How you actually buy and sell stocks

To buy a stock, you open an account with a brokerage firm, deposit money, search for the company's ticker symbol, and place an order. To sell, you find the stock in your account and place a sell order. The brokerage executes both transactions and holds your shares until you decide to sell them. You pay a commission or fee to the brokerage for each trade, though many brokerages now charge zero commission per trade.

The entire process takes minutes once your account is set up and funded. The actual settlement — the moment the shares move to your name and the money moves to the seller's account — takes two business days. During those two days, you own the shares but cannot sell them yet. This is called the settlement period.

Key Takeaways

  • You need a brokerage account before you can buy any stock; opening one takes 10 to 20 minutes and requires proof of identity and a Social Security number.
  • Most brokerages now charge zero commission per trade, but you still pay the bid-ask spread — the difference between what you pay to buy and what you receive when you sell.
  • Stock orders settle in two business days, meaning you own the shares immediately but cannot sell them until the settlement is complete.
  • Market orders execute at the current price within seconds; limit orders only execute if the price reaches the level you set, and may never execute at all.
  • Selling a stock you own for less than you paid is a capital loss, which you can use to reduce your taxes on capital gains from other sales.

Opening a brokerage account

A brokerage account is simply a container that holds your money and your shares. You open one by going to a brokerage website — common ones include Fidelity, Charles Schwab, E-Trade, Robinhood, and Webull — and clicking the button to open an account. The brokerage will ask for your name, address, date of birth, Social Security number, and employment status. You will need a government-issued ID to verify your identity.

The entire process takes 10 to 20 minutes. Once your account is open, you link a bank account and deposit money. The deposit usually takes one to three business days to clear. Some brokerages let you start trading immediately with unsettled funds, but this comes with restrictions — you can only make a certain number of trades per week, and if you sell before the deposit clears, you may face penalties.

You do not need a large amount to start. Most brokerages have no minimum deposit requirement, though some require $500 or $1,000 to open a margin account (which lets you borrow money to buy stocks). For a basic cash account, you can deposit $1 and begin.

Placing a buy order

Once your account is funded, you search for the stock you want to buy using its ticker symbol — a one- to five-letter code that represents the company. Apple's ticker is AAPL, Microsoft is MSFT, Tesla is TSLA. You can find any company's ticker by typing the company name into the brokerage's search box.

When you find the stock, you choose the type of order. A market order buys the stock at whatever the current price is, right now. It executes within seconds. A limit order lets you set a maximum price you are willing to pay; the order only executes if the stock drops to that price or lower. Limit orders may never execute if the price never reaches your target.

You then enter the number of shares you want to buy and review the total cost. If you have enough cash in your account, you confirm the order. The brokerage sends it to the market, and within seconds it is filled. You now own the shares, but they will not fully settle for two business days.

Understanding commissions and spreads

Most major brokerages charge zero commission per trade, meaning you do not pay a flat fee to buy or sell. However, you still pay a cost called the bid-ask spread. This is the difference between the price someone is willing to pay for a stock (the bid) and the price someone is willing to sell it for (the ask). When you buy, you pay the ask price. When you sell, you receive the bid price. That gap is your cost.

For a stock trading at $100, the bid might be $99.98 and the ask might be $100.02. If you buy at $100.02 and sell at $99.98, you lose $0.04 per share. On 100 shares, that is $4. The spread is usually tiny for large, popular stocks but can be much wider for smaller or less-traded companies.

Some brokerages also charge fees for certain services — closing an account, transferring stocks to another brokerage, or obtaining paper statements. Read the fee schedule before you open an account.

Placing a sell order

To sell a stock, you log into your brokerage account and find the stock in your holdings. You click the sell button, choose the number of shares you want to sell, and select your order type — market or limit, just as you did when buying. A market sell order executes immediately at the current bid price. A limit sell order only executes if the price rises to your target or higher.

Once you confirm the sell order, it is sent to the market and executes within seconds. The cash from the sale appears in your account immediately, but it does not fully settle for two business days. During the settlement period, you cannot withdraw the cash or use it to buy other stocks. After two business days, the cash is yours to use.

If you sell a stock for more than you paid for it, you have a capital gain. If you sell for less, you have a capital loss. Both affect your taxes. Capital gains are taxable income. Capital losses can offset capital gains, reducing your tax bill.

What happens during the two-day settlement period

When you buy a stock, you own it immediately, but the paperwork takes two business days to complete. During this time, the shares are in your account and you can see them, but you cannot sell them. If you try to sell before settlement is complete, your brokerage will reject the order or charge you a fee for a "good-faith violation."

The same applies when you sell. The cash appears in your account right away, but you cannot withdraw it or use it to buy other stocks until settlement is done. Weekends and holidays do not count as business days, so a trade on Friday does not settle until Wednesday.

This rule exists because the stock exchange and your bank need time to move the actual shares and money between accounts. It is a legacy of older systems, but it still applies today at every brokerage.

Taxes on stock sales

When you sell a stock, you owe taxes on any profit you made. The tax rate depends on how long you held the stock. If you held it for one year or less, the gain is taxed as short-term capital gain, which is taxed at your ordinary income tax rate — the same rate as your salary. If you held it for more than one year, it is a long-term capital gain, which is taxed at a lower rate: 0%, 15%, or 20%, depending on your income.

If you sell a stock for less than you paid, you have a capital loss. You can use capital losses to offset capital gains from other sales, dollar for dollar. If your losses exceed your gains, you can deduct up to $3,000 of the excess loss against your ordinary income in a single year. Any remaining loss carries forward to future years.

Your brokerage will send you a tax form called a 1099-B at the end of the year, listing all your sales and the gains or losses. You report this on your tax return. Keeping records of what you paid for each stock and when you bought it makes tax time much simpler.

Frequently Asked Questions

Can I buy a partial share of a stock?

Yes. Most brokerages now offer fractional shares, meaning you can buy $50 worth of a $500 stock instead of waiting to save $500 for a whole share. Fractional shares trade the same way as whole shares — you can sell them anytime — but some brokerages charge slightly higher spreads on fractional trades.

What is the difference between a market order and a limit order?

A market order buys or sells immediately at the current price. A limit order only executes if the price reaches the level you set. Market orders are fast but you do not control the price. Limit orders give you control but may never execute if the price never reaches your target.

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

No. You only pay taxes when you sell. Stocks you own but have not sold are not taxable, even if they have gone up in value. Once you sell, you owe taxes on the gain.

What happens if I sell a stock before the two-day settlement is complete?

Most brokerages will reject the order or charge you a fee called a "good-faith violation." Some brokerages allow a limited number of day trades per week if you have at least $25,000 in your account. Otherwise, you must wait for settlement to complete before selling.

Can I lose more money than I invested?

If you buy a stock outright with cash, the worst that can happen is the stock goes to zero and you lose your entire investment. If you borrow money from your brokerage to buy stocks (called margin), you can lose more than you invested. Most new investors should avoid margin until they understand the risks.