There are many ways to purchase equity investments. The specific type of investment you select will affect your choices. For example, you may trade collectibles and real estate directly with other buyers and sellers. When you purchase stock or REITs, you may work with a broker. Full-service brokers generally provide more assistance with research and advice and charge higher commissions than discount brokers. Use the “Rule of Three”-compare the costs of buying and selling with at least three firms. Other ways to make investment purchases include:
Direct Purchase Plans (DPPs) or “no load” stocks are sold directly to investors. Corporations that offer stock may offer DPPs to their shareholders so they can save the cost of a broker.
- By participating in an investment club, you can purchase equity investments. See Unit 9 for the details.
- You can also invest via the Internet. Of course, the downside to online trading is “no handholding.” In addition, online investors need to be very careful typing in their order. A careless extra zero (e.g., 100 shares instead of 10) can cost you plenty. Online brokerage firms will generally execute trades of reasonable amounts in excess of an investor’s account balance. It is assumed that investors will “settle up” within three business days as per current Securities and Exchange Commission (SEC) regulations.
The process for executing an online trade is as follows.
- First, you need a computer with access to the Internet.
- Once connected, log onto the Web site of online brokerage firms such as Accutrade, Datek, E*Trade, Fidelity, and Schwab.
- Complete an online application.
- Mail additional forms and a check to open an online trading account. The minimum amount required by most online brokerage firms to establish an account is generally between $1,000 and $15,000.
- You will be notified by e-mail when your application is received and you are approved to make online transactions. Stock trades are generally executed within seconds of placing an order.
Regardless of the method you use to buy and sell equities, be sure that you fully understand the types of orders used to buy and sell. Be sure that when you make an offer to buy or sell you know when it will be placed and what costs are involved. Know what will happen if your offer is not processed immediately or if the market changes significantly before your offer reaches it.