How to invest in stocks: the basic steps
To invest in stocks, you open a brokerage account, fund it with money, and place orders to buy shares of companies you choose. The process takes a few days from start to finish. You do not need a large amount to begin — many brokers let you start with $1 or $100 — and you can buy as few as one share of a company at a time.
The steps are: choose a brokerage firm, open an account there, verify your identity and bank details, transfer money into the account, search for a stock by its ticker symbol, and click to buy. After you buy, you own a fractional or whole share and can hold it as long as you want, sell it whenever the market is open, or let it sit while the company pays dividends if it does.
Most people do this through a web browser or mobile app. The brokerage holds your shares in your account and sends you statements showing what you own and what it is worth on any given day.
Key Takeaways
- You need a brokerage account to buy stocks; common brokers include Fidelity, Charles Schwab, E*TRADE, and Robinhood, each with different minimum deposits and fee structures.
- Opening an account requires your Social Security number, address, and a bank account to transfer money from, and takes between one and three business days to complete.
- You can buy stocks during market hours (9:30 a.m. to 4 p.m. Eastern time on weekdays) or place orders to buy before the market opens or after it closes.
- Stocks are taxed differently depending on how long you hold them; shares you sell within a year are taxed as short-term capital gains, and shares you hold longer than a year are taxed as long-term capital gains at a lower rate.
- You can buy individual company stocks or invest in funds that hold many stocks at once, such as index funds or exchange-traded funds.
Choosing a brokerage and opening an account
A brokerage is a company that lets you buy and sell stocks through their platform. You do not buy stocks directly from the company; you buy them through a broker. Common brokers include Fidelity, Charles Schwab, E*TRADE, Robinhood, and TD Ameritrade. Each charges different fees, has different minimum deposits, and offers different research tools and educational resources.
To open an account, you visit the broker's website or app and provide your name, address, date of birth, Social Security number, and employment information. The broker verifies your identity, usually within minutes, and then asks you to link a bank account so you can transfer money in. This verification step typically takes one to three business days.
Some brokers have no minimum deposit; others require $500 or $1,000 to start. Check the broker's website for their current requirements. Once your account is open and verified, you can fund it when ready by transferring money from your bank account, though the transfer itself may take one to three business days to complete.
Funding your account and placing your first order
After your account is verified, you initiate a transfer from your bank to your brokerage account. This money sits in your account as cash until you use it to buy stocks. The transfer usually takes one to three business days, depending on your bank and the broker.
Once the cash is in your account, you search for a stock by its ticker symbol — a one- to five-letter code that identifies a company. Apple's ticker is AAPL, Microsoft's is MSFT, and Tesla's is TSLA. You can search by company name or ticker in the broker's search bar, and the broker will show you the current price, charts, and news about that company.
To buy, you enter the number of shares you want and click "buy" or "place order." You can buy fractional shares (for example, 0.5 shares) if you do not have enough cash for a whole share. The order executes during market hours (9:30 a.m. to 4 p.m. Eastern time, Monday through Friday) at the price shown at that moment, or you can set a limit order to buy only if the price drops to a certain level.
Understanding market hours and order types
The stock market is open Monday through Friday from 9:30 a.m. to 4 p.m. Eastern time. During these hours, you can place orders and they execute when ready at the current market price. Outside these hours, you can still place orders, but they do not execute until the market opens the next trading day.
A market order buys or sells at whatever the current price is right now. A limit order lets you set a maximum price you will pay to buy or a minimum price you will accept to sell. If the stock never reaches that price, your order does not execute. A stop-loss order automatically sells your shares if the price drops to a certain level, which some investors use to limit losses.
Most beginning investors use market orders because they are straightforward and execute when ready. Limit orders are useful if you want to buy a stock only at a specific price or sell only if you reach a profit target.
How stocks are taxed
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 sell within one year of buying, it is taxed as a short-term capital gain at your ordinary income tax rate, which can be 10 percent to 37 percent depending on your income. If you hold for more than one year, it is taxed as a long-term capital gain at a lower rate: 0 percent, 15 percent, or 20 percent depending on your income.
You do not owe tax when you buy a stock or while you hold it. You owe tax only when you sell it for a profit. If you sell for a loss, you can use that loss to offset other capital gains or up to $3,000 of ordinary income in the same year, and carry unused losses forward to future years.
Some stocks pay dividends, which are portions of company profits paid to shareholders. Dividends are taxed in the year you receive them, whether you reinvest them or take them as cash. may have access to dividends (from U.S. companies and held for at least 60 days around the dividend date) are taxed at the long-term capital gains rate; non-may have access to dividends are taxed as ordinary income.
Individual stocks versus funds
You can buy shares of individual companies one at a time, or you can buy funds that hold many stocks at once. An index fund holds all or most of the stocks in a market index, such as the S&P 500 (500 large U.S. companies) or the Nasdaq-100 (100 large technology companies). An exchange-traded fund (ETF) works the same way but trades like a stock — you can buy it anytime during market hours at a changing price.
Individual stocks let you choose exactly which companies you own and potentially benefit if one company grows significantly. Funds spread your money across many companies, which reduces the impact if one company performs poorly. Funds also require less research because you do not have to pick individual companies.
Many beginning investors start with funds because they are simpler and less risky than picking individual stocks. You can also own both — some investors buy a core holding in an index fund and then buy individual stocks on top of that.
Common mistakes to avoid
Buying and selling too frequently based on short-term price changes is expensive because each trade may carry a commission or fee, and short-term gains are taxed at higher rates. Many brokers now offer commission-free trading, but frequent trading still triggers higher taxes and can lead to emotional decisions rather than planned ones.
Investing money you will need within a few years is risky because stock prices fluctuate daily and you may be forced to sell at a loss. Stock investing works best for money you can leave alone for at least five to ten years.
Buying stocks based on tips from friends, social media, or news headlines without understanding the company is how many new investors lose money. Before you buy, spend time reading the company's financial statements, understanding what it does, and thinking about whether you believe it will grow.
Frequently Asked Questions
Do I need a lot of money to start investing in stocks?
No. Many brokers let you open an account with no minimum deposit, and you can buy fractional shares, so you can start with $1, $10, or $100. The amount you start with matters less than starting early and investing regularly over time.
Can I lose more money than I invest?
If you buy stocks outright, no — the worst that can happen is the stock price goes 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. Most beginning investors should not use margin.
What happens if the brokerage goes out of business?
Your stocks are held in your name, not the brokerage's name, so they are yours even if the broker fails. The Securities Investor Protection Corporation (SIPC) insures cash and stocks in brokerage accounts up to $500,000 per account, so your holdings are protected.
Should I pick individual stocks or buy funds?
Funds are simpler and less risky for most people because they spread your money across many companies. Individual stocks require more research and time but let you own companies you believe in. Many investors do both — a core fund holding plus a few individual stocks.
When should I sell a stock I own?
Sell when your reason for owning it no longer applies — for example, if the company's business fundamentals change, or if you need the money. Avoid selling based on short-term price swings. If you are unsure, holding longer than a year gives you a tax advantage through long-term capital gains rates.