on the stock exchange.
Cheapest Way To Buy Shares
Buying shares via an online broker account is generally the cheapest way to buy shares, because everything is systemised and automated. Just make sure you read all the disclosures and watch any tutorials provided by the online broker on how to buy and sell shares online. Once you’ve bought and sold shares the first time it becomes easy.
How Much Does It Cost To Buy Shares?
If you buy and sell shares through a stockbroker they will either charge a fixed fee or a percentage of the trade amount. This will depend on the stockbroker’s service offering and the value of the trade.
An example of a full-service stockbroker’s brokerage rates would be, say, $120 per trade OR maybe 0.5% of the trade amount (e.g. $250 on a $50,000 trade)
An online broker will usually charge in the same way, but will often be a lower cost that a ‘real life’ stock broker.
An example of an online brokerage rate would be, say, $19.95 per trade OR maybe 0.1% of the trade amount (e.g. $50 on a $50,000 trade).