After doing some research, you’ve finally decided to make the leap and start. But in practical terms, how do you actually start investing? Can you just load up on some stock in your virtual cart on Amazon? Or do you have to study to become a stock broker?
While it isn’t quite as easy as plopping some stock into your cart online, the good news is that investing also doesn’t mean that you have to study to become a stock broker. However, a stock broker may be necessary to help you start your investment journey.
A stock broker is a financial professional who helps clients buy or sell securities like stocks and bonds. But to fully understand how a stock broker can help you, it’s first necessary to understand some basics about how the stock market works and what stock is. Keep reading to learn more about how this type of financial professional can help you invest.
What is stock?
Simply put, stocks are a type of security. Investors purchase them in order to own a part or “share” of a company and its profits. By investing in stocks, you’re purchasing an imaginary “slice” of the company.
Read also: A simple guide to start investing in stocks
Each share is assigned a proportional value of the company’s value, which changes according to the company’s profitability. Investors are interested in buying company shares because their initial investments can grow and become more profitable if the company performs well in the market.
What is the stock market?
Imagine the stock market as a global auction house. In an auction house, objects like jewelry or art are sold to the highest bidders. Similarly, in the stock market, investors and traders negotiate to buy and sell stocks. Investors and traders are able to make a profit buying stocks for less than they ultimately sell them.
To get involved in a stock exchange, companies begin by listing shares in their stock with an exchange at a particular IPO (initial public offering). An IPO is the initial or first price of the stock when a company first “debuted” on the stock market. These stocks can then be bought up on the stock market and successively sold and rebought amongst investors.
As the company grows in value, the price of those stocks may increase. This, in turn, allows investors to profit through future resales. The opposite can also happen, and investors can lose money.
What is a stock broker?
In order to buy and sell stock in this global auction house, a person first needs access to a major stock exchange like the LSE or the NYSE. Only brokers who are members of one of these exchanges either independently or through a larger company are able to access these stock exchanges.
Typically, brokers are licensed professionals who studied business or economics and who have passed rigorous exams to demonstrate their knowledge.
Since buying and selling securities on major stock exchanges like isn’t as simple as checking out at Amazon, stockbrokers are the middlemen who connect clients to these large exchanges by helping them buy and sell. In exchange for this service and their advice, clients typically pay stock brokers a percentage of their profits.
With the advent of discount brokerage firms, online trading, and low-cost investment apps, many investment methods today cut stock brokers out of the equation. However, large traders, company investing, and many average investors still prefer to work with individual human stock brokers to mediate their deals.
The bottom line
With so many options available to investors, today you can decide if working with a stock broker is the best option for your situation. Whether or not you decide to work with a stock broker, don’t forget that investing and saving don’t have to be luxuries reserved for the rich.
Take another look around the Academy library to learn a bit more about personal finance and investing.