Investing 101 - An Introduction to Stocks and the Stock Market
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Investing 101 - An Introduction to Stocks and the Stock Market

Investing in Stocks is not as hard as people take it to be, with a little help and useful resources, learning to invest in the stock market can be understood by just about anyone.
This intro to Stocks and the Stock Market has been created for the readers of AllPennyStocks.com, this page will teach you the basics to the Stock Markets and buying your first company shares.
At any time if you don't know a term being used, go to our Glossary page located here.

The first part of the page is on the basics of buying stocks:

Stock Brokers
Full Service Stock Brokers
Discount Stock Brokers
Buy Orders
Sell Orders
Special Trading Notes
Unfilled Orders
Partial Fills
Canceling and Changing Open Orders
Margin Accounts

 

Stock Brokers
To start investing, the first thing you have to go out and find is a stock broker. A stock broker is a person or company that does the actual buying and selling of your shares on the stock market. When you find a stock broker, the first thing you must do is open an account such as you would at a Bank. The difference is this account will not only hold your money but it will also hold other investments such as Stocks, bonds and mutual funds. When you buy shares of a company, money will be taken out of your account and changed over to company shares. When your selling company shares the opposite will occur, your company shares will be changed over to money. Before this sounds confusing, you should know that there are two types of Stock Brokers: discount and full service brokers. The differences are explained lower.

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Full Service Stock Brokers
Full service brokers will give you advice and investment recommendations. But there is a price to pay for these recommendations, they do have very high commission fees and are usually only suitable for investors who have a great deal of money to invest and who do few trades. If your more into the excitement of Penny Stock investing which by the way is our specialty, then full service brokers will probably be too expensive for you, you might end up paying the broker most of your profits. You may be required to pay as much as $100 or more to have your full service broker buy you some shares, and just as much again when you sell.

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Discount Stock Brokers
Discount brokers can answer any investment questions you may have, but they offer fewer personalized services for their clients, such as making stock recommendations or giving you portfolio advice. These are the brokers that advertise trade very low trade commission fees such as 10 dollars a trade. When you buy or sell stock, you will be paying this lower commission rate, which results in you, the investor, making more money.

As well, with discount brokers you can often monitor your account and execute trade orders from your computer or through an automated telephone system. With the computer system you are able to see all of your open buy orders, check market indexes and get stock price quotes. There is also plenty of research and other analysis that these discount brokers offer to their clients. Online discount brokers are best for anyone investing in penny stocks, as you are able to check prices anywhere there is Internet access, and as many times as you like throughout the day. Usually all research as well as stock quotes and other market info is free if you are a client.

When you’ve chosen which broker you want to establish an account with, simply contact them and they will help you fill out any forms and set up your account. You generally will need an initial deposit of cash. Getting your account running and ready for trading is simple and should not take more than three days.

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Buy Orders
When you want to acquire shares of a stock, you give your broker a buy order. Make sure you have enough money in your account to cover the cost of the shares, as well as the commission fee. You will need to know the following;
  1. The ticker symbol of the stock (i.e.- YHOO is the ticker symbol for Yahoo! Inc.)
     
  2. The market the stock is trading on (i.e.- NASDAQ)
     
  3. How many shares you want to acquire. This is also referred to as the volume. With penny stocks you should always buy in multiples of 1000 shares, as you may be otherwise subject to extra commission charges from your broker.
  4. The price you are willing to pay for the shares.
  5. The duration of your order. For example, you may keep your order good for just that trading day, or have it good every trading day until it expires on the date you specified, which may be weeks later.

Thus, an example order you might enter would be; “I wish to buy 6000 shares of Alternative Fuel Systems Inc., ticker symbol ATF, at 1.30 cents or less. The stock is on the Toronto Stock Exchange, and I want this order to stay active until Friday of this week.”

If the price of ATF hits 1.30 cents or less, your broker should acquire the shares for you. You will find that 6000 shares of ATF have been added to your account, and the money for them has been taken out (6000 shares x $1.30 = $7800 + commission fee).

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Sell Orders
A sell order is simply the reverse process of buying. Make sure you know how many shares you have in your account when selling a stock. Tell your broker; I wish to sell the 6000 shares of Alternative Fuel Systems Inc. from my account. The ticker symbol is ATF, and the stock is on the Toronto Stock Exchange. I want to sell at 1.50 cents or higher, and keep the order good for the rest of this week.

If the price of ATF hits 1.50 cents or higher, your shares should be sold and the money from the transaction (6000 shares x $1.50 = $9000 - commission fee) deposited into your account within three days, ready to be used in another purchase.

When you have made your first stock buy and then sell, check out the AllPennyStocks.com Stock profit or loss calculator located here. As you can see, if you were to have bought 6000 shares of ATF at $1.30 and sold the 6000 shares at $1.50 after a buy commission of $20 dollars and a sell commission of $20 dollars, then you would have made $1160.00 dollars profit!

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Special Trading Notes
When trading on an exchange, investors either enter a bid price (if they are buying) or an ask price (if they are selling). When a bid and ask price meet at an agreed price, a trade takes place. In other words, if you are willing to pay 24 cents per share for a stock, and someone is willing to sell shares of the same stock for 24 cents, you will exchange the shares for the cash.

At any one time there are usually several buy orders and sell orders all at different prices for a given stock. However, when you check a stock quote you will only see the highest bid price and the lowest ask price, representing the most that investors are willing to pay for the shares, and the lowest price at which shareholders are willing to sell, respectively.

Due to the ‘best price’ priority, your order to buy stock will not get filled until all buy orders of a higher price are filled first. Similarly, your sell orders will not get filled until sell orders of a lower price are filled.

For orders to buy (or sell) stock that are entered at the same price as other similar orders, preference will be given by the exchange in the order in which they were received.

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Unfilled Orders
Due to the above mentioned ranking order, and the often light volume of shares trading, you may not always get your order filled. You may put in an order to buy at a certain price, and find that the shares did not trade at that price during the duration of your order, and therefore you did not make the transaction. There will be no broker fee when no trade takes place.

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Partial Fills
You may also find that you got your order partially filled. You may want 8000 shares of a stock, but only get 3000. This is because only 3000 shares were available at the price you had requested. This applies to both buying and selling. If you see that this may be the case mid-day, you can respond by adjusting the price of your order to ensure you trade all the shares you want. You will not get an extra commission for that. However, if your order goes for several days and is partly filled on more than one day, you will get a commission charge from your broker each day you trade shares.

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Canceling and Changing Open Orders
Buy and sell orders can be canceled or changed during their duration. Consult your broker for more information about changing open orders.

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Margin Accounts
You may also want to open up a margin account when you are opening a trading account. A margin account is basically a account that lets you, the investor loan money from your brokerage firm to pay for stocks. But there is a catch, when you lend the money from the brokerage firm you have to pay them interest from the money they lent you. Also not all stocks are marginable, your broker can tell you if the stock your interested in is marginable or not. Usually stocks traded under $1.50 a share or in other words penny stocks, are not able to be bought on margin.

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For more info on investing and the stock market, you may want to read (No insult intended, this is the name of the book!):

The Complete Idiot's Guide to: Making Money on the Canadian Stock Market