Buying Stocks:
There are various methods of buying and financing stocks. The most common means
is through a stock broker. Whether they are a full service or discount broker,
they are all doing one thing – arranging the transfer of stock from a seller to
a buyer. Most of the trades are actually done through brokers listed with a
stock exchange such as the New York Stock Exchange.
There are many different stock brokers to choose from such as full service
brokers or discount brokers. The full service brokers usually charge more per
trade, but give investment advice or more personal service; the discount brokers
offer little or no investment advice but charge less for trades. Another type of
broker would be a bank or credit union that may have a deal set up with either a
full service or discount broker.
There are other ways of buying stock besides through a broker. One way is
directly from the company itself. If at least one share is owned, most companies
will allow the purchase of shares directly from the company through their
investor's relations departments. However, the initial share of stock in the
company will have to be obtained through a regular stock broker. Another way to
buy stock in companies is through Direct Public Offerings which are usually sold
by the company itself. A direct public offering is an initial public offering a
company in which the stock is purchased directly from the company, usually
without the aid of brokers.
When it comes to financing a purchase of stocks there are two ways: purchasing
stock with money that is currently in the buyers ownership or by buying stock on
margin. Buying stock on margin means buying stock with money borrowed against
the stocks in the same account. These stocks, or collateral, guarantee that the
buyer can repay the loan; otherwise, the stockbroker has the right to sell the
stocks (collateral) to repay the borrowed money. He can sell if the share price
drops below the margin requirement, at least 50 percent of the value of the
stocks in the account. Buying on margin works the same way as borrowing money to
buy a car or a house using the car or house as collateral. Moreover, borrowing
is not free; the broker usually charges you 8-10 percent interest.
The source of this article is
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