What happens when you trade in stocks

When you trade in stocks, you are buying shares of a company through a brokerage account, then selling those shares later — usually hoping the price has gone up. The brokerage is the financial company that holds your money and executes the trades (buys and sells) on your behalf. You place an order to buy a specific number of shares at a price you choose or accept, the brokerage finds a seller on the market, the trade settles (the money and shares change hands), and the shares appear in your account. When you sell, the same process happens in reverse: you place a sell order, the brokerage finds a buyer, and the cash lands in your account.

The entire process is now electronic and happens in seconds. You do not call a broker on the phone or visit an office. You log into your brokerage account on a website or app, enter the stock symbol (like AAPL for Apple), choose how many shares you want, pick a price or accept the current market price, and click buy or sell. The trade executes when ready or within moments, and you see the updated balance in your account.

Key Takeaways

  • You need a brokerage account with a company like Fidelity, Charles Schwab, E-Trade, or Robinhood before you can buy or sell any stock.
  • A market order buys or sells at whatever price the stock is trading at right now, while a limit order lets you set the exact price you will accept.
  • Most brokerages charge no commission on stock trades, but you still pay the bid-ask spread — the difference between what buyers will pay and what sellers will accept.
  • Stocks settle in two business days, meaning the shares are officially yours two days after you buy them, and the cash from a sale reaches your account two days after you sell.
  • You can trade during market hours (9:30 a.m. to 4 p.m. Eastern on weekdays) or place orders for after-hours trading, though after-hours trades are riskier and less liquid.

Opening a brokerage account

Before you can trade, you need a brokerage account. This is a cash account held at a brokerage firm — a company licensed to buy and sell securities on your behalf. Common brokerages include Fidelity, Charles Schwab, E-Trade, TD Ameritrade, Robinhood, and Webull. Each one offers a website and mobile app where you can manage your account and place trades.

To open an account, you visit the brokerage's website, click the button to open a new account, and fill out a form with your name, address, Social Security number, and employment information. The brokerage verifies your identity and approves your account within minutes or a few hours. You then link a bank account so you can deposit money into the brokerage account. Once the deposit clears (usually one to three business days), the cash sits in your account and is ready to trade.

Most brokerages do not charge a monthly fee to hold an account, and many have no minimum deposit requirement. Some offer cash management features where your uninvested cash earns a small amount of interest. Check the brokerage's fee schedule on their website to see what they charge for trades, wire transfers, or other services.

Placing a buy order

To buy a stock, log into your brokerage account and look for a "Buy" or "Trade" button. You will enter the stock symbol (a one- to five-letter code that identifies the company — AAPL for Apple, MSFT for Microsoft, TSLA for Tesla). The brokerage will show you the current price and let you choose how many shares you want to buy.

Next, you choose the type of order. A market order buys the stock at whatever price it is trading at right now. This order almost always fills when ready during market hours, but you do not know the exact price until the trade is done — the price may have moved slightly between when you clicked and when the order executed. A limit order lets you set the maximum price you will pay. If the stock is trading at $50 and you set a limit of $48, your order will only fill if the price drops to $48 or below. Limit orders can take hours, days, or never fill if the price never reaches your target.

After you choose the order type and quantity, review the order summary and click "Confirm" or "Place Order". The brokerage sends the order to the market, finds a seller, and the trade executes. You will see a confirmation number and the trade will appear in your account history. The shares are yours when ready, but the trade officially settles two business days later — meaning the seller's shares are transferred to you and the money is transferred from your account.

Placing a sell order

To sell shares you own, log into your account and navigate to your positions or holdings. You will see a list of every stock you own, how many shares you have, and the current value. Click on the stock you want to sell and select "Sell".

Enter the number of shares you want to sell. You can sell all of them or just some. Then choose your order type — market or limit, using the same logic as a buy order. A market sell order will fill when ready at the current price. A limit sell order will only fill if the price reaches your target or higher. Review the order and click "Confirm".

Once the sell order executes, the shares leave your account and the cash appears as a pending deposit. Two business days later, the trade settles and the cash is fully available to withdraw or use for another trade. If you sell shares you have owned for less than a year, any profit is taxed as a short-term capital gain (at your ordinary income tax rate). If you have owned them for a year or more, the profit is taxed as a long-term capital gain (usually at a lower rate).

Understanding bid-ask spreads and commissions

When you place a market order to buy, you pay the ask price — the lowest price a seller is willing to accept. When you place a market order to sell, you receive the bid price — the highest price a buyer is willing to pay. The difference between the bid and the ask is called the bid-ask spread. For a popular stock like Apple, the spread might be just a penny. For a less-traded stock, it could be several cents or dollars.

The spread is not a fee charged by the brokerage — it is the cost of the market itself. Every time you buy at the ask and sell at the bid, you lose money equal to the spread. This is why limit orders can save you money: if you are willing to wait, you can sometimes buy at the bid price (what others are selling for) instead of the ask price (what others are asking).

Most major brokerages charge zero commission on stock trades, meaning they do not take a percentage of your trade. However, some brokerages charge for certain services like wire transfers, margin accounts, or options trading. Check your brokerage's fee schedule to understand what you will pay.

Market hours and after-hours trading

The stock market is open Monday through Friday, 9:30 a.m. to 4 p.m. Eastern Time. This is called regular market hours or market hours. During these hours, the vast majority of trading happens, prices are most reliable, and your orders will fill quickly.

Most brokerages also offer after-hours trading, which runs from 4 p.m. to 8 p.m. Eastern. Some brokerages offer pre-market trading from 7 a.m. to 9:30 a.m. After-hours and pre-market trading are riskier because fewer traders are active, spreads are wider, and prices can move sharply on less volume. Your order may take much longer to fill or may not fill at all. Unless you have a specific reason to trade outside market hours, place your orders during regular hours.

The market is closed on weekends and on holidays like Thanksgiving, Christmas, and Independence Day. If you place an order after 4 p.m. on a Friday, it will not execute until Monday morning.

What happens after you trade

When your trade executes, you receive a confirmation with the trade date, the number of shares, the price per share, and the total cost or proceeds. The confirmation appears in your account history and is usually emailed to you as well. Keep these confirmations for your tax records.

Two business days after the trade date, the trade settles. On settlement day, the shares are officially transferred to your account (if you bought) or removed from your account (if you sold), and the money is transferred. Until settlement, the shares or cash are in a pending state. You can still sell shares before they settle, but most brokerages require you to have settled cash before you can withdraw it.

Your brokerage sends you a monthly or quarterly statement showing all your trades, your current holdings, and your account value. You can also log in anytime to see real-time prices and your current positions. If you want to track your performance, most brokerages show you your total gain or loss (the difference between what you paid and what your shares are worth now) and your return percentage.

Common mistakes to avoid

One common mistake is using a market order when you mean to use a limit order. If you place a market order for a stock that is not very liquid (not many people trading it), the price can slip — meaning you pay more than you expected. Using a limit order protects you by setting a maximum price you will accept.

Another mistake is forgetting that trades settle in two days. If you sell a stock on Monday, the cash does not arrive until Wednesday. If you try to withdraw the money on Tuesday, it will not be available. Some brokerages will let you use unsettled cash to buy another stock, but this can trigger a "good faith violation" if you do it too often, so check your brokerage's rules.

A third mistake is not understanding the tax consequences of selling. If you sell a stock at a profit, you owe capital gains tax on that profit. Short-term gains (stocks held less than a year) are taxed at your ordinary income rate, which is usually higher than the long-term rate. Keep track of when you bought each stock so you know which rate applies.

Frequently Asked Questions

Can I buy a partial share of a stock?

Yes. Most brokerages now offer fractional shares, meaning you can buy $100 worth of a $500 stock instead of having to buy a whole share. This makes it easier to diversify with a small amount of money. Check your brokerage's website to confirm they offer fractional shares.

What is a stop-loss order?

A stop-loss order is an instruction to sell a stock automatically if the price drops to a certain level. For example, you could set a stop-loss at $45 on a stock you bought at $50, and it will sell automatically if the price falls to $45. This limits your losses but can also lock in losses if the price bounces back up.

Do I need a lot of money to start trading stocks?

No. Most brokerages have no minimum deposit, and with fractional shares you can buy stocks for as little as $1. However, if you want to use margin (borrowed money to buy stocks), some brokerages require a minimum account balance, usually $2,000.

Can I trade stocks on my phone?

Yes. Every major brokerage has a mobile app where you can place trades, check prices, and manage your account. The app works the same way as the website — you search for a stock, choose buy or sell, pick your order type, and confirm.

What happens if the brokerage goes out of business?

Your stocks and cash are protected by the Securities Investor Protection Corporation (SIPC), which insures up to $500,000 per account at a brokerage. This means even if the brokerage fails, your shares and cash are yours and will be transferred to another brokerage. SIPC protection does not cover losses from bad trades or market declines — only the loss of your actual shares and cash.