How stock trading actually works

To trade stocks, you open an account with a brokerage firm, deposit money, and use their platform to buy or sell shares of companies. The brokerage holds your money and executes the trades you request — they are the middleman between you and the stock market. You can buy a share of Apple, hold it for years, sell it tomorrow, or trade dozens of times a day; the mechanics are the same.

The price you pay or receive depends on what other buyers and sellers are willing to trade at in that moment. If you want to buy 10 shares of a stock trading at $50 per share, you need $500 plus any fees your brokerage charges. When you sell, you receive the current market price minus those fees. The difference between what you paid and what you sold it for is your gain or loss.

Most people trade during market hours — 9:30 a.m. to 4 p.m. Eastern time on weekdays when U.S. stock exchanges are open. Some brokerages offer extended-hours trading before and after those times, though prices can be less stable and harder to predict. Weekends and holidays, the markets are closed and you cannot trade.

Key Takeaways

  • You need a brokerage account to trade stocks; the brokerage executes your buy and sell orders and holds your cash and shares.
  • Stock prices move constantly based on supply and demand, so the price you see on screen may not be the price you actually get.
  • Most brokerages charge no commission per trade, but they may charge account fees, margin interest, or other costs depending on how you trade.
  • You can place different types of orders — market orders execute immediately at the current price, while limit orders only execute if the price reaches a level you set.

Opening a brokerage account

Choose a brokerage and go to their website or app to open an account. You will provide your name, address, Social Security number, and employment information. The brokerage verifies your identity and runs a background check — this usually takes a few minutes to a few hours. Once approved, you can link a bank account and transfer money in.

Different brokerages have different minimums to open an account. Some require $0 to start; others require $500, $1,000, or more. Check the specific brokerage's website for their current requirements. Once your account is open and funded, you can place trades immediately.

Popular brokerages include Fidelity, Charles Schwab, E-Trade, Interactive Brokers, and Robinhood, but there are many others. Each has different features, fees, and tools. Some are better for beginners; others cater to active traders. Research what matters to you — low fees, research tools, customer service, or mobile app quality — before choosing.

Placing a buy order

Log into your brokerage account and search for the stock you want to buy by its ticker symbol (a short code like AAPL for Apple or MSFT for Microsoft). Click on the stock, then click "Buy." You will see a form asking how many shares you want and what type of order to place.

A market order buys immediately at whatever price the stock is trading at right now. If you place a market order for 10 shares of a $50 stock, you will get 10 shares, but the actual price per share might be $50.05 or $49.98 by the time the order executes — prices move constantly. Market orders are fast and almost always go through, but you do not control the exact price.

A limit order lets you set the maximum price you will pay. If you place a limit order to buy 10 shares at $50, the order will only execute if the stock drops to $50 or lower. If it never reaches that price, your order sits open until you cancel it or it expires. Limit orders give you price control but no may provide the trade will happen.

Review the order details — the number of shares, the price, the total cost — before you submit. Once you submit, the order goes to the market. You will see a confirmation with an order number. Your brokerage will send you an email confirming the trade once it completes.

Placing a sell order

To sell shares you own, log in, find the stock in your account holdings, and click "Sell." Enter the number of shares you want to sell and choose your order type — market or limit — just as you would for a buy order. A market sell order executes immediately at the current price. A limit sell order only executes if the price reaches the level you set or higher.

You can only sell shares you actually own. If you try to sell 100 shares but only own 50, the order will be rejected. Some brokerages allow short selling — selling shares you do not own, betting the price will drop so you can buy them back cheaper — but this is advanced and carries significant risk. Most beginners should not use short selling.

After you sell, the cash from the sale lands in your brokerage account. You can withdraw it to your bank account, use it to buy other stocks, or leave it sitting in cash. Withdrawals typically take 1 to 3 business days to reach your bank.

Understanding fees and costs

Most major brokerages charge $0 per trade — no commission when you buy or sell a stock. This was not always true; it used to cost $5 to $10 per trade, but competition has driven commissions to zero for most retail investors.

However, other costs exist. Some brokerages charge monthly account maintenance fees if your balance is below a certain amount. If you borrow money from your brokerage to buy stocks — called margin — you pay interest on the borrowed amount. If you trade options or use certain advanced features, there may be additional fees. Check your brokerage's fee schedule before you open an account.

Taxes are not a fee your brokerage charges, but they are a real cost. When you sell a stock for a profit, you owe capital gains tax. The rate depends on how long you held the stock and your income level. Short-term gains (held less than a year) are taxed as ordinary income; long-term gains (held a year or more) usually have lower tax rates. Keep records of what you bought, when, and for how much so you can calculate your gains accurately.

What happens after you trade

When you buy a stock, the shares appear in your account within one business day, though the trade settles — meaning the cash actually moves and ownership officially transfers — in two business days. During those two days, you own the shares and can sell them, but the cash is not yet fully yours if you sell.

Stocks you own may pay dividends — periodic cash payments from the company to shareholders. Not all stocks pay dividends; growth companies often reinvest profits instead. If a stock you own pays a dividend, the cash lands in your account on the payment date. You can withdraw it or reinvest it to buy more shares.

Your brokerage sends you a tax form at the end of the year — a 1099 form — listing all your trades, dividends, and interest earned. You use this to file your taxes. Keep your own records too, because the brokerage's records are sometimes incomplete or contain errors.

Common mistakes to avoid

Placing a market order when you meant to place a limit order is one of the most common mistakes. The stock price can move sharply in seconds, and a market order will execute at whatever price it is at that moment. If you care about the price, use a limit order and wait, or accept that a market order might fill at a worse price than you expected.

Buying a stock based on a tip from social media or a friend without doing your own research often leads to losses. Stock prices can move for many reasons — company earnings, industry trends, economic news — and a tip rarely captures the full picture. Before you buy, read the company's financial statements, understand what it does, and think about whether the price makes sense.

Trying to time the market — buying low and selling high — is harder than it sounds. Even professional investors rarely get it right consistently. A simpler approach for most people is to buy stocks you believe in and hold them for years, rather than trading in and out frequently.

Forgetting to keep records of your trades makes taxes complicated. Your brokerage provides records, but they are not always organized in a way that makes calculating your gains easy. Keep your own spreadsheet or use your brokerage's tax tools to track cost basis, sale price, and holding period for each trade.

Frequently Asked Questions

Can I buy a partial share of a stock?

Yes, many brokerages now offer fractional shares, meaning you can buy $50 worth of a $500 stock instead of needing $500 for a full share. This makes it easier to diversify with a small amount of money. Not all brokerages offer fractional shares, so check before you open an account if this matters to you.

What is the difference between a stock and a mutual fund?

A stock is a single company's share. A mutual fund is a pool of money from many investors that a professional manager uses to buy a basket of stocks, bonds, or other investments. Mutual funds spread your risk across many companies; a single stock concentrates it in one. Both trade through a brokerage.

Do I have to pay taxes on stocks I still own?

No. You only owe capital gains tax when you sell and realize a profit. Stocks you hold are not taxed until you sell them. However, if a stock pays dividends, you owe tax on the dividend income in the year you receive it, even if you do not sell the stock.

What happens if my brokerage goes out of business?

Your cash and stocks are protected by the Securities Investor Protection Corporation (SIPC) up to $500,000 per account. This covers the value of your holdings if the brokerage fails, not if your investments lose money. Choose a brokerage that is SIPC-insured, which nearly all major ones are.

Can I trade stocks on my phone?

Yes. Most brokerages have mobile apps that let you buy and sell stocks from your phone. The process is the same as on a computer — search for the stock, choose your order type, and submit. Make sure you have a strong internet connection and double-check your order before you submit, since it is easy to make mistakes on a small screen.