How to Buy Stocks: A 5-Step Process for Beginner Investors

In the journey of stock investing, understanding the process of buying shares is the most fundamental step. This article will provide a detailed guide on how to purchase securities through 5 specific stages, from choosing a service provider to building a diversified portfolio.

Stage 1: Identifying a Reputable Stock Brokerage

The first step when deciding how to buy securities is to determine your investment account. Currently, investors have two main options.

First, investing through investment funds, where you do not directly buy or sell stocks but earn interest based on the fund’s trading results. This method usually involves higher costs and requires a larger initial capital.

Second, opening a trading account with a stock brokerage firm, allowing you to place buy and sell orders directly according to your own intentions. This is the most popular form chosen by individual investors due to its flexibility and reasonable costs.

When selecting a broker, consider the following criteria:

Licensing and supervision: The broker must be authorized and supervised by international financial regulatory agencies (such as ASIC, FCA, CySEC, IFSC).

Asset types: Choose a broker that offers a variety of trading instruments (forex, stock indices, stocks, commodities, cryptocurrencies, bonds, ETFs).

Deposit/withdrawal fees: Prioritize brokers that do not charge fees for deposit/withdrawal transactions, supporting multiple payment methods (bank transfers, e-wallets, credit cards).

Trading tools: The platform must provide a web-based platform, professional mobile applications with technical analysis features.

Stage 2: Opening a Stock Trading Account

After identifying a suitable broker, you need to go through the account opening process to start buying securities. This process typically includes:

Registering basic information: Enter your email address or mobile phone number, set up a login password.

Identity verification: Provide detailed information about your identity, trading experience through survey questions.

Document verification: Verify your identity and income information.

The identity verification process usually takes 1-2 working days. During this waiting period, you can use a demo account to practice trading. This trial account provides price data and security types identical to a real trading account, helping you familiarize yourself with the platform and test strategies.

Once your account is fully verified, you can deposit funds and begin real trading. For new investors, it is advisable to start with a small amount to control risks.

Stage 3: Selecting Securities to Buy

After setting up your account, the next step is to choose suitable investment instruments. This process requires analyzing the market and financial data to forecast price movement trends.

In the stock market, there are three main product types:

Individual company stocks: You select specific companies to invest in. This approach requires time to research financial conditions and company valuation. The advantage is that company stocks tend to appreciate faster than index funds. You can buy multiple stocks to diversify your risk.

Mutual funds and ETFs: These tools offer diversification benefits. When purchasing fund shares, you own small parts of many different companies. For example, buying an ETF tracking a technology index means you own small parts of the technology companies within the fund’s portfolio.

Derivative securities: These are financial instruments whose value depends on the underlying asset. The key difference is that you can place orders in two directions to profit even when prices fall. Common types include (CFD) contracts, futures (Futures), options (Options), and swaps (SWAP).

Each product type suits different investment strategies and goals. Financial analysis-savvy investors often prefer analyzing individual stocks. Less experienced investors may seek safety by investing in funds and ETFs without deep analysis but still achieving diversification. Younger investors with higher risk tolerance might choose derivatives to maximize profits.

Stage 4: Applying Trading Strategies with Order Types

Order placement methods are equally important. After selecting securities, you need to place orders that can be matched on the market. There are four common order types:

Market Order (Market Order): Buy or sell stocks immediately. This type guarantees execution but not the exact price. It is usually executed at or near the current market price. For highly volatile securities, the displayed price when placing the order may differ from the final execution price.

Limit Order (Limit Order): Buy or sell at a specific price you set. For example, if you want to buy Apple stock at $10, you place this order, and it will only execute if there is a sell order at that price. Limit orders do not guarantee execution but ensure the transaction occurs at your specified price if matched.

Stop-Loss Order (Stop-Loss Order): Set to lock in profits or cut losses. When you hold a position and are uncertain about future trends, this order automatically executes if the market moves against you, limiting maximum loss.

Trailing Stop-Loss (Trailing Stop-Loss): An upgraded version of stop-loss, where the execution price moves with the market price instead of a fixed level, helping to optimize profits when the market is favorable.

Market and limit orders are initial strategies when establishing a position. For highly volatile stocks, using limit orders is better because the market can easily fluctuate to your desired price. Conversely, for less volatile securities, market orders ensure execution.

Stage 5: Building a Diversified Investment Portfolio

The final step for successful stock investing is to focus on diversification. You should build a solid foundation by owning securities from many different companies.

A simple way is to invest in mutual funds, ETFs, or stock indices. For example, investing in the S&P 500 index means owning a small part of the 500 largest US companies, saving time on analyzing each company.

Beyond diversification within the stock market, you can diversify across different financial instruments. For instance, during the Covid pandemic, all stock markets declined sharply while gold markets increased. If your portfolio includes both stocks and gold, the overall decline will be less severe compared to investing in just one market.

Overall, diversification is an essential tool to reduce risk. However, you should also select quality securities for your portfolio; avoid investing in all stocks available on the market. The simplest approach is to invest in indices or investment funds—pre-selected portfolios of quality stocks.

Conclusion: How to Buy Stocks

Stocks are an excellent investment tool for beginners. Through the 5 stages above, you now understand how to buy securities — from choosing a broker, opening an account, selecting suitable instruments, applying trading strategies, to building a diversified portfolio.

Each step is important and contributes to long-term success in stock investing. We hope this article helps you clearly visualize what needs to be done when deciding to start buying stocks.