How do I buy stocks?

Buying stocks is a relatively simple process if you know what you are doing. The most important part of buying stocks is to be informed. You need to know what you want, who to hire, and how to trade effectively. Below are five simple steps to get started:

1. Educate yourself *- Know what the stock market is all about. Make sure that you understand the relationships between supply and demand. Know what causes stock prices to fall and what causes stock prices to rise. You need to know the relationships, advantages and disadvantages of short-term versus long term investments. Buying stocks is not something you want to jump into blindly.

2. Determine what you want - You need to determine what kind or risks you are willing to take. Remember that with high risk options your probability of making more money increases, but so do your chances of loosing money. Know what your time frame is. If you are planning for retirement and are 25 years old, you probably do not need to be very risky with your investments. If on the other hand you are 55 and just starting to invest for your retirement, you need to be taking risks and hoping for the big returns. Know what kinds of financial markets you are interested in. If you are trading in high-tech markets and know little about technology, you probably will not be able to insightfully anticipate when it would be advantageous for you to buy or sell.
3. Choose a broker - Brokers come in two main forms: Full service and Discount.
Full Service - A full service broker is at your beckon call. This broker is paid well to keep you informed and to give you specific investment advice and council. A full service broker provides you with pertinent information backed up by research done by the firm he works for. A full service broker is paid by you through a set percentage and commission rate.
Discount - A discount broker is less hands on. You have access to the broker firm's research, but you must dig for whatever information applies to you. You rarely have an actual relationship with a broker and most transactions are done electronically. With a discount broker the fee is usually $9-$19 a trade. Most people who are not making huge investment decisions choose to go with a discount broker.
4. Set up an account - Once you have chosen what type of broker you will need and what firm to go with, you will need to set up an account. Account information varies by firm but will always ask for personally information, investment plans/choices and for a method of payment. In addition to paying fees based on trades, there is usually an initial account activation fee. Be careful to review all the fees associated with the firm you decide to join. Unexpected fees can take a bite out of your profits.
5. Begin buying, selling, reviewing statements - Starting to trade is only the beginning. You must actively manage your investment accounts if you are going to increase your assets.

*Part of educating yourself is knowing what certain trading terms mean. You can save yourself a lot of trouble and heartache if you know what options are available to you. Review the following few trading terms:

Market Order - A market order indicates to your broker that you are willing to pay any price for a particular stock.
Limit Order - A limit order set when you have a specific amount in mind that you are willing to spend. When the price goes below the limit order the trade is automatically placed.
Day Order - A limit order that applies for a single day.
Good Until Cancelled - A limit order that remains effective for an indefinite period of time.
Stop Loss Order - A stop loss order indicates to your broker to sell a stock you currently own if it depreciates below a certain level. Doing this insures that you never loose more than you have previously decided on.

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How do I buy stocks?