How do I buy or sell shares?

Wednesday, June 11, 2008

In my previous post, I discussed the concept of shares (company ownership). Some may be thinking how can I purchase shares of a company? Well the answer is through a brokerage firm. A brokerage firm is a company that is licensed to buy and sell shares of stocks on behalf of its clients. You must open an account with one of these firms and put some initial cash into your account in order to buy or sell stocks.

Today, you can open an account with an online broker which provides you the ability to place orders using your computer and an Internet connection. Etrade, Charles Schwab, and TD Waterhouse are examples of online brokerage firms. Typically these firms do not provide specific investment advice, however, they do offer company research reports to aid you in your analysis of a particular company.

Above, I referred to placing buy and sell orders. What is meant by this? An order is the intention to buy or sell a specific number of shares of a specific company. Think of it like this, if you go to a nice restaurant and your waiter asks you what would like to eat and you reply with a salad, grilled salmon and a Coke. You have placed an order. Its the same with buying or selling stocks. First you must identify which company you want to buy or sell. For example, let's say McDonald's is your choice. Next you must identify what type of order; buy or sell. Then you need to indicate the number of shares you intend to buy or sell. OK, lets see what we have so far. You want to buy 10 shares of McDonald's, but there is one thing missing. How much is this going to cost? Well that depends on the price of a single share of McDonald's.

Where do you get this information? The share price of a specific company stock is called a quote. In order to get the price (quote) you must know the ticker symbol for the company in question. A ticker symbol is an abbreviation used to identity a specific company. Every company that has shares for sale will have a ticker symbol. In our example, McDonald's ticker symbol is MCD. You can obtain quotes and symbol lookup information from your online brokerage account. Google and Yahoo also provide this information quotes.

In a future next post, I'll talk about how share prices are determined. After looking up the quote for McDonald's, we see the share price is $25.00. So the total cost of buying 10 shares of McDonalds is:

  • $25.00 Dollars
  • X 10.00 Shares
  • -----------------
  • $250.00 Dollars (plus commissions)

$250.00 is not the final cost of your order. You must also pay a fee (referred to as a commission) charged by your broker to place the order on your behalf. Another way of saying the same thing is, you must pay a commission to your broker for executing this trade. Commissions range from $8 to $20 for a single order with an online broker.

Share - A single unit of ownership of a particular company.
Stock - most often used with the same meaning as 'share'.
Order - Instructions to buy/sell a specific stock.
Trade - same as order
Commissions - a fee charge by the broker for executing your order.

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