Buying Shares

Have you ever been asked this question ‘how to buy shares’?

Well, if you have then you would know that the answer depends on what you mean by this question!

The simple answer is the answer that tells you the mechanical way to buy shares in what you have to do step by step, but the first questions to ask are:

1. Why are you buying the shares?

Is it a long term investment based on fundamental analysis, such as projected industry growth, good management, recent developments and progress in the company, increasing demand?

Is it for a short term trade based on technical analysis?

In this case, based on chart patterns and price movements, you may want to buy the share in the hopes that it will go up. If it does, then you can profit, but if not then a stop loss will determine a price that you will exit for a loss.

2. Is it a one off procedure or is it a part of a larger strategy?

In other words are you doing a one off trade or are you trading regularly as an investment strategy? The answer will determine the next point to consider…

3. Do you need advice from a broker and financial adviser or are you trading with a trading system of your own?

However not all brokers may give good advice.

1. A full service stock broker.

These vary tremendously in terms of quality of advice. Some brokers advice with a hidden agenda in that they may get rewards for selling certain shares or some other reason why they want you to buy a share. Some have skill in the market place and keep up with what is going on and even trade themselves. You can ask them if they make money trading themselves. A full service broker also provides the ability for sophisticated investors to get into shares at special prices. In terms of commissions, a full service brokerage is often greater than the commissions when trading online.

2. An online broker.

These provide you with a trading platform to trade shares online but no personalised service.

This is mainly used by traders who are trading their own trading systems, buying and selling stocks on your own accord.

Then finally the details:

1. market order or a limit order?

A market order is at the current market price. A limit buy order is when you want to buy a stock when the market is or below this certain price.

2. stop loss order or not (the price you exit if the share price goes against you).

So as you can see, there are several things to consider.

Many online brokers trade in local and international shares. Whether you want to trade the Wall Street stocks or Australian or UK shares, then you can often do this on a single platform.

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