Buying stocks isn't
hard, but the process has its own rules, its own language and a special
cast of characters.
What are Stocks?
A Certificate whose value is recognized by the investor and the organization,
in other words they are also called as payer and payee. Stocks are also
called as scrips. Scrip is not currency but may be convertible
into currency. It is a formal declaration that documents a fact of relevance
to finance and investment for which the holder has the right to receive
interest or dividends.
To purchase stock, you we normally use a traditional or online brokerage
firm. . Its an investment firm that is licensed to buy and sell
securities. These firms are licensed by the Securities and Exchange
Commission which is also known as the SEC. These firms from which we
you purchase stocks are called as Broker Dealers.
There are a lot of brokerage firms that extend their services to the
customers apart from buying and selling stocks. They offer research
based services. These researches are conducted by them from time to
time on the changing market conditionsThey offer research based services
based on the changing market conditions from time to time. These information
are very useful for the customers when they place orders for stocks.
They also develop long term and short term investment goals for their
customers. This helps the customer to know what his portfolio comprises
These people carry out transactions for their clients. . They do not
offer comprehensive services like the discount brokers. They offer only
less personalized services. The commission charged by them is very less
when compared to the full service brokerage firms. There are deep discount
brokers whose commission is very less when they trade with experienced
investors who deal in large blocks of stocks.
Apart from the above methods of purchasing stocks which is conventional,
customers can also trade in securities online. There are a lot of established
full-service brokerage firms and discount brokerage firms who offer
substantial discounts to their customers who buy and sell online. .
Commission and where does it go?
The brokers generally charge a commission for the orders placed by the
customers, be it buying stock or selling stocks. The commission you
pay for it is divided by a prearranged contract between your broker
and the brokerage firm. The commissions and any additional fees are
generally set by the firm, however your broker maybe able to give you
a concession or a leverage on the fees if you trade with them very often
and in large volumes. Generally the norm goes this way higher
the standard fee, the more you negotiate.
Different Ways to Purchase Stocks
You may also be able to buy stock directly from the company that issues
it. . You can purchase it through a Direct Stock Plan or a Dividend
Reinvestment Plan which is also called as the DRIP. . A lot of large
organizations offer these plans and charge a minimal fee to handle all
Purchase through a Broker / Mediator:
Even though we you probably use the term broker / mediator to describe
the professionals who buys and sells stocks, the financial markets use
titles to describe more precisely the ways all the stocks or scrips
They are as follows:
They handle, buy and sell orders placed by individual customers and
clients :. They usually charge a commission on each transaction
however they also sometimes receive an annual fee based on the value
of the clients / organizations account
Dealers : These people buy and sell stocks for their own or their
firms account. . They help to keep the market liquid. Dealers
make their money on the difference between what they pay to buy a security
and the price they get for selling it. These people normally have sound
knowledge about the markets
Traders : They are also called as registered traders or competitive
traders . They buy and sell stocks for their own portfolios.. The term
trader also describes those employees of brokers / dealers who handle
the firms stocks trading
Types of Orders
When the Customer places an order to buy or sell a particular stock
at that current price, which is called the current market price, the
customers order is called a market order.. The price he pays
(or what he gets) is usually the same or close to the quote hes
been given when he places the order.. It totally depends on how quickly
the transaction is handled and how actively the stock is traded.
There are two other types of orders which is called a Stop Order and
a Limit Order.
Stop Order: This instruction is given by the customer to the broker
to buy or sell stocks once it hits a specified target price.. This specific
target price is called the stop price.. Stop Orders are generally placed
to curtail the losses or protect the profits made till then on those
stocks.. Their disadvantage is that, they maybe executed at a price
higher or lower than the stop price since the stock trades at the current
market price after it hits the stop price.
Limit Order : This instruction is given by the customer to the
broker to buy or sell stocks only at a specific price or better. . This
price is called the limit price.. A limit order is not a market order.
So the customers will pay more or sell for less than he wanted,
however if the prices changes quickly, the customers order may
not even go through even if the price was actually at that limit for
What is a Good till Cancelled (GTC)?
Normally when a customer places a stop order or a limit order, the broker
will ask him if he wants a Good Till Cancelled. . This is also called
as a Day Order.. A GTC traditionally lasts until it is either filled
or the customer cancelled it. . A few firms keep them on their books
only for 90 days before they expire. . These kinds of orders are canceled
cancelled automatically if its not filled by the end of the trading
However the customer cannot place a Stop Order or a Limit Order if he
is buying stocks directly from the organization. This is an arrangement
which can be facilitated only when he buys stocks from a broker.
Investments play a huge part not only in an organization, but also for
individuals. . Careful planning is required before making an investment.
A customer or an organization must carefully analyze the different methods
in which an investment can be made and the most cost efficient and most
profitable method must be taken into consideration. A detailed market
analysis must be made before making an investment. There are brokerage
firms who cater to these services. . A customer must make efficient
use of all the services provided to him. A careful investment and an
analytical one are sure to fetch the investor rich dividends.