How to Start Buying Stocks as an Individual Investor
You need a brokerage account to buy stocks
To buy stocks, you open an account with a brokerage — a company that holds your money and executes trades on your behalf. The brokerage connects you to the stock market and handles the paperwork. You fund the account with your own cash, then use that cash to buy shares of companies you choose.
Most brokerages let you open an account online in 10 to 15 minutes. You provide your name, address, Social Security number, and employment information. The brokerage verifies your identity and approves the account. Then you transfer money from your bank account into the brokerage account, and you are ready to buy.
The main difference between brokerages is cost and features. Some charge a flat fee per trade. Others charge nothing per trade but make money from interest on your cash balance or from other services. Some offer research tools and educational content; others keep it simple. The brokerage you choose depends on how much you plan to trade, whether you want research tools, and how much you are willing to pay.
Key Takeaways
- You open a brokerage account online, fund it with your own money, and use it to buy and sell stocks through the brokerage's platform.
- Most brokerages charge no commission per trade, but they differ in fees for other services, research tools, and account minimums.
- You can buy individual stocks one at a time, or you can buy fractional shares if you want to invest a smaller amount in a single company.
- Stocks are riskier than bonds or savings accounts because their price moves daily, and you can lose money if the price falls below what you paid.
- Many investors buy stocks inside retirement accounts like a 401(k) or IRA, which offer tax advantages that make long-term stock ownership cheaper.
How to choose a brokerage
Start by deciding what you want from a brokerage. If you plan to buy a few stocks and hold them for years, you need very little: a place to buy, a way to track your holdings, and low fees. If you plan to trade frequently or research companies in depth, you may want advanced charting tools, stock screeners, or analyst reports.
Common brokerages for individual investors include Fidelity, Charles Schwab, E*TRADE, Interactive Brokers, and Robinhood. Fidelity and Schwab offer research tools and educational content alongside trading. E*TRADE and Interactive Brokers cater to more active traders. Robinhood focuses on simplicity and mobile trading. All of them charge zero commission per stock trade, though some charge fees for other services like wire transfers or margin accounts.
Check whether the brokerage has a minimum account balance to open. Most do not. Check whether it charges a monthly fee if your account sits idle — most do not, but some do. If you plan to reinvest dividends automatically, confirm the brokerage offers that feature. If you want to buy fractional shares (a portion of one share), confirm they support it, because not all brokerages do.
How to place your first stock trade
Once your account is funded, you log into the brokerage platform and search for the stock you want to buy by its ticker symbol — a one- to five-letter code that identifies the company. Apple is AAPL. Microsoft is MSFT. Tesla is TSLA. You can find any company's ticker on the brokerage website or on financial websites like Yahoo Finance or Google Finance.
When you find the stock, you enter the number of shares you want to buy and the type of order. A market order buys at the current price immediately. A limit order buys only if the price drops to a number you set. Most beginners use market orders. You review the order, confirm it, and the trade executes within seconds during market hours (9:30 a.m. to 4 p.m. Eastern time on weekdays).
The brokerage deducts the cost from your account balance and adds the shares to your holdings. You now own a piece of that company. The brokerage sends you a confirmation email with the trade details. Your account dashboard shows your shares, their current price, and the total value of your position.
Fractional shares let you invest smaller amounts
If a stock costs $500 per share and you only have $100 to invest, you cannot buy a whole share at most brokerages — but you can buy a fractional share. A fractional share is a portion of one share, expressed as a decimal. With $100, you might buy 0.2 shares of a $500 stock.
Fractional shares work the same way as whole shares: you own that percentage of the company, you receive dividends on that percentage, and you can sell it anytime. The main difference is that some brokerages do not support fractional shares, and some charge a small fee to buy them. Check your brokerage's policy before you assume you can buy fractional shares.
Fractional shares are useful if you want to own a piece of an expensive stock or if you want to spread a small amount of money across several companies. They remove the barrier of needing hundreds of dollars to buy a single share of a high-priced stock.
Understand that stock prices move every day
When you buy a stock, its price changes constantly during market hours. The price you paid is called your cost basis. If the price rises, your position is worth more than you paid — that is a gain. If the price falls, your position is worth less — that is a loss. You do not lock in a gain or loss until you sell.
Stock prices move because of company news, industry trends, economic data, and investor sentiment. A company that reports strong earnings might jump 10 percent in a day. A company that misses expectations might fall 15 percent. The broader market can also move based on interest rates, inflation, or geopolitical events. This daily movement is why stocks are riskier than bonds or savings accounts, where the value is fixed.
Many new investors watch their stock prices obsessively and panic when they fall. If you are buying stocks to hold for years, daily price swings do not matter. What matters is the price when you eventually sell. If you cannot tolerate seeing your money lose value in the short term, stocks may not be right for you, or you may want to hold a smaller percentage of stocks and a larger percentage of bonds or cash.
Retirement accounts offer tax advantages for stock ownership
You can buy stocks in a regular brokerage account, but many investors buy stocks inside a retirement account instead. The most common retirement accounts are a 401(k) (offered by employers) and an IRA (Individual Retirement Account, which you open yourself). Both let you buy stocks, bonds, mutual funds, and ETFs inside the account.
The advantage is tax. In a regular brokerage account, you pay capital gains tax when you sell a stock at a profit, and you pay income tax on dividends. In a traditional IRA or 401(k), you do not pay tax on gains or dividends until you withdraw money in retirement. In a Roth IRA, you do not pay tax on gains or dividends ever, as long as you follow the withdrawal rules. Over decades, this tax advantage can add up to tens of thousands of dollars.
If your employer offers a 401(k), you can contribute directly from your paycheck. If they match your contribution (many do), that is assistance programs — contribute enough to get the full match. If you do not have access to a 401(k), you can open an IRA at any brokerage. For 2024, you can contribute up to $7,000 per year to an IRA (or $8,000 if you are 50 or older). A 401(k) allows much higher contributions.
Diversification reduces risk by spreading your money
Buying a single stock concentrates your money in one company. If that company fails, you lose most or all of your investment. Diversification means spreading your money across many stocks, so no single company's failure destroys your portfolio. If you own 50 stocks and one fails, you lose only 2 percent of your money.
You can diversify by buying many individual stocks yourself, but that requires research and time. A simpler approach is to buy a mutual fund or ETF that holds dozens or hundreds of stocks. An S&P 500 index fund, for example, holds 500 large U.S. companies in one fund. You buy one fund and get instant diversification. Most financial advisors recommend this approach for beginners.
If you do buy individual stocks, a common rule is to limit any single stock to 5 to 10 percent of your portfolio. That way, if one stock crashes, it does not derail your entire plan. As you add more stocks, each one becomes a smaller percentage of your total, and your portfolio becomes more stable.
Frequently Asked Questions
How much money do I need to start buying stocks?
Most brokerages have no minimum account balance. You can open an account with $1 and buy fractional shares. However, if you want to buy whole shares of expensive stocks, you may need several hundred dollars. Starting with $500 to $1,000 gives you enough to buy a few stocks or a fund without stretching yourself thin.
Can I lose more money than I invested?
No. If you buy a stock outright with your own cash, the worst that can happen is the stock price falls to zero and you lose your entire investment. You cannot lose more than you put in. (This is different if you borrow money to buy stocks, called margin, which can result in losses larger than your initial investment. Avoid margin as a beginner.)
When should I sell a stock?
That depends on your goal. If you bought the stock as part of a long-term plan, you may hold it for years and sell only when you need the money. If you bought it because you thought the price would rise quickly, you might sell when it reaches your target price or when you lose confidence in the company. There is no single right answer — it depends on your strategy and time horizon.
Do I have to pay taxes on stocks I own but haven't sold?
No. You only pay capital gains tax when you sell a stock at a profit. You do pay income tax on dividends in a regular brokerage account, but not on unrealized gains (the profit you would make if you sold today). In a retirement account like a traditional IRA or 401(k), you do not pay tax on dividends or gains until you withdraw money.
What is the difference between a market order and a limit order?
A market order buys immediately at the current price. A limit order buys only if the price drops to a number you set. Market orders execute instantly but at an unpredictable price. Limit orders let you control the price but may never execute if the stock never reaches your limit. For most beginners, market orders are simpler and fine for long-term investing.