How do I buy stock?

Cheat Sheet:

  • You buy and sell stock through a brokerage firm.
  • Most people use online/discount brokerages.
  • You can buy stock in whole or fractional shares.

A brokerage firm is a company that is licensed to buy and sell stocks. Brokerages provide you with a connection to the stock market and charge a commission when you make a stock trade.  Some brokerages charge you just to have a brokerage account.  A broker is a stock salesperson.

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When should I start investing?

Cheat Sheet:

  • Start as early as you possibly can
  • Invest for the long haul
  • Don’t wait until you can afford whole shares.  Fractional shares make it easy to start with only a few dollars.

You’ve heard the saying, “Buy low, sell high,” right?  People on Wall Street would love to be able to say, “I’ll buy this stock today because it’s going up tomorrow.”  Unfortunately, that crystal ball doesn’t exist.  No one can time the market, so don’t bother trying!

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What is an IPO?

Cheat Sheet:

  • IPO stands for initial public offering.
  • It is when a company first sells its stock to the general public.
  • In an IPO, a stock begins trading on a stock exchange like the NYSE or Nasdaq.

When a company is young, its owners are usually a small group of people that have a connection to the company (founders, employees, and investors).  The company’s stock is  “privately held.”  Most companies stay that way, but some grow to the point where they sell shares in the company to the general public.  This is called an IPO, or initial public offering.

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What is the stock market?

Cheat Sheet:

  • After the IPO, shares get traded (bought and sold) directly between investors on the stock market.
  • The stock market is where stocks are traded. 
  • Stock isn’t sold at a fixed price.  The stock market is a giant auction with prices constantly changing due to supply and demand.

When you buy stock on the stock market, you aren’t buying it from the company – you’re buying it from an existing shareholder. Likewise, when you sell your shares, you’re not selling them back to the company – you’re selling them to some other investor.

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Why do stocks go up and down?

Cheat Sheet:

  • Supply and demand.
  • Prices go up when there are more buyers than sellers.
  • Prices go down when there are more sellers than buyers.

Very simply, stock prices go up and down due to supply and demand. But what exactly causes changes in supply and demand?  Here are a few of the things that may lead to a stock going up or down:

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