Stock Markets Exposed - Stock basics?

Stock basics?

I'm interested in investing in the stock market (I've got my eye on some in the technology sector in the NASDAQ -yes I know it's risky). I have some basic questions. 1. Do you have to go through a broker to buy and sell shares? 2. If so what are the advantages/disadvantages of going to online vs physical brokers? 3. How much should you typically invest in any particular company or how many shares should you buy? 4. Do you invest a set amount of money or do you buy a set number of shares at a given rate? 5. Can you pick and choose who to buy shares off (as different sellers may be asking different prices at any given time) or is this the role of the broker? 6. What is the situation regarding taxes? What taxes do you pay on stocks (if any) and how is it calculated if they are? 7. When investing in foreign markets which use different currencies, what role does currency conversion play? 8. Terminology wise (briefly) what's the difference between a stock, share and a option?

Public Comments

Scottrade.com.....7 dollar trades
First, there are many books and magazine articles that answer your questions and give basic advice. You should check them out. Check out the discount brokers. They charge much lower fees, but its basically self service. The "real" brokers give advice and help. Commissions used to be set up so that you were penalized if you didn't buy and sell in 100 share "lots", but that's all changed. I don't think that the brokers care anymore how many shares you buy or sell. Its important to be diversified...own shares in several different companies. You have to pay income taxes on the dividends that you receive and capital gains tax on your profits. A stock and a share are basically the same. Options are more complicated and more risky. You have to do some studying before you get into options. If you are just starting out, stay in the United States, and consider some mutual funds.
1. A broker is needed. However, that can also be an online brokerage firm such as Fidelity, Schwab, Scottrade, etc. You don't have to talk to anyone if you don't want to. 2. Basic advantage of on-line is cost. Execution appears to be just as good if not better than going through a physical broker in most instances. You will avoid pressure tactics to trade as well as simply bad advice. You will miss out on good advice, if it's available. If you have to ask this question, I believe you're better off on line. 3. It's difficult to say how much to invest. It's different for different people, depending upon how much in total you intend to invest over how many companies. Sorry, but there isn't enough information to answer this point. 4. Both. It simply depends on what I'm trying to achieve at the time. 5. No. On the NYSE for instance, all trades go through the computer system and specialist. The buyers and sellers are blind. On the NASDAQ you won't know who the bid and asks are from unless you pay for the service. Again, if you're asking the question, you're probably not ready for that level of service. 6. Taxes occur on sales and taxable exchanges as well as from dividends and interest. Capital gains taxes will depend on your tax rate and holding period. 7. That depends on whether you are buying the shares on a local exchange (e.g., Paris) or ADS in NY. An example of what you mean would be helpful. 8. No difference between a stock and common share. An option is a completely different animal. It's a derivative investment that permits a leveraged return in exchange for high risk (the option will expire and it's either got to work within that time frame or you lose). With stock, you can wait as long as you like before selling.
1) It's far an away the easiest option available, though in some cases you can also buy stock direct from the company. 2) Online brokers are much, much cheaper. In fact Zecco (www.zecco.com) apparently has free commissions. 3) This depends on how much money you have. If you're investing a small amount its probably easiest to just buy index mutual/exchange traded funds (for example SPY or IVV will let you own a little of every stock in the S&P 500 for $150/share) 4) I always just buy a set number of shares at whatever the market price is. 5) You just put in an order to your broker and they do the rest. 6) You pay taxes on the total amount of capital gains (ie difference between buy and sell price of stocks) and dividends you make for the year. Losses you take on stock positions are subtracted from your gains-- so for example if I make $1000 on stock A, lose $500 on stock B and make $50 in dividends during the year, I owe tax on $550. Tax rates are dependent upon your tax bracket and how long you've held the stock. Taxes aren't taken out of your portfolio directly--ie you declare all this on your 1040 and send the IRS a check. 7) You can buy many foreign stocks on US exchanges, or through mutual funds, which saves you the trouble of worrying about currency conversion. Though if you think the dollar will decline, this will make stock in foreign companies relatively more valuable. 8) Stocks and shares--same thing. Options are contracts to buy or sell a certain number of stocks at a certain price. For example if you think Apple will go up after the release of the iPhone, you can spend $285 on a contract to buy 100 shares of Apple (called a Call) at $125 between now and the third Saturday in July. If Apple goes to, say, $130 by then, the right to buy 100 shares of stock in the company will be worth $500 and you'll have roughly doubled your money. However if the stock does not reach $125 your contract will be worthless. (Puts are the reverse of calls). Options can provide higher returns than stocks but are also much riskier than stocks. You can also write call options on stock you own (ie you're the person who agrees to sell the stock to someone else at a set price). This is a lot safer than buying calls, since the worst thing that can happen is you sell a stock to someone at a given price.) Options contracts are almost always for 100 shares.
Ye gods === if there is one place where a "fool and his money is easily parted", it's the Stock Markets .. You don't even know the basics, so you can be SURE you are going to loose your shirt gaining a VERY expensive education .. every cowboy 'Personal Advisor' and 'boiler room' con-merchant and ADR scam-artist will see you coming and before you know it you will be up to your armpits in costs, fees and worthless share 'certificates' .. I suggest you start with £7,000 in a Stocks & Shares ISA and maybe an Index Fund... whilst reading some good books (I recommend 'The Informed Investor' by Frank Armsrtrong III = try your local libruary) Of course, it's your money, you spend it as you see fit :-)