If you wonder how to buy shares of a companyThe truth is that there are various ways. The best known are private issue (joining as a partner in an unlisted entity) and public offering (purchasing shares already listed on the stock market).
In this article we explain the process of both in a simple and direct way. Read on.
What does it mean to buy shares of a company?
Shares are a part of a company’s capital. When you buy them you become a shareholder. That is to say, You become the owner of a part of the company and gain a number of rights.
The rights that the purchase of shares gives you are basically two:
- Economic rights: If the company distributes dividends (a portion of its annual profits), you will receive those corresponding to the number of shares you own.
- Political rights: You can vote in shareholder meetings to decide the fate of the company.
Now, Your investment is tied to the fate of the company. In case of losses, the dividend will be reduced or suspended, which also implies a decline in the share price.
On the other hand, shares do not expire. That is, you can write off the investment only by selling them. If the company goes bankrupt, your shares will lose value and you will lose your invested capital.
How to buy shares of a company privately?
If the company is not listed on the stock exchange, it is necessary to stipulate a private agreement to enter as a capitalist shareholder.
To better understand how private share purchasing works, let’s imagine that one of the owners wants to sell his shares (all or part of them).
In this case you will have to carry out a valuation of the shares, negotiate the price directly with him and proceed with the sale by public deed. It may also be that new shares are issued through a capital increase.
When you buy stocks privately, you have to agree on rights and duties that the titles will entail. For example:
- Right to information: access social accounts and books.
- Right to dividend: when they will be distributed, what the disbursements will be, etc.
- Voting rights: whether the shares allow you to participate in meetings and what your proportional vote will be.
How to buy shares on the stock exchange step by step?
And what to do to buy shares of a listed company? Trading (buying and selling) shares on the stock market is a simpler and faster process, since both the rights and the price are public.
These are the steps you need to follow To buy shares on the stock exchange:
Choose a regulated broker
To access the Stock Exchange, It is necessary to have an intermediary (a broker). It is necessary that the broker you choose is regulated by the supervisory body of the country in which it is based so that you obtain all the guarantees of reliability. Regulatory bodies have a public registry where you can check this.
Open a securities account
It’s simply about hire the services of the chosen broker. This is normally an online process based on filling out a questionnaire, verifying your identity and depositing funds so that the broker can proceed with the purchase according to your instructions.
Select the company
At this point you can start buying shares, but first you need to select the company. To determine which may be appropriate based on your goals and strategy You can do fundamental analysis (evaluate the company) or technical analysis (follow the price to determine if it has upside potential).
Decide on the amount you want to invest
It is important that you do a good management of your capital. For example, if you buy stocks for short-term trades, it is not advisable to risk more than 1% or 2% of your capital per trade.
Choose the purchase order type
There are different types of orders on the stock market. These are two of the most common:
- To market: is executed at the best price available at that time. It’s fast, but has less control over the final price.
- Limited: set a maximum purchase price; provides control. For example, if you want to buy 10 shares of a company
Confirm the operation
Check everything and place your order for the broker to execute it on the market. The moment the purchase occurs you will see the shares in your securities account.
Where to buy shares: broker, bank or direct purchase plan?
Each of these alternatives for buying shares has its own pros and cons:
- Broker: It usually specializes in some type of market. The advantage is that it has more competitive commissions and more advanced investment apps or platforms.
- Traditional bank: It’s useful if you’re just starting out, as you have everything centralized and enjoy the attention in the office. However, the fees charged are generally higher.
- Direct purchase plan: You purchase shares periodically. In this case, you develop an investment plan yourself. You only need a broker to buy and sell stocks.
What risks and mistakes should you avoid when investing in stocks?
Buy shares of a company carries its risksamong the main ones we remember:
- Volatility: refers to the fact that stock prices fluctuate depending on company performance, interest rates, economic news, etc.
- Don’t diversify: Investing too much in a single company, sector or country increases risk. It is necessary to distribute capital among several securities to avoid problems specific to a particular security.
- Investing without strategy: absence of plan, objectives and exit rules (stop loss). You need to define criteria, use the correct orders and review them periodically.
If you want to avoid these types of mistakes and start buying shares of a company on the stock market by making informed decisions, book your place on the free share course that we are creating.
