How to Buy Stocks: What to Know Before Your First Trade
Buying stocks may seem complex, but it's as easy as opening a brokerage account online and then purchasing stocks of the companies you're interested in.
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Updated · 5 min read
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Gone are the days when you had to call someone on Wall Street to place a trade. Today, you could purchase a stock in as few as five clicks through an investing app on your phone or computer.
Here's a quick guide on what you need to know about purchasing stocks online, from how to research to the type of orders you can place.
How to buy stocks in 6 steps
1. Open and fund your account (prerequisite)
To get started, you’ll need to open a brokerage account if you don’t already have one — it takes about 15 minutes and requires some personal information. (Trading apps, like Robinhood and Public, are effectively the same thing; you’ll open a brokerage account through these apps.) Then, you can transfer money into it from a bank account and use that money to purchase stocks.
» Need help getting started? See how the most popular investing apps compare
2. Research stocks before you buy
Once you’ve set up and funded your investment account, it’s time to dive into the business of picking stocks. A good place to start is to research companies you already know from your consumer experiences by looking up their ticker symbols in your brokerage account.
Don’t let the deluge of data and real-time market changes overwhelm you as you conduct your research. Keep the objective simple: You’re looking for companies in 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.
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 using their tools and even basic seminars on how to pick stocks.
To learn more about evaluating companies for your portfolio, see our guide on how to research stocks.
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You should feel absolutely no pressure to buy a specific number of shares, or to fill your entire portfolio with a single stock all at once, especially since most brokerages we review now offer fractional shares. What that means is you can invest in pricey stocks with much less money.
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.
If you're ready to put real money down, you can start 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 gain comfort trading.
Want some practice first? If you need a little warm-up before you’re ready to buy a stock, you could also consider practicing with a stock market simulator to get your feet wet. Some brokers also offer paper trading, where you can learn how to buy and sell stocks using play money.
4. Choose an order type
An order type refers to how you place a stock purchase. Don’t be put off by all the options on your broker's online order page. 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 places no price parameters on the trade, your order should be executed immediately and filled in full. 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 (e.g., steady blue-chip stocks as opposed to smaller, more volatile companies).
Good to know: A market order is best suited for buy-and-hold investors, for whom small price differences are less important than ensuring that the trade is fully executed.
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 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 valuable tool for investors buying and selling stocks of smaller companies, which tend to experience wider spreads due to fluctuations in investor activity. They're also good for investing during periods of short-term stock market volatility or when the stock price is more important than order fulfillment.
Good to know: If your broker charges commissions — which is rare among online brokers — limit orders can cost more than market orders.
There are many more sophisticated trading moves and complex order types outside of what we've covered above. You don't have to worry about those right now — or maybe ever.
5. Execute the trade
Once you decide on an order type, make sure you have sufficient funds in your account to place the order. Once you click the “buy” button, you’ve executed the trade, but you’ll still have to wait a bit to officially take ownership of those shares. This process — known as settlement — usually happens within one business day with a market order. If you place a market order trade “after hours,” (after 4 pm EST), when the markets have closed for the day, your order will be placed at the prevailing price when the exchanges next open for trading.
Limit orders can operate differently. 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.
A limit order that can't be executed in full at once or within 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.
Regardless of the type of trade you place, once it’s finalized, you should receive an email or notice from your broker outlining the transaction details. You’ll also see the stock in your portfolio, and you’ll be able to follow its performance. That performance can change day to day, even hour by hour, but remember you won’t lock in any actual losses or gains until you sell the share.
6. Keep track of your stock investments
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 you can check both boxes at once.
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 — the value of the shares you buy may 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 recommend is to ride out volatility and aim for long-term gains, understanding that the market will bounce back over time.
[Video] Example of buying stocks on Robinhood
This is not financial advice, nor is this a recommendation of Robinhood, Vanguard, or any investments or strategies discussed in this video. Content is for demonstration purposes only.
Frequently Asked Questions
Can I buy stocks on my own, without a brokerage account?
In recent years, online brokers and investing apps have made it extremely easy for beginners to sign up for and use their services. For most new investors, an online brokerage account is the easiest way to enter the stock market.
But if you’re still keen to start investing without a broker, look for companies that offer direct stock plans, which let you purchase shares directly from the company for a low fee or no fee at all. These programs may also offer the advantage of investing by dollar amount rather than by share, and often let investors set up recurring investments.
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 them as income. Like direct stock plans, though, you’ll have to seek out the companies that offer these programs.
How much money do I need to buy stocks?
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.”
Is purchasing stocks and shares the same thing?
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 market overall.
What are some cheap stocks to buy now?
Most brokerages allow you to buy fractional shares, meaning if you only had $100 to invest, you could buy a portion of a stock. Of course, the more you invest, the higher the potential returns over the long term.
But even if your brokerage doesn't offer fractional shares, as long as there are no account minimums or 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).
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