Why you Need a Stockbroker to Invest in Stocks
If you hardly know what a stock is, chances are you have never invested in them. It’s a simple idea caged inside a more complicated process. Fortunately, you don’t need to know all the background information about how stock brokers make stock purchases in order to understand how to invest and why you need a stockbroker to buy and sell in stocks.
What is a Stock?
Shares of stock are issued by corporations to raise money. When you purchase shares of stock, you become an owner of that company. You won’t get a lot of say in how the business is run unless you purchase a majority share. As a shareholder, you are entitled to profits. Profits are paid out in the form of dividends, although, not all corporations pay dividends.
Capital Gains
Dividends are just one way to make money with stocks. The other is through capital gains. When you purchase shares of stock through the stock market, it is unlikely that the price you paid will stay the same for long. If the price goes up and you sell, you’ll earn capital gains. For example, if you sell shares of stock for $1,200 that you paid $1,000 for, your capital gains equals $200 minus trading fees.
Stock Exchange
The stock exchange is where stocks are bought and sold. The New York Stock Exchange (NYSE) is one of the most well-known as well as the NASDAQ which is an electronic exchange. At the NYSE, stockbrokers go on the trading floor. They communicate among each other to find someone who is selling shares of stock they want or buying shares they want to sell.
Why you Need a Broker
You need a broker because only stockbrokers are allowed on the floor. There are a certain number of seats on the floor limiting the number of brokers allowed. You can’t drive over to the NYSE and pick up whatever stock you want. You need to hire a broker to do it for you. Fortunately, this is a fairly simple process for you. All you have to do is sign up for an account with an online broker and place your trades. The broker will take care of the rest.
Saving Money on Trading Fees
Don’t let needing a broker discourage you or keep you from investing. Everyone needs a broker to do the same. These days, broker fees are much less than they used to be because there are lots of online discount brokers that charge lower fees than full service brokers. In fact, the whole process is easier than it used to be when you had to call your broker for every trade. It wasn’t instant like it is these days. Whether you want to be a day trader or hold onto your investments long term, using a discount broker will save you money and time.
At Best Investments for Beginners, we strive to provide you with the best information and instruction on investing for beginners. If you’re new and just starting out, check us out.