You need a brokerage account, money to invest, and a way to place orders
Starting to invest in stocks means opening an account with a brokerage firm — a company licensed to buy and sell securities on your behalf. You fund that account with your own money, then use it to purchase shares of individual companies or funds that hold many stocks. The brokerage handles the actual transaction and holds your shares until you sell them.
The process itself takes a few days to a week. You choose a brokerage, complete their account application (which asks for your Social Security number, employment history, and bank details), link a bank account or transfer money in, and then you can start placing orders. Most brokerages charge no commission on stock trades anymore, though some charge monthly fees or require minimum deposits.
Before you open an account, you should have a basic plan: how much money you can afford to invest without needing it back soon, what kind of stocks or funds interest you, and how often you plan to check your account. People who panic-sell during market downturns lose money. People who invest money they need for rent next month also lose money. Both situations are avoidable with a clear starting point.
Key Takeaways
- You must open a brokerage account with a licensed firm before you can buy any stocks; this takes three to seven business days and requires your Social Security number and a bank account.
- Most brokerages no longer charge per-trade commissions, but some charge monthly account fees or require minimum deposits ranging from zero to several thousand dollars.
- You should only invest money you will not need for at least three to five years, because stock prices move up and down and selling during a downturn locks in losses.
- Starting with a low-cost index fund that tracks the entire market is a common first step because it spreads your money across hundreds of companies instead of betting on one stock.
- Your brokerage will send you tax documents each January for any dividends or gains you sold; you report these on your tax return.
Choosing a brokerage and opening your account
A brokerage is a company licensed by the Securities and Exchange Commission (SEC) to handle stock trades. The major ones include Fidelity, Charles Schwab, E*TRADE, TD Ameritrade, Robinhood, and Webull. Each has a website and a mobile app where you can research stocks, place orders, and track your holdings.
To open an account, you visit the brokerage's website and click "Open an Account" or similar. You will provide your name, address, Social Security number, date of birth, employment status, and annual income. The brokerage runs a background check (usually instant) and then asks you to link a bank account or wire money in. Some brokerages offer zero minimum deposits; others require $500 or $1,000 to start. Once your bank account is linked and your deposit clears — typically two to three business days — you can place your first trade.
The account application also asks whether you want a standard taxable account or a retirement account like an IRA. For your first investment, a standard taxable account is simpler. You can open a retirement account later once you understand how stocks work.
How much money you need to start
There is no legal minimum to buy stocks. Some brokerages let you open an account with $1. However, most stocks trade in whole shares, and a single share of a major company can cost $100 to $300. If you have $500, you might buy five shares of one company or spread it across several. If you have $5,000, you have much more flexibility.
A practical starting point is money you can afford to leave invested for at least three to five years without touching it. Stock prices fall sometimes — sometimes sharply — and if you need to sell during a downturn, you lock in a loss. Money you might need for an emergency, a car repair, or next semester's tuition should stay in a savings account, not in stocks.
Many people start with $500 to $2,000 as a learning amount. That is enough to buy a few shares or a fractional share of an index fund, see how the account works, and get comfortable with the rhythm of the market without risking money they cannot afford to lose.
Index funds versus individual stocks
An index fund is a fund that holds shares of many companies — often hundreds or thousands — to match a market index like the S&P 500 (the 500 largest U.S. companies) or the total U.S. stock market. When you buy one share of an S&P 500 index fund, you own a tiny piece of all 500 companies. If one company fails, it barely dents your investment.
An individual stock is a share of one company. If you buy Apple stock, you own a piece of Apple only. If Apple does well, your share gains value. If Apple struggles, your share loses value. Individual stocks are riskier but can also gain more if you pick a winner.
Most people starting out buy index funds first because they are simpler, cheaper to trade, and less risky than picking individual stocks. You can buy individual stocks later once you have read company financial reports and understand what you are looking for. Many experienced investors never move beyond index funds because the math shows that most people who pick individual stocks underperform the market over time.
Placing your first trade
Once your account is funded, you log into your brokerage and look for a "Trade" or "Buy" button. You type in the stock symbol (a short code like AAPL for Apple or VOO for a Vanguard S&P 500 index fund). The brokerage shows you the current price and lets you enter how many shares you want to buy. You review the order and click "Confirm" or "Submit."
The order executes immediately during market hours (9:30 a.m. to 4 p.m. Eastern time on weekdays when the market is open). If you place an order after hours or on a weekend, it waits until the market opens the next trading day. The shares appear in your account within one business day, and you own them until you sell them.
Your brokerage shows you the current value of your holdings at any time. If you bought 10 shares at $50 each and the price rises to $55, your investment is now worth $550 instead of $500. If the price falls to $45, it is worth $450. You do not lose or gain money until you sell — until then, it is just a number on your screen.
Fees, taxes, and what happens next
Most brokerages charge zero commission per trade, meaning you do not pay a fee when you buy or sell a stock. However, some charge monthly account maintenance fees (usually $5 to $10) or require a minimum deposit to waive the fee. A few charge for certain services like financial advice or premium research tools. Read the fee schedule on the brokerage's website before you open an account.
When you sell a stock for more than you paid for it, you owe capital gains tax on the profit. If you hold the stock for more than one year before selling, it is taxed at the long-term capital gains rate, which is lower than ordinary income tax. If you sell within one year, it is taxed as ordinary income. Your brokerage sends you a Form 1099-B each January listing all your sales and gains; you report this on your tax return.
If a company pays a dividend (a cash payment to shareholders), your brokerage deposits it into your account. You owe tax on dividends in the year you receive them, even if you do not sell the stock. Again, your brokerage reports this on your 1099 form.
Common mistakes to avoid when starting out
The biggest mistake is investing money you will need soon. Stock prices move unpredictably month to month. If you invest $2,000 and need it in six months, you might have $1,800 or $2,300 — you cannot know. Only invest money you can leave alone for years.
The second mistake is buying individual stocks based on a tip or a news story without understanding the company. You hear that a stock is "hot" and buy it, then panic when the price drops 20 percent. Index funds protect you from this because you own the whole market, not a bet on one story.
The third mistake is trading too often. Every time you buy and sell, you create a taxable event and you pay the bid-ask spread (the tiny difference between what buyers pay and what sellers receive). People who trade dozens of times a year usually end up with less money than people who buy once and hold for years.
Frequently Asked Questions
Do I need a lot of money to start investing in stocks?
No. Many brokerages have zero minimum deposits, and most stocks can be bought in fractional shares (meaning you can invest $50 even if one share costs $200). Start with whatever amount you can afford to leave invested for several years without touching it.
What is the difference between a brokerage and a bank?
A bank holds your money in savings and checking accounts. A brokerage buys and sells stocks and other securities on your behalf. You need a brokerage account to own stocks. Many large banks own brokerages, but they are separate services.
Can I lose more money than I invested?
If you buy stocks outright with your own cash, no — the worst that can happen is the stock price falls to zero and you lose your entire investment. If you borrow money to buy stocks (called buying on margin), you can lose more than you invested. As a beginner, avoid margin and only invest cash you own.
How do I know when to sell a stock?
That depends on your plan. If you bought an index fund to hold long-term, you might never sell — you just keep adding to it. If you bought an individual stock, you might sell when the price reaches a target you set, or when the company's situation changes. Write down your plan before you buy, so you are not making emotional decisions when the price moves.
What happens if the brokerage goes out of business?
Your stocks are protected. The Securities Investor Protection Corporation (SIPC) insures up to $500,000 per account at any brokerage. Your shares are held in your name, not the brokerage's, so even if the firm fails, you still own the stocks and can transfer them to another brokerage.