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Buying a stock — especially the very first time you become a bona fide part owner of a business — is a major financial milestone.
But that's not because the process is difficult. Rather, buying stocks is pretty straightforward: Most investors buy stocks or other investments online, though some opt to work with a full-service stockbroker or buy stocks directly from a public company.
Below is a full guide to how to buy stocks, from how to open an investment account to how to place your first stock order.
Step 1: Decide where to buy stocks
Movies love to show frenzied traders shouting orders on the floor of the New York Stock Exchange, but these days very few stock trades happen this way. Today, the easiest way to buy stocks is online, through an investment account at an online stockbroker. Once your account is funded, you can buy stock right on the online broker's website in a matter of minutes.
Opening an online brokerage account is as easy as setting up a bank account: You complete an account application, provide proof of identification and choose whether you want to fund the account by mailing a check or transferring funds electronically. (We have a full guide to opening a brokerage account here.)
How do you find a broker that’s worthy of your dough? To compare options, review NerdWallet's full list of the best brokers for stock trading, or use the search tool below to find the right match for your investing style. (Article continues below tool.)
Step 2: Select the stocks you want to buy
Once you’ve set up and funded your brokerage account, it’s time to dive into the business of picking stocks. A good place to start is by researching companies you already know from your experiences as a consumer.
Don’t let the deluge of data and real-time market gyrations overwhelm you as you conduct your research. Keep the objective simple: You’re looking for companies of which you want to become a part owner.
Warren Buffett famously said, “Buy into a company because you want to own it, not because you want the stock to go up.” He’s done pretty well for himself by following that rule.
Start with the company’s annual report — specifically management’s annual letter to shareholders. The letter will give you a general narrative of what’s happening with the business and provide context for the numbers in the report.
After that, most of the information and analytical tools that you need to evaluate the business will be available on your broker’s website, such as SEC filings, conference call transcripts, quarterly earnings updates and recent news. Most online brokers also provide tutorials on how to use their tools and even basic seminars on how to pick stocks.
To learn more about evaluating companies for your portfolio, see NerdWallet’s feature on how to research stocks.
You should feel absolutely no pressure to buy a certain number of shares or fill your entire portfolio with a stock all at once. Consider starting small — really small — by purchasing just a single share to get a feel for what it’s like to own individual stocks and whether you have the fortitude to ride through the rough patches with minimal sleep loss. You can add to your position over time as you master the shareholder swagger.
New stock investors might also want to consider fractional shares, a relatively new offering from online brokers that allows you to buy a portion of a stock rather than the full share. What that means is you can get into pricey stocks — companies like Google and Amazon that are known for their four-figure share prices — with a much smaller investment. SoFi Active Investing, Robinhood and Charles Schwab are among the brokers that offer fractional shares.
Step 4: Choose your stock order type
Don’t be put off by all those numbers and nonsensical word combinations on your broker's online order page. Refer to this cheat sheet of basic stock-trading terms:
For buyers: The price that sellers are willing to accept for the stock.
For sellers: The price that buyers are willing to pay for the stock.
The difference between the highest bid price and the lowest ask price.
A request to buy or sell a stock ASAP at the best available price.
A request to buy or sell a stock only at a specific price or better.
Stop (or stop-loss) order
Once a stock reaches a certain price, the “stop price” or “stop level,” a market order is executed and the entire order is filled at the prevailing price.
When the stop price is reached, the trade turns into a limit order and is filled up to the point where specified price limits can be met.
There are a lot more fancy trading moves and complex order types. Don’t bother right now — or maybe ever. Investors have built successful careers buying stocks solely with two order types: market orders and limit orders.
With a market order, you’re indicating that you’ll buy or sell the stock at the best available current market price. Because a market order puts no price parameters on the trade, your order will be executed immediately and fully filled, unless you’re trying to buy a million shares and attempt a takeover coup.
Don’t be surprised if the price you pay — or receive, if you’re selling — is not the exact price you were quoted just seconds before. Bid and ask prices fluctuate constantly throughout the day. That’s why a market order is best used when buying stocks that don’t experience wide price swings — large, steady blue-chip stocks as opposed to smaller, more volatile companies.
Good to know:
A market order is best for buy-and-hold investors, for whom small differences in price are less important than ensuring that the trade is fully executed.
If you place a market order trade “after hours,” when the markets have closed for the day, your order will be placed at the prevailing price when the exchanges next open for trading.
Check your broker’s trade execution disclaimer. Some low-cost brokers bundle all customer trade requests to execute all at once at the prevailing price, either at the end of the trading day or a specific time or day of the week.
A limit order gives you more control over the price at which your trade is executed. If XYZ stock is trading at $100 a share and you think a $95 per-share price is more in line with how you value the company, your limit order tells your broker to hold tight and execute your order only when the ask price drops to that level. On the selling side, a limit order tells your broker to part with the shares once the bid rises to the level you set.
Limit orders are a good tool for investors buying and selling smaller company stocks, which tend to experience wider spreads, depending on investor activity. They're also good for investing during periods of short-term stock market volatility or when stock price is more important than order fulfillment.
There are additional conditions you can place on a limit order to control how long the order will remain open. An “all or none” (AON) order will be executed only when all the shares you wish to trade are available at your price limit. A “good for day” (GFD) order will expire at the end of the trading day, even if the order has not been fully filled. A “good till canceled” (GTC) order remains in play until the customer pulls the plug or the order expires; that's anywhere from 60 to 120 days or more.
Good to know:
While a limit order guarantees the price you’ll get if the order is executed, there's no guarantee that the order will be filled fully, partially or even at all. Limit orders are placed on a first-come, first-served basis, and only after market orders are filled, and only if the stock stays within your set parameters long enough for the broker to execute the trade.
Limit orders can cost investors more in commissions than market orders. A limit order that can't be executed in full at one time or during a single trading day may continue to be filled over subsequent days, with transaction costs charged each day a trade is made. If the stock never reaches the level of your limit order by the time it expires, the trade will not be executed.
» Learn more about the ins and outs of stock trading.
Step 5: Optimize your stock portfolio
We hope your first stock purchase marks the beginning of a lifelong journey of successful investing. But if things turn difficult, remember that every investor — even Warren Buffett — goes through rough patches. The key to coming out ahead in the long term is to keep your perspective and concentrate on the things that you can control. Market gyrations aren’t among them. What you can do is:
Make sure you have the right tools for the job. NerdWallet’s list of the best stockbrokers can help you identify the right brokerage account for you.
Be mindful of brokerage fees. These can significantly erode your returns.
Consider also investing in mutual funds, which allow you to buy many stocks in one transaction. Here's our list of the best brokers for mutual funds.
FAQs about buying stocks
1. What are some cheap stocks to buy now?
It’s important to note that the price of a stock doesn’t tell you everything you need to know about a company you’re considering investing in. Price reflects how much investors are willing to buy or sell the stock for — not the intrinsic value of the company, nor the direction in which the company’s stock price is headed. Just because a stock is “cheap” doesn’t mean it’s a good buy.
That said, there are ways to find stocks that may be undervalued. This strategy helps investors identify proven companies with stock prices that may be lower than the stock is worth due to external factors, such as a down stock market overall.
2. How do I know if I should buy stocks now?
The truth is, you’ll never know if it’s exactly the right time to buy stocks. However, if you’re investing for the long term (say, more than five years), then the time to buy stocks is as soon as you have the money available. Even if the market falls soon after investing, you’ll have plenty of time to make up those losses. And the only way to guarantee you’ll be a part of any stock market recovery and expansion from the beginning is to be invested before the recovery starts.
3. What are the best stocks for beginners?
NerdWallet strongly advocates investing in low-cost index funds. However, if you’d like to add a few individual stocks to your portfolio (we suggest allocating no more than 10% of your portfolio to individual stocks), beginners may want to consider blue-chip stocks in the S&P 500. These are among the country’s most stable companies with a proven track record of delivering long-term returns for investors. These include companies like Microsoft, Amazon, Johnson & Johnson, Home Depot and AT&T.
» Learn more: See our list of the best-performing stocks
4. How much money do I need to buy stock?
If you open a brokerage account with no account minimums and zero transaction fees, you could start investing with just enough to buy a single share. Depending on the company, that could be as little as $10 (though remember that cheap stocks don’t necessarily make good buys).
Some brokerages even allow you to buy fractional shares, meaning if you only had $100 to invest, you could buy a portion of a stock like Google, which has long traded for more than $1,000 a share. Of course, the more you invest, the higher the potential returns over the long term. Use our investment calculator to see how compounding returns work.
5. Are stocks and shares the same thing?
For the most part, yes. Owning “stock” and owning “shares” both mean you have ownership — or equity — in a company. Typically, you’ll see “shares” used to refer to the size of an ownership stake in a specific company, while “stock” often means equity as a whole. For example, you might hear investors say, “I bought 10 shares of Apple,” or “I have stock in Apple, Facebook and Amazon.”
6. How many shares should I buy?
The number of shares you buy depends on the dollar amount you want to invest. If the share price is $50 and you have $500 you’re willing to invest, you could purchase 10 shares. However, if your brokerage doesn’t allow fractional trading and the numbers aren’t that clean, you’ll have to round down. If the stock price is $51 and you have $500 to invest, you’ll only be able to purchase nine shares, as 10 shares would cost $510.
7. How will I know when to sell stocks?
If you’re purchasing stocks, you should be comfortable not touching your money for at least five years. That’s due to stock market volatility — it’s possible the value of your shares will go down before going up. You could consider selling your stocks if you need cash and they’ve risen in value, but doing so means you may pay capital gains taxes on the sale, and miss out on future gains over time.
Perhaps what’s more important is to consider when not to sell stocks. When the market is falling, you may be tempted to sell to prevent further losses. This is widely recognized as a bad strategy, as once you sell, you’ll lock in the losses you’ve incurred. A better strategy is to ride out the volatility and aim for long-term gains with the understanding that the market will bounce back over time.
8. Can I buy stocks online without a broker?
There are options to buy stocks directly from companies online without a broker. Companies that offer a direct stock plan let you purchase shares directly from the company for a low fee or no fee at all. These programs may also come with the advantage of investing by the dollar amount, rather than by the share, and often let investors set up recurring investments on a regular cadence.
Another option for dividend stocks is a dividend reinvestment plan. These plans allow investors to automatically reinvest dividends back into the stock, rather than taking the dividends as income.
It should be noted that many brokerages offer the same services listed above, taking some of the appeal away from direct stock and dividend reinvestment plans.