The Basics of Stocks Investing Part 6

Note from Marj: This fantastic series of posts is contributed by The Investment Club Network (TICN). TICN GB Ltd kindly agreed to help us with our financial education so TICN will be running a mini-course about investing here in easisell.com/blog! We’ll publish one article every 4 days so you can learn in bite-size chunks.

I can personally vouch for the quality of support and education TICN offers – it’s world class and they are really serious about working with you towards your financial freedom. If you really want to be financially free but never took the time to learn how to invest, now is the time. I strongly urge you to commit to this mini-course and start investing in yourself and in your financial education now!

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Course Contents

Financial Literacy is a pre-requisite to Success

Types of Accounts and Orders

You’ve learned what a stock is and a little bit about the principles behind the stock market, so how do you actually buy the stock? There are two ways:

Using a Brokerage Firm

The most common method to buy and sell stocks is to use a broker. Brokerage firms come in many different shapes and sizes. There are big well-known “full-service” brokerage firms such as Merrill Lynch and Goldman Sacks, as well as a incredible number of well-known “discount” brokerage firms such as E-Trade and Charles Schwab. There are also a multitude of no name brokerage firm of both full and discount services. In the full course TICN offers, we discuss the pros and cons of each in our Broker Basics tutorial.

When you use a brokerage firm, you have the choice of setting up a cash account or a margin account. Having a margin account meaning you can borrow money from the brokerage firm to buy stocks. We also discuss margin in more detail in the full course we offer.

DRIPs & DIPs

Using Dividend Reinvestment Programs and Direct Investment Plans Dividend Reinvestment Plans (DRIPs) and Direct Investment Plans (DIPs) are the official names for what many people refer to as Drips. These are plans in which individual companies allow shareholders to purchase stock directly from the company with only minimal cost or commissions. Drips are great for those who have small amounts of money but who are willing to invest it at regular intervals.

Placing the Trade

In order to make your trade you’ll have to be specific how the stock should be traded. The following terms are common terminology you’ll encounter:

Day Order:

An order that expires at the end of the business day if it has not been filled.

GTC (Good Till Canceled):

An order either to buy or to sell a stock that remains in effect until the customer cancels it or until it is executed by the broker. Some brokerage firms cancel these orders after 90 days check with you firm on their company policy.

Limit Order:

An order to buy or sell at a specified price or better. This type of order allows you to set the price you will buy or sell a stock at. Remember the danger of a limit order is you might not get filled.

Market Order:

An order that requires immediate execution. When you place this kind of order you are saying I want to buy this stock immediately at its current price, or sell this stock now at the curent selling price. If you have acces to real time quotes, you will have a good idea what price you will receive with your market order. If you don’t, trading stocks with market orders is not the smartest thing to do in most cases.

Stop Loss Order:

An order that is lays dormant until the stock trades at a specified price, once the stock trades at the specified price the order is triggered and becomes an active market order. Remember the danger of a market order is the buy or sell price is unknown, but the execution is guaranteed.

Stop Limit Order:

An order that is lays dormant until the stock trades at a specified price, once the stock trades at the specified price the order is triggered and becomes an active limit order. Remember the danger of a limit order is that it my not get filled.

All or None (AON):

A stipulation on a limit order either to buy or sell a stock only if the broker can fill the entire order and not part of it. If the order is not completely filled by the end of the business day it is canceled.

Fill-or-Kill:

A stipulation on a limit order either to buy or sell a stock only if the broker can get an immediate execution. If it cannot be filled immediately the order is automatically canceled.

Conclusion

You now know more about stocks than the average person… Don’t let it go to your head though, this tutorial was meant to provide a basic foundation for understanding what a stock is, the general principles behind the stock market, stock exchange, and the methods by which to purchase a shares of stock. This tutorial just scratches the surface. It is the snowflake on the tip of the iceberg. Over the coming weeks, months, and years you will learn more than you could ever imagine. Remember the old saying “The journey of ten thousand miles begins with a single step”. Congratulations on taking the first step!

As you know, you have barely scratched the surface. If you’re really serious about learning to invest, keep posted as we run our next series of entries, this time dealing with the process of shorting stocks and how to trade options.

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The Investment Club Network provides financial education, coaching and support. We organise educational seminars to help you understand the world of investment – and show you how to invest wisely and profitably. We help you understand how prices move, what factors affect them and by what mechanisms the markets reflect these changes.
Our aim is to outperform the stockmarket month on month thereby giving members real increases in asset values. So whether you wish to learn how the stock market operates, trade online yourself, become an accomplished ‘Self Investor’ or become a member of one of our ever expanding number of clubs, TICN can deliver this to you.

The Basics of Stock Investing – Part 6