The Four Ways to Buy and Sell Securities

Interest in investing in securities such as bonds, mutual funds, ETFs, and stocks is rising, but knowledge of how investing works remains scarce. Buying and selling is the bread and butter of investing in securities, but many stray away from investing because they do not understand how to get started or what to do once they have a foot in the door. How can the average person get involved? Let’s explore four methods by which to buy and sell securities today.

Brokerage Firms

When investment brokers are mentioned, the common thought is businessmen running around waving tickets and yelling on the phone, but this is not necessarily true. Brokerages are companies that facilitate buying and trading on behalf of clients, usually after the client makes an account with the firm. A full service broker typically involves a licensed professional advising clients about their investments and overall financial portfolio.

A discount broker is a lower commission firm or system that is almost a “self serve” system for users. Most of the products users would want to trade are provided in one space like an app or website. The user can request to purchase or sell securities through the company and the transaction will then be handled by the brokerage firm.

Directly to Individuals

Though it is not common nowadays, it is possible to sell securities in person to virtually anyone. Most securities are held electronically, but if an individual still holds paper certificates, the securities can be transferred to another person directly.

If the certificate is registered, the stockholder needs to have their signature on the physical certificate guaranteed by a bank or a broker and then endorse the security to the buyer. Some transfer agents (individuals put in place by a company to keep track of who has their securities) require a letter of transmittal to document the new owner. Selling directly is not a recommended method since it is easy to be scammed. Before trading with another person, make sure all documents are guaranteed and all money being received is certified.

Banks and Their Partners

Larger banks usually provide limited securities like bonds and mutual funds directly or through a partner company with the bank acting as the middle man. Personal bankers review clients’ financial risk and goals and pivot appropriate products. Commission rates are normally higher through banks, so shopping for a broker interested in client needs over sales is imperative.

Directly From The Source

While it is time consuming, it is possible to purchase securities directly from the company issuing them. This method avoids commission fees, minimum account balances, and typically has lower initial investment requirements. The purchase and sale price is set directly by the company and has to be traded at that price only. Certificates are then issued to the buyer to keep. Since all certificates are not registered to the buyer, it falls on the buyer to keep the certificates safe from potential thieves.