Stock Market Basics

I was thinking about signing up for an account on E-Trade.com but I really don’t have any experience in stock market investing. Basically, do you just purchase a certain amount of shares, wait for them to go up in value, and then sell? Also, how long does it take you to sell the stock and who buys it? Do you get the amount of money the stock is worth or will people try to offer you a lower price then the market value? Please fill me in on this because I’d really like to learn. Greg, Clearwater, FL
Once you have money in a brokerage account, you can immediately begin to buy and sell stocks. There is no limit to how many shares you can buy of each company. If you decide to sell a stock, a market order is executed immediately, as long as the market is still open. A market order means that you sell your shares for whatever the asking price is at that moment in time. The other type of sell order is a limit order. This varies from a market order because you set a price in advance for what you will sell each of your shares for. The order is not executed until another party is willing to pay your specified price for the shares. Sometimes a party is willing to pay what you are asking for right away, however there are times when nobody will want to buy your shares for the price you selected, meaning it is too high. The benefit of a brokerage house is that it will find a buyer for your shares without you having to do any additional work.

Be aware that shares do not always go up in value and sometimes you will need to sell after their value has declined. In this scenario you are selling because the fundamentals of the business you invested in have changed, and you are trying to sell before the stock price declines further. Many investors believe that knowing when to sell shares is a lot more complicated to figure out than when to buy shares.

After you sell your shares, you get the full amount the stock is worth minus the commission you pay the brokerage for selling it for you. However, it is important to keep in mind that you will be paying taxes on any capital gains you may have. A capital gain is defined as the difference between what you bought the shares at and what you sold them at. For example, if you bought 100 shares of Disney at $10 a share and sold them at $15 a share, you would have $500 worth of capital gains ($5 a share * 100 shares = $500). Not to bore you, but you should also be aware of the current tax implications if you sell your shares within a year. If you do this, and have recorded a capital gain, your profit will be taxed at your ordinary income tax level. However, if you hold the shares for at least a year, you will be taxed at a lower set rate. Thus, it is more tax friendly to hold your shares for at least a year. Good luck investing.

Matt / Google+

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