4 Basic Steps to Buying a Stock

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Once you decide that you want to buy a stock, you need to have a strategy for buying it. Smart investors know that this is more than simply calling up your broker and asking for a certain number of shares of the stock. You need to be more tactical than that if you want to be a successful investor. With that being the case, here are a few tips that will help you accumulate a stock in the most effective way possible.

1. Use limit orders

A limit order is an order you place with your broker for which you decide the price at which you buy a stock. For instance, if stock XYZ trades at $102/share, you might put in an order to buy 100 shares at $100/share. On the other hand, a market order is simply an order to buy the stock at whatever the market price is. So in our example, you might put in a market order to buy 100 shares of XYZ, but while the last trade was at $102/share, you have no idea what price you will pay. So it is possible that just before your order goes through some market glitch sends the shares soaring to $105/share. For this reason, you always want to use a limit order when buying a stock — even if you put in a limit order of $102 to buy a stock that last traded at $102 use a limit order to ensure that you decide the price you pay for a stock.