Before we get into the 4 ways of how to buy and sell securities, let’s take a quick look at what a security is and how is can help expand your financial portfolio. Securities represent a wide variety of investments including stocks, bonds, mutual funds, banknotes, futures, derivatives, limited partnership units and many others. Securities can be represented by a certificate or can be “non-certified”, depending on the type of security you get. The security certificates show that you have lent money to a company (this includes securities such as stocks) or government entity (this includes securities such as banknotes and Treasury bills).
Many financial advisors recommend expanding your financial portfolio with securities because a diversified portfolio means you can minimize your exposure to a company-specific fallout. You can diverse your portfolio by adding in short-term as well as long-term investments to protect your future profits against unexpected loss. For more information, please see 10 Steps to Building a Financial Portfolio.
4 Ways to Buy and Sell Securities
So now that we have a little bit of background about what securities are, let’s go over the 4 ways to buy and sell securities:
- Through brokerages
- Directly from the company
- Through banks
- Through individual investors
How to Buy and Sell Securities through Brokerage Houses
Brokerage houses are one of the easiest ways to buy and sell securities because they deal with most of the “heavy lifting” such as completing the paperwork, ensuring the dividend payments and transferring the ownership of the particular stocks which allows you to focus entirely on doing your research and following through with what securities to buy, when to buy them and when to sell them in order to make a profit.
In order to begin purchasing securities in this way, you generally have to open an account and deposit a certain amount of money. Typically, the minimum amount to have in your account is over $500 but under $1000. Keep in mind that although it is your money, there are many rules involved with taking that money out in the future, restrictions as well as added fees, especially if you the amount you want to take out will affect your minimum balance. When choosing the right broker for you, make sure you read the fine print and know exactly what you’re getting into before you sign a contract or an agreement. Don’t be afraid to ask questions to clarify and read over the contract until you fully understand it; if it seems too good to be true, there are probably additional hidden fees. Make sure that they have your best interests at heart and that their fee structure will complement your investing style.
How to Buy and Sell Securities Directly From the Company
Another common way to purchase securities is directly from the company issuing them. This may be more difficult than having your own broker who deals with the problems himself, but there are some definite rewards to reap at the end. When buying securities directly from the company, keep in mind that they will be in the form of certificates and you will be responsible for holding onto them. Due to the timely nature of having the physical certificate in your possession at the time of your sale, it may complicate matters if you are interested in buying and selling quickly in order to turn a profit. When you buy the securities directly from the issuer, you have to buy them at the price that the company sets; there is very little negotiation and so this may not be suitable for those with a smaller fund available.
How to Buy and Sell Securities through Banks
You can also buy securities through banks, although their selection is often limited to certain companies or certain amounts of funding. Banks generally sell mutual funds and bonds, although typically not stocks, so if you want to purchase a wide variety of stocks, this may not be the right method for you. The positive aspect of buying securities at a bank however, is that it is very convenient; all you have to do is walk in during the banks’ operating hours and you can purchase securities on the spot. There are also many financial advisors willing to help you decide which of their investments would be best for you.
How to Buy and Sell Securities through Individuals Investors
Another way to buy and sell securities is through individual investors outside of a business exchange. The good thing about this method is that you may save some money in extra fees that banks and brokerage houses generally add on. The bad news about this method is that you have to trust the person selling you these securities so that you don’t end up with a fake certificate at the end. If you end up buying stocks or bonds in this manner, please be aware that they have to sign the security certificate over to you, and then your name must be registered in the companies’ system as the new owner.
Conclusion
An important factor to come to terms with when deciding where you should buy and sell your securities is what kind of investor you are. Are you the trader who just buys stocks and then flips them around to sell at a profit? Or do you hold onto your securities for an extended period of time and let them appreciate slowly to get the rewards at the end? Maybe you’re somewhere in the middle?
No method is right for all types of investors and each method has its pros and cons that you need to be aware of and accept before you begin throwing your money out there. There are many people out there willing to advise you to buy their particular stock because it will make them money, but you have to be aware that although they say they are “financial advisors,” many are, in fact, more of a sales representative. Take the time to do the proper research so you can find what works best for you and your particular investing lifestyle. Securities can bring you profit, but you have to have the knowledge of what you’re doing before you expect any returns.
The image used in this post is taken from Image: Keerati / FreeDigitalPhotos.net
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