You need a brokerage account to buy stocks, and you choose between a regular taxable account or a tax-advantaged retirement account

Buying stocks requires an account with a brokerage firm — a company licensed to buy and sell securities on your behalf. You cannot walk into a bank and buy individual stocks; you need a brokerage account, which is separate from a checking or savings account. The brokerage holds your money, executes your trades, and keeps records of what you own.

You have two main paths: open a taxable brokerage account if you want to buy stocks with no restrictions on when you withdraw money, or open a retirement account (like an IRA or 401(k)) if you want tax advantages but accept that withdrawals before age 59½ usually trigger penalties. Many people use both — a retirement account for long-term wealth and a taxable account for money they may need sooner.

The actual process is straightforward: choose a brokerage, complete their account process online, link a bank account or transfer money in, and then place your first trade through their platform or app. Most brokerages charge no account fees and no commission per trade, though some charge small fees for certain services.

Key Takeaways

  • A taxable brokerage account lets you buy and sell stocks anytime with no withdrawal penalties, but you pay capital gains tax when you sell at a profit.
  • Retirement accounts like traditional IRAs, Roth IRAs, and 401(k)s offer tax breaks but restrict withdrawals until age 59½, with some exceptions.
  • Major brokerages (Fidelity, Vanguard, Charles Schwab, E*TRADE, Robinhood) charge no account fees or per-trade commissions for stock purchases.
  • You must fund your account by linking a bank account or transferring money before you can buy your first stock.
  • Stocks are bought in whole shares or fractional shares depending on the brokerage, so you can start with small amounts of money.

Taxable brokerage accounts: no restrictions, but you owe taxes on gains

A taxable brokerage account is the simplest entry point. You open it, deposit money, and buy stocks whenever you want. You can sell them anytime and withdraw the cash with no penalties or age restrictions. The trade-off is that you pay federal income tax on any profit when you sell — this is called a capital gain — and you may owe state income tax as well.

If you buy a stock for $1,000 and sell it for $1,500, you have a $500 capital gain and owe tax on that $500. The tax rate depends on how long you held the stock: if you held it more than one year, it is taxed at the long-term capital gains rate, which is lower than your regular income tax rate. If you held it one year or less, it is taxed at your ordinary income tax rate. You also owe tax on any dividends — payments companies make to shareholders — in the year you receive them.

Taxable accounts have no contribution limits. You can deposit $100 or $100,000 in a single year. This makes them useful for people who have already maxed out retirement account contributions or who want to keep money accessible.

Retirement accounts: tax breaks in exchange for withdrawal restrictions

A traditional IRA lets you deduct your contributions from your taxable income in the year you make them, which lowers your tax bill when ready. You pay no tax on the growth inside the account. When you withdraw money in retirement, you pay income tax on the full amount — both your original contributions and all the growth. The annual contribution limit for 2024 is $7,000 (or $8,000 if you are 50 or older). You cannot withdraw money before age 59½ without paying a 10% penalty plus income tax, with some exceptions like hardship withdrawals or first-time home purchases.

A Roth IRA works differently. You contribute money that has already been taxed, so you get no when ready tax deduction. But the money grows tax-free, and you withdraw it tax-free in retirement — including all the growth. The same $7,000 annual limit applies (or $8,000 at age 50+). You can withdraw your contributions anytime without penalty, but withdrawing growth before age 59½ triggers the 10% penalty and income tax. Roth IRAs also have income limits: if your income is above a certain threshold, you cannot contribute directly, though you may be able to use a backdoor Roth strategy.

A 401(k) is offered through your employer. You contribute money directly from your paycheck before taxes, which lowers your taxable income. Your employer may match a portion of your contribution — information programs. The 2024 contribution limit is $23,500 (or $31,000 at age 50+), much higher than an IRA. You pay tax on withdrawals in retirement. You cannot withdraw before age 59½ without a 10% penalty, though some plans allow loans or hardship withdrawals.

How to open an account and fund it

Choose a brokerage and visit their website or read their app. Major brokerages include Fidelity, Vanguard, Charles Schwab, E*TRADE, TD Ameritrade, and Robinhood. Each has a different interface and different research tools, but all let you buy stocks with no commission. Fill out their account process, which asks for your name, address, Social Security number, employment status, and investment experience. This takes 10 to 15 minutes.

Next, link a bank account or transfer money into your brokerage account. Most brokerages let you connect your checking account directly, and the transfer takes one to three business days. Some brokerages offer when ready transfers if you use certain banks. You need money in the account before you can buy stocks.

Once your account is funded, you can place your first trade. Search for the stock by its ticker symbol — a one- to five-letter code like AAPL for Apple or MSFT for Microsoft. Enter how many shares you want to buy (or the dollar amount, if the brokerage offers fractional shares). Review the order and confirm. The trade executes when ready during market hours (9:30 a.m. to 4 p.m. Eastern time on weekdays) or at the market open if you place it after hours.

Whole shares versus fractional shares

Traditionally, you had to buy stocks in whole shares. If a stock cost $500 per share and you had $1,000, you could buy two shares but not 2.5. This meant expensive stocks were out of reach for people with small amounts to invest.

Most major brokerages now offer fractional shares, which means you can buy a portion of a share. With fractional shares, your $1,000 can buy exactly 2 shares of a $500 stock, or you can split it across multiple stocks. This removes the barrier of high share prices and lets you start investing with whatever amount you have. Fractional shares trade at the same price as whole shares — there is no premium or discount.

Not all brokerages offer fractional shares, and some charge a small fee or require a minimum account balance. Check the brokerage's website before opening an account if fractional shares matter to you.

Understanding fees and costs

Most brokerages charge no account maintenance fees and no commission per trade. This was not always true — 20 years ago, you paid $5 to $10 per trade — but competition has driven commissions to zero across the industry.

Some brokerages make money from other sources: they may charge a fee for certain services like financial information, options trading, or margin accounts (borrowing money to buy stocks). They may also earn interest on the cash you hold in your account. Read the fee schedule on the brokerage's website to understand what you will and will not pay.

You will pay taxes on gains and dividends, but that is not a brokerage fee — it is a tax you owe to the government. Your brokerage will send you a form (1099-B or 1099-DIV) at tax time with the information you need to report these on your tax return.

How stocks work and what you are buying

When you buy a stock, you own a small piece of a company. If a company has 1 million shares outstanding and you own 100 shares, you own 0.01% of the company. As the company becomes more valuable, the stock price typically rises, and your shares become worth more. If the company struggles, the stock price may fall.

Some companies pay dividends — a portion of profits distributed to shareholders, usually quarterly. Not all stocks pay dividends; many growing companies reinvest all profits back into the business. Dividend-paying stocks are common among large, established companies like banks, utilities, and consumer goods makers.

Stock prices change constantly during market hours based on supply and demand. You can sell your shares anytime the market is open and get the current market price. You might sell because you need the money, because you think the stock will fall, or because you want to move money to a different investment.

Frequently Asked Questions

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

There is no minimum. With fractional shares, you can buy stocks for $1, $10, or any amount. Some brokerages have no account minimum, though a few require $500 or $1,000 to open. Start with whatever you can afford and add more as you are able.

Can I lose more money than I invested?

With stocks alone, no. The worst case is that a stock goes to zero and you lose your entire investment in that stock. You cannot lose more than you put in. (Options and margin accounts are different and carry higher risk, but those are advanced strategies.)

Do I need to pick individual stocks or can I buy funds instead?

You can do either. Individual stocks require you to research companies and decide which ones to buy. Mutual funds and exchange-traded funds (ETFs) let you buy many stocks in one purchase — for example, an S&P 500 fund holds 500 large U.S. companies. Many beginners find funds simpler because they spread risk across many companies.

What is the difference between a brokerage and a bank?

A bank holds your money and offers checking, savings, and loans. A brokerage buys and sells investments on your behalf. Some companies like Fidelity and Charles Schwab do both, but they are separate services. Your bank cannot buy stocks for you; you need a brokerage account.

Can I buy stocks through my employer's 401(k)?

Yes. Most 401(k) plans let you choose how to invest your contributions among a menu of funds and sometimes individual stocks. You cannot buy arbitrary stocks — only what the plan offers. If you want complete freedom to pick any stock, you need a separate taxable brokerage account or IRA.