Alright, so now you know what shares are and what the stock market is – at least to a degree that you might be comfortable enough to by some shares. Now we're getting to the juicy stuff – the stuff that we're sure most of you have been waiting to learn – opening a brokerage account and then buying some well chosen, well-researched stocks (see what we did there?)
How to open a brokerage account
Wait… Slow down. What's a brokerage account?
We know, we've just dropped a bomb on you – this will be the first time we've brought up a "brokerage account" in these articles, but it can be a crucial part of buying and trading pot stocks.
A brokerage account is a place where you can deposit funds, which are either deposited to buy stocks or after you sell your stocks, with the help of a broker. You can also buy other investment related products such as bonds, mutual funds, stock options, and more. In case you do not understand these investments, your broker may educate you from time to time to help you earn profits.
Great, but how do I set one up?
This part is easy – if you've ever applied to get your driver's license, it's a very similar process when setting up a brokerage account. First, you will need a credible broker who can help you set up your brokerage account at their retail office or online.
Here's a list of documents or proofs that you'll have to submit while applying for a brokerage account:
- Personal information such as name, address, and phone number.
- Signature card.
- Your country-specific, identification numbers (like your SSN or Driver's License)
- Two identification documents (including your photo ID).
Make sure you have all your documents while applying for the account. If you miss any of the above documents, you may end up getting your application rejected, so you can't say we never told you so!
The fees associated with a brokerage account
Maybe we could have left this part until the end, but you should know that there are certain fees that you may be asked to front up once you open a brokerage account. These fees may include:
Your broker/brokerage platform will charge you a basic fee each time you trade. Generally, the fee is below $10. However, some brokers/platforms may charge you more.
A Broker Assisted Order
If you instruct your broker to trade on your behalf, they'll charge you a fee for their extra time. You obviously do not have this with an online brokerage account.
Transfer or withdrawal fee
Some brokers may charge you a small fee for withdrawing funds from your brokerage account.
It should be noted that all the fees mentioned above depend on your broker or the electronic platform you use. These fees should be transparent from the start, so understanding the possible fees you might incur should mean that you don't catch any nasty surprises when you open a brokerage account.
Now, do you better understand why we suggested you not trade too often?
Choosing a broker
Finding an experienced broker is like finding somebody to babysit your child. You want to make sure your baby is in good hands. Your broker needs to be experienced and credible if you want to ensure this.
There are some notable challenges which come with finding the ideal broker. Some brokers have very strict rules and restrictions that only allows individuals above a certain age to open brokerage accounts with them.
In case you're under 18 years old, you can request your broker to open a custodial account, which your parents will monitor.
Another factor you need to consider is the minimum amount you need to deposit to open a brokerage account. This is because the broker may lend your deposited money as cash to other customers and charge them interest on the lent money, much like a bank.
Generally, the required minimum balance lies somewhere between $500 and $1000.
You can easily find brokers who offer good discounts online these days. Online brokers are more responsive, and their fee is comparatively lower. It is also easy to communicate with them online.
Choosing an online broker
Like most things these days, the internet has made it easier than ever to find a broker and start your pot stock investment journey. If you want to purchase and manage your own investments, and online brokerage account is what you're after.
To decide on an online broker, you will need to consider a few things depending on your trading style and tech needs. One of the benefits for beginners using an online broker is that they often include educational resources for new investors who want a little hand-holding to start out with. These services are usually free.
Opening an online brokerage account is similar to most online applications. You will need to provide a username and password, contact information, and proof of identification. You will also need to identify what account type you are opening (trading or investment) and select your base trading currency.
Some online brokerage accounts will require a minimum deposit to get you started. For the most part though, the fees you will mainly pay are trading fees, which usually range from about $4-$7 on a per-trade basis.
You can easily find online brokers offering promotions in order to entice new customers to use their services. While it isn't wise to choose a broker solely on their promotional offers (it's probably better to choose a broker that charges smaller trading fees, as these will eat away at your returns) this might help you choose your first account if your options are looking similar. Search around online to find yourself the best online broker.
Funding your brokerage account
This might be obvious to some of you but will need to actually put money into your brokerage account if you want to buy/trade shares. You can transfer funds to your brokerage account using a savings account.
In case of a margin account, you can borrow money from your broker to buy a stock. However, a significant disadvantage of the margin account is a higher minimum balance requirement.
I'm ready to purchase my first Marijuana Stock
Everything you've learned up until now comes down to this part. If you feel like we've been teasing you, just know we did it out of love. Purchasing your very first cannabis stock can be nerve-wracking and confusing, but with all the knowledge you've accrued by now, we think you're ready. By the end of this article, you will be ready to place your first order.
Types of stock orders
Buying cannabis stocks is like buying anything else online, except you won't be getting any cheap knock-off products from China in place of what you thought you were buying.
You'll have to pick the one that best suits your requirements. Your purchase method will depend on your financial boundaries, your capacity to take on risk, your predictions of the market, and your expectations.
Take a look at the five types of stock orders in detail below to work out which might work best for you:
|Type of stock order||Details||Keep this in mind|
|Limit order||An order that gets executed at a particular price you set and for a certain time period.
In the case of a limit order, you cannot buy or sell a stock until it reaches the price you've set, so there's no scope for making misinformed decisions.
|Brokers may charge you more for a limit order. In case your order doesn't go through, they won't get commissions.|
|Market order||An order to buy or sell a stock at the present market price. These orders are generally executed immediately.||You cannot control how much you'll pay for a stock. The price is essentially dictated by the market in this case.|
|Stop order||An order that is executed as soon as the stock reaches a specific price set by you.||Stop orders are also known as stop-loss orders as they prevent you from making decisions that can end in losses.|
|Trailing stop order||An order in which instead of setting a target price, you set a percentage change in the market value.||You can choose how long the order will remain open.|
|Stop-limit order||An order where you wait for the stock price to reach a certain value. They turn into limit-orders as soon as the market price reaches the specific value you've been waiting for.||Stop-limit orders are also known as stop orders.|
Can I trade before and after trading hours?
Trading your cannabis stocks during pre-market and after-hours trading can come with some potential risks such as volatility of the market.
The usual stock market timings are 10:00 AM to 4:00 PM and even though you were just warned not to trade outside of these hours, there are some advantages to pre-market/after-hours trading.
For instance, you can react to fluctuations in the market faster than if you waited until the next morning. However, in most cases, we recommend that you get your full eight hours of sleep.
The 5 commandments of buying stock
Yep, we made the 5 commandments of buying shares of a cannabis company. Come back to these commandments when you're buying stock to make better and more informed purchase decisions.
Most Pot Stock companies have their investor presentation decks online under their "Investors" tab on the site. Here you can gain a good overview of the companies updated activities and growth plans for the coming short and medium-term timeframes.
The Green Fund offers you a link to the latest version of this document on every one of our Stock Research pages.
As rightly said by Warren Buffet, you shouldn't invest in something that you don't understand inside-out. Before you hop on to a company that looks alluring, make sure you understand what the company is all about. Haste makes waste, so avoid making instant decisions, and be in the know!.
Profitability is a sure bet – or is it?
A lot of the time people suggest that you only invest in companies that are making a profit. But the Cannabis Industry is akin to the tech industry of the late '90's and early 2000s. It is nascent, rapidly growing, industry.
In very fast-growing industries, profit is not the key. Market share is. The big players are putting the proverbial flag in the ground all over the world. From Argentina to Australia, there is global expansion happening.
This means, however, that companies are spending greatly to grab the attention of customers, to create levels of brand loyalty, and to capture global market share.
In this case, profitability is not always what you want to see. In essence, it's a fine balance. If companies are burning too much, they may run out of cash, and waste their resources. On the other hand, if they stay small and focus on being profitable, then they may well miss out on the growth and get passed by.
So keep profit in mind, but don't let it drive your investment decisions.
The elephant in the room…stock valuation
Speak to anyone about pot stocks and they will tell you "they're overvalued!" If we are honest with ourselves, then this is true. They are overvalued. But before we get into that, make sure you've read Part 2 of this series, wherein we address company valuation and it's importance.
Here's a look at some of the larger players market caps.
Ordinarily, company valuation is very important. Is the company valued at more than what it should be or less? Investors are constantly seeking out companies with valuations that are below their actual/projected worth.
But this is where cannabis stocks (pot stocks) are different. They are all valued on future performance and ability to scale. After all, up until October 17th, 2018, there was no real market for them to seriously ramp up revenue in. Now there is, but that's another story altogether.
So these company valuations are based on the potential for massive revenue growth, as a result of a booming infant industry that itself is projected to grow at over 15% per annum, compounded, for the next 10 years!
So you have to take this into account when using it as an investing benchmark in your evaluation of cannabis stocks. Start with the assumption that most (not all, but most) are overvalued. Then ask yourself which ones you think might be able to grow into their value.
Think of it as a prodigious sports talent. Will that person go on and deliver on their potential to become world champion? Or not.
Take me to your leader
If you are looking at a short-term investment, you may not need to consider this. However, if you are planning a long-term investment, you should make sure that the company you want to buy shares of is better than its competitors, at least in one area.
If they aren't, and they have no flexibility or other specialties, you should consider buying the shares of their competitors. This is where The Green Fund really does come into play. We are constantly researching companies and providing information on their USP's and their competitors.
But what they do best is one thing. What really counts and matters is who is running the ship? Who is leading the company forward? Who is executing on the business strategy?
If you cannot visit the company's headquarters and seek more information about who is running the ship (and if you can – we highly suggest you do), you can check online articles and sources to learn more about the company's leadership team.
We've written extensively on the importance of management in understanding the value of marijuana stocks.
The real Balance of power
If you're serious about investing in the stock market, you must know how to read a company's balance sheet. This is where you can get a basic health check of the company. A great place to start with the Balance Sheet Basics is here.
- How much debt do they have? Do they have the money to service this debt?
- What are their assets? How liquid are these assets?
- Do they have inventory? Is it too much or too little?
These are the kind of very basic questions you should be asking of every Balance Sheet. Understanding these key questions will give you the most basic, ground level, starting point information on which to base your investing decisions.
As we mentioned at the beginning of the article, we hope that by now you clearly understand how to buy a cannabis stock and how to open a brokerage account. If you have any more questions for us, you can let us know. We will get back to you with the answers at the earliest.