How To Buy Stock Directly – Shares are a type of security that can be sold to raise money to start a new company or to expand an existing company.
When you invest in shares, you take ownership of the company and a share represents a claim to a portion of the company’s assets and earnings. You own the individual security you purchased until you sell your shares.
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Shares are also called “securities” and the people who buy them are called “investors” or “shareholders”. The terms “shares” and “shares” are synonymous and are commonly used interchangeably in the financial market.
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Stocks are generally considered riskier investments than cash or bonds because their value can change quickly. However, the incentive is that they can offer higher potential long-term returns. Some investors may need this high potential return to achieve investment goals.
We have all heard the term “stock market”, but what does it mean? Let’s review some basic definitions to understand how and where stocks and shares are traded. Shares may be more suitable for investors who want to trade more actively than buy and hold for the long term.
“Stock market” is a general term used to describe the entire system of buyers and sellers of stocks, shares, stock exchanges, and all over the world.
If the stock market is a sport, stock markets are stadiums: where (and how) the action takes place. They provide infrastructure and services to brokers and traders to buy and sell stocks, shares and other marketable financial assets called “securities”.
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You will find stock exchanges around the world such as Toronto Stock Exchange (TSX), New York Stock Exchange (NYSE), Nasdaq, London Stock Exchange (LSE) and Japan Exchange Group (JPX).
A share index shows the total value of a particular group of shares and is updated continuously throughout each trading day. These indices are based on national groups or equity sectors (energy, consumer staples, healthcare, etc.). The S&P/TSX Composite Index is a well-known example of an index and represents stocks traded on the Toronto Stock Exchange (TSX).
By tracking the performance of a specific index, such as the S&P/TSX Composite Index, we can get a sense of the overall health of the Canadian stock market. The S&P 500 index performs a similar role in the United States. To buy shares, you usually need the help of a stockbroker because you cannot call a stock exchange and ask to buy shares directly. When you use a stockbroker, whether it’s a human or an online platform, you can choose the investment you want to buy or sell and how the trade is handled.
In this spirit, there are two broad categories of brokers to choose from: a full service broker or an online/discount broker. Below we discuss how you can use these options to trade stocks on your own.
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We also talk about a third option: the Direct Share Purchase Plan (DSPP), which allows investors to acquire shares directly from certain public companies. It allows you to buy stocks online without a broker; However, this option is limited in its usefulness as you must manage DSPPs for each company you own stakes in, rather than gathering your entire portfolio in one location. Additionally, many online brokers today offer commission-free stock trading, which is often an easy and cost-effective solution.
Most of the time, stocks are listed and traded on exchanges, licensed platforms where buyers and sellers meet, often with the help of a broker or other intermediary. These intermediaries are members of the exchange and use their access to buy and sell shares on your behalf. Major exchanges in the United States include the New York Stock Exchange (NYSE) and the Nasdaq market.
Smaller companies with less liquid stocks and smaller market capitalizations (sometimes called penny stocks) may alternatively trade over-the-counter (OTC) on more loosely regulated platforms such as OTC Pink Sheets. Shares of these companies are often more volatile and risky, so investors who choose to trade in the OTC market should engage in extra due diligence and understand the risks involved.
Full-service brokers are what some people think of when investing – well-dressed business people sitting in an office and chatting with clients. These are traditional stock brokers who take the time to get to know you personally and financially.
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They look at factors such as marital status, lifestyle, personality, risk tolerance, age (time horizon), income, assets, debt and more. By getting to know as much about you as possible, these full-service brokers can help you develop a long-term financial plan.
These brokers can help you not only with your investment needs, but also with estate planning, tax advice, retirement planning, budgeting and other types of financial advice – hence the term “full service”. They can help you manage all your financial needs now and in the future and for investors who want it all in one package.
In terms of fees, full-service brokers are more expensive than discount brokers, but having a professional human investment advisor by your side is worth the extra cost. Accounts can be set up today for as little as $1,000. Most people, especially beginners, fall into this category in terms of the type of broker they need.
Those who want a set-it-and-forget-it approach to investing but don’t have the money or time to hire a full-service broker can choose a roboadvisor. These are algorithmic investment platforms that you can manage through an app or website at a fraction of the cost of a traditional financial advisor.
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Online/discount brokers, on the other hand, do not provide investment advice and are basically order takers only. They are much cheaper than full-service brokers, usually don’t have an office to visit, and don’t have certified investment advisors to help you. Costs are usually based on a per-transaction basis, and you can usually open an account on the Internet with little or no money down. When you have an account with an online broker, you can usually log into their website and into your account and buy and sell stocks instantly.
Remember that you are on your own to manage your investments, as these types of brokers certainly do not provide investment advice, stock tips or any type of investment assistance. The only help you usually receive is technical support. Online (discount) brokers provide investment related links, research and resources. If you feel you have enough knowledge to take on the responsibility of managing your own investments, or if you know nothing about investing but want to teach yourself, this is the way to go.
The bottom line is that your choice of broker should be based on your personal needs. Full-service brokers are great for those willing to pay a premium for someone else to handle their finances. Online/discount brokers, on the other hand, are good for people with little starting money who expect the risks and rewards of investing on their own without professional help.
Sometimes companies (often blue-chip companies) sponsor a special type of program called a Direct Share Purchase Plan (DSPP). DSPPs were originally created generations ago as a way for companies to allow small investors to buy ownership directly from the company. Participating in a DSPP requires an investor to engage directly with a company rather than a broker, but each company’s system for managing a DSPP is unique.
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Participating companies offer their DSPP through transfer agents or another third-party administrator. To learn more about how to participate in the Company’s DSPP, an investor should contact the Company’s Investor Relations Department.
Once you’ve chosen your brokerage platform, you’ll need to create and fund an account before you can start trading. Today, it’s easier than ever to link a bank account online and transfer funds or transfer an existing brokerage account electronically to another company. You can also opt for recurring deposits in your brokerage account to grow your portfolio on a regular basis.
Once funded, go online or call your broker to place a trade. Stocks are designated by a unique ticker symbol, a one- to four-letter mnemonic assigned to a particular company. For example, MSFT is a Microsoft Inc. ticker, and AAPL is the ticker for Apple Inc. If you don’t know your stock’s ticker, it’s easy to look it up online or through your broker.
When you select the stock ticker you want to trade, you are greeted with a price quote, stock price and information about the activity. It shows you the last price the shares traded at, as well as the bid and offer. The bid is the highest price someone will buy a share in the market (and the best price you can sell it to them). That
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