How to buy and sell stocks

To buy a stock, you open an account with a brokerage firm, deposit money, search for the company you want to own a piece of, and place an order. To sell, you find that stock in your account and place a sell order. The brokerage handles the actual transaction on the stock exchange. You do not call a person or visit an office — you do this through the brokerage's website or app, usually in under a minute once your account is set up.

The hard part is not the mechanics. It is deciding which stocks to buy, understanding what price you are paying, and knowing when to sell. This guide walks you through the actual steps, what happens behind the scenes, and the real costs you will face.

Key Takeaways

  • You need a brokerage account before you can buy any stock — firms like Fidelity, Charles Schwab, and E*TRADE let you open one online in minutes with a small deposit.
  • When you place a buy order, you choose between a market order (buy at whatever the current price is) and a limit order (buy only if the price drops to a specific number you set).
  • Selling works the same way: you select the stock, choose how many shares to sell, and pick market or limit order.
  • Every trade costs money in the form of commissions or spreads, and stocks held less than a year are taxed as ordinary income rather than at the lower capital gains rate.
  • You can lose money on stocks — the price can fall below what you paid, and there is no may provide of return.

Opening a brokerage account

A brokerage account is the container that holds your stocks and cash. You cannot buy stocks without one. Most major brokerages let you open an account online without visiting a branch. You will need a Social Security number, a government ID, proof of address (usually a utility bill or bank statement), and an initial deposit.

Common brokerages include Fidelity, Charles Schwab, E*TRADE, TD Ameritrade, and Robinhood. Minimum deposits vary — some have no minimum, others ask for $500 or $1,000. The account itself is free to open. Once your money is in the account, you can begin buying stocks when ready.

When you open the account, the brokerage will ask whether you want a standard taxable account or a retirement account like an IRA. For buying and selling individual stocks, a standard taxable account is the most straightforward choice. Retirement accounts have different rules and tax treatment, which is a separate topic.

How to place a buy order

Once your account is funded, buying a stock takes three steps. First, log into your brokerage account and find the search or quote tool. Type the company name or its stock ticker symbol — a short code like AAPL for Apple or MSFT for Microsoft. The brokerage will show you the current price and basic information about the company.

Second, decide how many shares you want to buy. If Apple is trading at $150 per share and you have $3,000 to spend, you could buy 20 shares. The brokerage will show you the total cost before you confirm.

Third, choose your order type. A market order buys the stock at whatever price it is trading at right now. This usually fills when ready, but the exact price you pay might be slightly different from what you saw on screen because stock prices move constantly. A limit order lets you set a maximum price you are willing to pay — if the stock is at $150 and you set a limit of $145, your order will only fill if the price drops to $145 or lower. Limit orders can take days to fill, or may never fill at all if the price never reaches your limit.

After you choose your order type and confirm, the brokerage sends your order to the stock exchange. For a market order, this usually happens within seconds. Your account will show the stock as owned, and the cash will be deducted from your balance.

Understanding what you pay when you buy

The price you see quoted — say, $150 for Apple — is the price per share. If you buy 20 shares, you pay $3,000 plus any fees. Most major brokerages charge zero commission on stock trades, meaning there is no separate fee added to your order. However, you may still pay a small cost called the bid-ask spread.

The bid-ask spread is the difference between what buyers are willing to pay (the bid) and what sellers are asking (the ask). If the bid is $149.99 and the ask is $150.01, the spread is two cents per share. When you place a market order to buy, you pay the ask price. When you sell, you receive the bid price. This spread is how market makers and exchanges make money, and it is built into every trade.

For popular stocks like Apple or Microsoft, the spread is usually just a penny or two per share. For smaller or less-traded companies, the spread can be much wider — sometimes 10 cents or more per share. This is one reason why buying stocks in large, well-known companies is often cheaper than buying smaller ones.

How to place a sell order

Selling a stock works almost identically to buying one. Log into your account, find the stock you own, and select "sell." The brokerage will show you how many shares you own and the current price. You then choose how many shares to sell — you could sell all of them or just some.

As with buying, you choose between a market order (sell at the current price right now) or a limit order (sell only if the price reaches a number you set). Market orders fill almost when ready. Limit orders wait until the price hits your target, which may take days or may never happen.

Once you confirm, the brokerage sends your sell order to the exchange. The cash from the sale appears in your account within one to three business days, depending on the brokerage's settlement process. You can then use that cash to buy other stocks or withdraw it to your bank account.

Tax consequences of buying and selling

When you sell a stock for more than you paid for it, you owe tax on the profit — called a capital gain. 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 ordinary income at your regular tax rate. If you held it for more than one year, it is taxed at the lower long-term capital gains rate, which is 0%, 15%, or 20% depending on your income level.

This is why many investors hold stocks for at least a year before selling — the tax savings can be significant. If you sell a stock for less than you paid, you have a capital loss, which can offset other gains or reduce your taxable income by up to $3,000 per year.

Your brokerage will send you a tax form (Form 1099-B) at the end of the year listing all your sales. You will need this when you file your tax return. Keeping records of what you paid for each stock and when you bought it is essential for calculating your gains or losses correctly.

Common mistakes and how to avoid them

The most common mistake is buying a stock without understanding what the company does or why its price might move. Before you buy, spend a few minutes reading about the company — what it sells, whether it is profitable, and what risks it faces. A stock price can fall 20%, 50%, or even more if the company runs into trouble.

Another mistake is treating stock buying like gambling — buying and selling constantly, chasing hot tips, or trying to time the market perfectly. Every time you trade, you pay the bid-ask spread and potentially trigger taxes. Frequent trading costs money and rarely beats straightforward buying stocks and holding them for years.

A third mistake is putting all your money into one stock. If that company fails, you lose everything. Most investors spread their money across many stocks, or use funds that hold dozens or hundreds of stocks at once, to reduce risk.

Finally, do not borrow money to buy stocks unless you understand the risks. Some brokerages let you borrow against your account balance to buy more stocks — this is called margin. If the stock price falls, you may be forced to sell at a loss to repay the loan. Margin amplifies both gains and losses.

Frequently Asked Questions

How much money do I need to start buying stocks?

Most brokerages have no minimum deposit, though some ask for $500 or $1,000. You can buy a single share of most stocks, so if a stock costs $100 per share, you can start with $100. However, the smaller your account, the more each trade's costs (the bid-ask spread) will eat into your returns.

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

A stock is ownership in a single company. A mutual fund is a basket of many stocks managed by a professional. When you buy a mutual fund, you own a small piece of all the stocks in that basket. Funds spread risk across many companies, while individual stocks concentrate risk in one company.

Can I lose all my money buying stocks?

Yes. If a company goes bankrupt, the stock can become worthless. More commonly, stock prices fall 20% to 50% during market downturns. You can recover from losses if you hold long enough and the company survives, but there is no may provide. Never invest money you cannot afford to lose.

How long does it take to sell a stock and get my money?

A market order to sell fills within seconds. The cash appears in your account within one to three business days, depending on your brokerage's settlement process. You can then withdraw it to your bank account, which usually takes another one to three business days.

Do I have to report stock trades to the IRS?

Your brokerage reports all your sales to the IRS on Form 1099-B. You must report capital gains and losses on your tax return. Even if you do not owe tax (because your gains are small or offset by losses), you should still report the transactions accurately.