How to Buy Stocks: A step-by-step guide

How to Buy Stocks: A step-by-step guide

To buy stocks, you’ll first need a brokerage account, which you can set up in about 15 minutes. Then, once you’ve added money to the account, you can follow the steps below to find, select and invest in individual companies.

It may seem confusing at first, but buying stocks is really pretty straightforward. Here are five steps to help you understand how to buy stocks: 

Using an online stockbroker is the simplest way to purchase stocks. You can quickly purchase stocks on the broker’s website after creating and financing your account. Other choices include purchasing shares directly from the business or utilizing a full-service stockbroker.

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. 

2. Research the stocks you want to buy

If you’re interested in buying individual stocks, you’ll need to research and figure out if the stock is a good buy or a “goodbye.” And that can take a lot of upfront work if you want to succeed.

You should be familiar with the organization, its offerings, financial position, and sector. Consequently, you must read through its Securities and Exchange Commission filings (SEC). You will learn a great deal about what you are investing in and its potential from that. However, you could also wish to employ some of the best methods used by experts, such as conducting your own in-depth study.

From your research you can develop an investment thesis for the stock or discard it and look at another potential candidate. You’ll want to buy stocks that look poised to outperform for years rather than one you think will do better next week or month. That is, you want to invest long term and think like the owner of a business, not a stock trader looking to make a quick buck.

To gauge yourself, ask: “If the market closed tomorrow and I was unable to sell this stock, would I want to own it for the next ten years?” This can get your mind focused on the right time frame.

When you find an attractive stock, note its ticker symbol, typically a three- or four-letter code.

3. Decide how many shares to buy

There should be no pressure placed on you to purchase a specific quantity of shares or to include a stock in your whole portfolio at once. To get your feet wet, think about beginning with paper trading utilizing a stock market simulator. Paper trading allows you to practice buying and selling stocks using fake money. Or you can start small — really tiny — if you’re willing to invest actual money. You may buy just one share to get a sense of what it’s like to own individual equities and to determine whether you have the stamina to weather the tough times with little loss of sleep. As you develop your shareholder swagger, you may gradually increase your position.

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.

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. 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.

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.

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.

Market orders

By placing a market order, you promise to purchase or sell the stock at the best current market rate. Unless you’re going to acquire a million shares and conduct a takeover coup, your order will be executed right away and fully filled because a market order places no price limits on the trade. If you tried to buy a stock that was barely traded and had minimal volume, the market order might likewise not be filled.

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.

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.

In order to limit how long a limit order is open, you can add extra conditions to it. Only when all of the shares you want to trade are offered at your price limit will a “all or none” (AON) order be put into action. Even if the order is partially filled, a “good for day” (GFD) order expires at the close of trading. A “good till canceled” (GTC) order is one that is in effect until the consumer cancels it or it expires, which could be anywhere between 60 and 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.  

5. Track your stock

Being a stockholder involves more than just purchasing a stock. Additionally, you’ll need to maintain following the business, monitoring quarterly or annual earnings, and staying current with the sector. Additionally, you can dedicate more funds to the position as the business does successfully. As your knowledge increases, you can then add more stocks to your portfolio.

Along the way your stock will decline at some point, even if it’s only temporary. Understanding the company can help you decide whether it’s time to buy more stock at a discount or sell.

Finally, if you’re looking to get started investing, you should know that you have other options. As Warren Buffett advises: “If you like spending six to eight hours per week working on investments, do it. If you don’t, then dollar-cost average into index funds.

If you don’t want to spend the time following your stock, you have lots of ways to make money in the stock market, including index funds. Index funds often own hundreds of stocks, offering the benefit of diversification without the extra work of analyzing and evaluating individual stocks.

The bottom line on how to buy stocks online 

Beginners who are interested in purchasing stocks should be aware that trading is straightforward. The hardest parts of the procedure, though, are doing your research before investing and keeping track of your stocks once you’ve bought them. Starting out, it’s wise to take it gradually and make little investments until you feel confident in your ability to purchase stocks.

Some good rules of thumb to remember about buying stocks online are to find an easy-to-use broker, research the stocks you’re interested in, decide how much you want to invest, choose an order type that makes sense for you, and then monitor your stocks (but not too closely). If you can complete these steps, you’ll be well on your way to building a stock portfolio like a pro.  

Buying stocks: FAQ 

  • What are the best stocks for beginners?
There is no single “best stock,” which is why many financial advisors advocate for investing in low-cost index funds. However, if you’d like to add a few individual stocks to your portfolio, 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. 
  • Do I need a broker to buy stocks?

You can purchase stocks and other securities (including bonds, mutual funds, ETFs, options, and more) via a brokerage account. You can open an account with a full-service brokerage, an online brokerage, or a trading app like Webull or Robinhood. Full-service brokerages are more expensive options. You can purchase shares of publicly traded businesses using any of these options.

However, your bank account or other financial accounts will not allow you to purchase stocks. But your bank may operate a brokerage, so you can open an account with the brokerage and buy stock there. For example, Bank of America owns Merrill Edge, J.P. Morgan Chase offers J.P. Morgan Self-Direct Investing and Wells Fargo operates WellsTrade.

  • Is now a good time to buy stock?

The truth is that you can never tell whether a stock purchase is the ideal move. The time to acquire stocks may be as soon as you have the money available, but, if you’re investing for the long term (let’s say, more than five years). You will have plenty of time to recover your losses even if the market declines shortly after you invest. Additionally, investing before the recovery begins is the best way to ensure that you will take part in any stock market expansion and recovery from the start.

  • 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. 

  • Will i have to pay taxes on the profit?

Any realized gains on your investments will create a tax liability in taxable accounts (that is, accounts that are not an IRA401(k) or other tax-advantaged accounts). You’ll have to pay taxes on any dividends as well as any realized capital gains – stocks you sold for a gain.

Your income and the length of time you owned the security both affect the tax rate you pay. Your tax rate will be the same as your income rate if you owned the security for less than a year. The long-term capital gains rate, which may be higher or lower than your short-term rate, will apply if you owned a stock for more than a year (and sometimes even at a 0 percent rate).

  • 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.

Possibly, it’s more crucial to think about when not to sell stocks. You might be tempted to sell while the market is declining in order to limit your losses. This is often seen as a terrible strategy since once you sell, your losses will be locked in. The market will eventually recover, therefore a better plan is to ride out the volatility and look for long-term returns.

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