TAILIEUCHUNG - Charles J. Corrado_Fundamentals of Investments - Chapter 2

CHAPTER 2 Buying and Selling Securities “Don’t gamble! Take all your savings and buy some good stock and hold it till it goes up. If it don’t go up, don’t buy it.” You might wish to try Will Rogers’ well-known stock market advice, but you first need to know the basics of securities trading. | CHAPTER 2 Buying and Selling Securities Don t gamble Take all your savings and buy some good stock and hold it till it goes up. If it don t go up don t buy it. You might wish to try Will Rogers well-known stock market advice but you first need to know the basics of securities trading. Fortunately trading is a simple task as attested by the several billion stock shares that trade among investors on a busy day. Essentially the process starts by opening a trading account with a brokerage firm and then submitting trading orders. But you should know about some important details beforehand. We hope your reading about the history of risk and return in the previous chapter generated some interest in investing on your own. To help you get started this chapter covers the basics of the investing process. We begin by describing how you go about buying and selling securities such as stocks and bonds. We then outline some of the most important considerations and constraints to keep in mind as you get more involved in the investing process. Getting Started Suppose you have some money that you want to invest. One way to get started is to open an account with a securities broker such as . Edwards or Merrill Lynch. Such accounts are often called brokerage or trading accounts. Opening a trading account is straightforward and really much like opening a bank account. Y ou will be asked to supply some basic information about yourself and 2 Chapter 2 sign an agreement often simply called a customer s agreement that spells out your rights and obligations and those of your broker. You then give your broker a check and instructions on how you want the money invested. To illustrate suppose that instead of going to Disneyland you would rather own part of it. You therefore open an account with 10 000. You instruct your broker to purchase 100 shares of Walt Disney stock and to retain any remaining funds in your account. Your broker will locate a seller and purchase the stock on your .

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