You need a brokerage account, money to invest, and a way to place orders

Buying stocks means purchasing shares of ownership in a company. To do it, you open an account with a brokerage firm — a company licensed to buy and sell stocks on your behalf. You deposit money into that account, then use the brokerage's website or app to search for a stock by its ticker symbol (a short code like AAPL for Apple or MSFT for Microsoft) and place an order to buy a certain number of shares at the current market price.

The brokerage holds your shares and keeps a record of what you own. When you want to sell, you use the same platform to place a sell order. The money from the sale goes back into your brokerage account, where you can withdraw it to your bank or use it to buy other stocks.

Most major brokerages no longer charge per-trade fees, so the cost to buy or sell a single stock is zero. You pay only when you buy — the price of the shares themselves — and you may owe taxes on any profit when you sell.

Key Takeaways

  • You must open a brokerage account with a licensed firm before you can buy any stock; popular options include Fidelity, Charles Schwab, E*TRADE, and Vanguard.
  • Most brokerages have no minimum deposit requirement and charge no fee per trade, though some offer premium accounts with extra features for a monthly cost.
  • Stock prices move during market hours (9:30 a.m. to 4 p.m. Eastern time on weekdays), and you can place orders anytime, but they execute only when the market is open.
  • You owe capital gains tax on any profit you make when you sell a stock, and the tax rate depends on how long you held it and your income level.

Opening a brokerage account and funding it

Choose a brokerage and visit its website or download its app. You will enter your name, address, Social Security number, and employment information. The brokerage verifies your identity and opens the account, usually within minutes or a few hours.

Once the account is open, link a bank account so you can transfer money in. Most brokerages let you move funds electronically; the transfer typically takes one to three business days. Some brokerages offer a debit card or check-writing feature so you can withdraw money from your brokerage account back to your bank.

You do not need a large sum to start. Many brokerages have no minimum deposit. You can open an account with $1 and buy fractional shares — meaning you can own a piece of an expensive stock even if you have only $50 to invest. Some stocks trade for hundreds of dollars per share, but fractional shares let you buy $50 worth instead of waiting to afford a whole share.

Understanding stock orders and market hours

When you place an order to buy a stock, you are telling the brokerage how many shares you want and at what price you are willing to pay. The most common order type is a market order, which buys at whatever the current price is the moment the order executes. A market order placed during market hours (9:30 a.m. to 4 p.m. Eastern time, Monday through Friday) executes almost instantly.

You can place orders anytime — evenings, weekends, holidays — but they do not execute until the market opens. If you place a market order on Saturday, it will execute Monday morning at the opening price, which may be different from Friday's closing price.

A limit order lets you set a maximum price you will pay. If you place a limit order to buy 10 shares of a stock at $50 per share, the order executes only if the price drops to $50 or lower. Limit orders can take days or weeks to execute, or may never execute if the price never reaches your limit.

Choosing which stocks to research and buy

Most brokerages include research tools on their platform — charts showing price history, company news, financial statements, and analyst ratings. You can also search for information on financial websites like Yahoo Finance, Morningstar, or Seeking Alpha, which are free and do not require an account.

Before you buy, read the company's most recent earnings report and quarterly financial statements, both usually available on the company's investor relations website. Look at revenue, profit, and debt. Compare the stock price to the company's earnings (the price-to-earnings ratio, or P/E ratio) to see whether the stock is expensive or cheap relative to its profits.

Many people new to stocks buy shares in companies they know — Apple, Amazon, Microsoft — because they use the products. That is a reasonable starting point, but it is not a strategy. A strategy involves understanding what you are buying, why you think the price will go up, and how long you plan to hold it.

Tax implications and long-term versus short-term holding

When you sell a stock for more than you paid for it, you owe capital gains tax on the profit. The tax rate depends on how long you held the stock. If you held it for one year or less, it is taxed as short-term capital gains at your ordinary income tax rate, which can be as high as 37 percent depending on your income. If you held it for more than one year, it is taxed as long-term capital gains at a lower rate: 0 percent, 15 percent, or 20 percent depending on your income.

This difference is significant. If you buy a stock for $1,000, sell it for $1,200 after six months, and your income tax rate is 24 percent, you owe $48 in tax on the $200 profit. If you held the same stock for 13 months and your long-term rate is 15 percent, you owe $30 in tax on the same profit.

You do not owe tax on gains until you sell. If you buy a stock and it doubles in value but you do not sell, you owe no tax that year. Tax is due only when you realize the gain by selling.

Common mistakes to avoid when starting out

Do not invest money you will need within the next few years. Stock prices fluctuate daily, and you might be forced to sell at a loss if you need the cash. If you have high-interest debt — credit cards, payday loans — pay that down first. The may provide return from eliminating 20 percent interest debt is better than the uncertain return from stocks.

Do not buy a stock because you heard about it on social media or from a friend. Do not chase stocks that have already risen sharply, hoping to catch the next big move. Do not sell in a panic when the price drops 10 or 20 percent; price drops are normal and often create buying opportunities.

Do not put all your money into one stock. Diversification — owning many stocks across different industries — reduces the risk that one bad company will wipe out your investment. Many beginners start with index funds or exchange-traded funds (ETFs) instead of individual stocks, because a single fund holds dozens or hundreds of stocks.

Brokerage options and what to compare

Major brokerages include Fidelity, Charles Schwab, E*TRADE, TD Ameritrade, Vanguard, and Interactive Brokers. All are regulated by the Securities and Exchange Commission (SEC) and the Financial Industry Regulatory Authority (FINRA). All offer zero-commission trading on stocks and ETFs.

Compare them on research tools (some have better charting or analyst reports), mobile app quality, customer service hours, and whether they offer the types of investments you want. Some specialize in active traders and offer advanced tools; others focus on long-term investors and emphasize low-cost index funds. Read reviews from current users, but remember that people who are angry are more likely to leave reviews than people who are satisfied.

If you are under 18, you cannot open a brokerage account in your own name. A parent or guardian can open a custodial account on your behalf, which you control but they oversee until you reach the age of majority (18 or 21, depending on your state).

Frequently Asked Questions

How much money do I need to start investing in stocks?

Most brokerages have no minimum deposit. You can open an account and buy fractional shares with as little as $1 or $5. However, if you are paying yourself first from each paycheck, financial advisors often recommend starting with at least $500 to $1,000 so you have enough to diversify across a few different stocks or funds.

Can I lose more money than I invest?

If you buy stocks with cash, the worst that can happen is the stock price falls to zero and you lose your entire investment. You cannot lose more than you put in. If you borrow money to buy stocks (called buying on margin), you can lose more than your initial investment, but this is an advanced strategy not recommended for beginners.

What is the difference between stocks and bonds?

A stock is ownership in a company; you profit if the company does well and the stock price rises. A bond is a loan you make to a company or government; you receive regular interest payments and get your money back at a set date. Stocks have higher potential returns but higher risk; bonds are more stable but offer lower returns.

Do I have to report my stock trades to the IRS?

Yes. Your brokerage sends you a Form 1099-B each January listing all your sales from the previous year. You report capital gains and losses on your tax return. If you did not sell anything, you do not owe tax that year, but you still need to report if you received dividends (payments companies make to shareholders).

What happens if the brokerage goes out of business?

Your stocks are held in your name, not the brokerage's name, so they belong to you even if the brokerage fails. The Securities Investor Protection Corporation (SIPC) insures cash and securities in brokerage accounts up to $500,000 per account, so your investment is protected.