How to Buy and Sell Stocks

Buying stocks is quick and straightforward once you have a brokerage account. Learn how with this step-by-step guide.
Dayana Yochim
Chris Davis
By Chris Davis and  Dayana Yochim 
Updated
Edited by Arielle O'Shea Reviewed by Michael Randall
How to buy stocks

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Buying stocks may seem complex, but it's as easy as opening an investment account online and then purchasing stocks of the companies you're interested in. Creating long-term wealth from investing is a bit more complicated.

How to buy stocks in 6 steps

If you want to buy stocks, you have to open a brokerage account (also known as an investment account), add money to the account and then buy stocks from there. You can open a brokerage account in about 15 minutes.

Once you have an investment account, buying stocks is pretty straightforward. Here are the steps to help you understand how to buy stocks:

» How do you find a broker? Compare options among the best brokers for stock trading

1. Select an online stockbroker

The easiest way to buy stocks is through an online stockbroker. After opening and funding your account, you can buy stocks through the broker’s website in a matter of minutes. Other options include using a full-service stockbroker, or buying stock directly from the company.

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.

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2. Research 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.

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Once you’ve identified these companies, it’s time to do your research. 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 guide to how to research stocks.

3. Decide how many shares to buy

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 with paper trading, using a stock market simulator, to get your feet wet. With paper trading, you can learn how to buy and sell stock using play money. Or if you're ready to put real money down, you can start small — really small. You could consider 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 stocks 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 with a much smaller investment. SoFi Active Investing, Robinhood and Charles Schwab are among the brokers that offer fractional shares.

» Want to dive in? See our picks for best brokers for buying fractional shares

Many brokerages offer a tool that converts dollar amounts to shares, too. This can be helpful if you have a set amount you’d like to invest — say, $500 — and want to know how many shares that amount could buy.

4. Buy stocks using the right order type for you

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:

Term

Definition

Ask

For buyers: The price that sellers are willing to accept for the stock.

Bid

For sellers: The price that buyers are willing to pay for the stock.

Spread

The difference between the highest bid price and the lowest ask price.

Market order

A request to buy or sell a stock ASAP at the best available price.

Limit order

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.

Stop-limit order

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.

Dollar-cost averaging

The act of placing market orders repeatedly and on a regular timeframe (e.g. buying stocks at the market price every two weeks, on payday) in order to buy in at the average price over a long time period.

There are a lot more fancy trading moves and complex order types. You don't have to worry about those right now — or maybe ever. Investors have built successful careers buying stocks solely with two order types: market orders and limit orders.

Market 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. The market order could also not be fulfilled if you were attempting to purchase a very thinly traded stock with little volume.

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.

» Learn more: Read our three-step guide on how to sell stock

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.

» You don’t have to buy 9:30-4: Learn more about options for premarket trading and after-hours trading

Limit orders

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.

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Dollar-cost averaging

Dollar-cost averaging means repeatedly buying stocks at the market price on a regular basis — for example, by investing a set amount of your paycheck into an index fund every two weeks.

It's technically not an order type, but much like a limit order, it's a way to reduce the average purchase price of your investments, also known as your cost basis.

If you dollar-cost average by investing a set amount of money into an index fund every two weeks for a year, your cost basis will be the average price of that index fund over that year.

If you invested all of that money at once, on the other hand, there's a chance you'd buy in when the fund's price was at a yearly high. That would give you a worse — in other words, higher — cost basis than dollar-cost averaging.

Good to know:

  • Dollar-cost averaging can reduce your cost basis, but it doesn't give you direct control over it like a limit order. As a result, it's best for buy-and-hold investors, and it isn't as useful to traders who are looking to lock in a specific purchase price for a short-term trade.

  • There is often a bit of set-up paperwork involved in dollar-cost averaging. You'll either need to set up a repeating contribution from your bank account, or you'll need to talk to your employer about setting up contributions from your paycheck. You'll also need to configure your brokerage account or retirement account so that contributions are automatically invested into your stocks or funds of choice.

» Read more about dollar-cost averaging.

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. But there are a few things in your control.

Once you're familiar with the stock purchasing process, take the time to dig into other areas of the investment world. Will mutual funds play a part in your investment story? In addition to a brokerage account, do you want a retirement account, such as an IRA?

6. Know when to sell stocks — and when not to

You can sell your stocks when you're satisfied with the profits they've made, or when you need the cash. Ideally, you want to set specific, long-term goals for your investments so that you check both of those boxes at the same time.

If you’re purchasing stocks, it's a good rule of thumb to avoid investing money you'll need in at least five years. That’s due to stock market volatility — it’s possible the value of the shares you buy 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 you may 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 strategy many financial advisors suggest is to ride out the volatility and aim for long-term gains with the understanding that the market will bounce back over time.

Frequently asked questions

There is no single "best stock," which is why many financial advisors advocate for investing in low-cost index funds.

If you go the route of investing in individual stocks, it's important to thoroughly research stocks before buying.

» See our list of the best-performing stocks

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 may be 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.

In recent years online brokers have made it extremely easy for beginners to sign up for and use their services. For most new investors, an online brokerage account will be the easiest way to get into the stock market.

But if you’re still keen to start investing without a broker, look for companies that offer a direct stock plan, which lets 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 basis.

Another way to buy stocks without a broker is through a dividend reinvestment plan, which allows investors to automatically reinvest dividends back into the stock, rather than taking the dividends as income. Like direct stock plans, though, you’ll have to seek out the companies that offer these programs.

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.

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.”

That really depends on your goals and your risk tolerance. It can be risky to invest in a large portion of your wealth in just a few stocks. Diversification — investing in a large number of companies across many industries — is important. If you don't have the time or money to buy dozens of individual stocks, look into low-cost index funds — which invest in hundreds of individual stocks for you.

How many shares of each stock should you buy? That 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.

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.

NerdWallet writer Samuel Taube contributed to this article.

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