How to Buy and Sell Stocks

How to start trading stocks

To trade stocks, you need a brokerage account — an account with a company that buys and sells stocks on your behalf. You open the account online in about 15 minutes, link a bank account, deposit money, and then you can place your first trade. The broker holds your stocks and handles the paperwork with the stock exchange.

The most common brokers for individual investors are Fidelity, Charles Schwab, E*TRADE, Interactive Brokers, and Robinhood. Each charges different fees, offers different research tools, and has different account minimums — some have none. You do not need to pick the "best" broker; any of the major ones will let you buy and sell stocks. What matters is finding one whose fees and interface work for your situation.

Once your account is open and funded, you search for a stock by its ticker symbol (a short code like AAPL for Apple or MSFT for Microsoft), decide how many shares you want, and place an order. The broker executes the trade — usually instantly during market hours — and the shares appear in your account.

Key Takeaways

• You need a brokerage account to trade stocks; opening one takes about 15 minutes and requires a bank account to fund it.
• Most brokers charge no commission on stock trades, but some charge account fees or require minimum deposits depending on the account type.
• You place trades during market hours (9:30 a.m. to 4 p.m. Eastern time on weekdays) and can set different order types to control when and at what price your trade executes.
• Selling a stock works the same way as buying: you enter the number of shares, choose your order type, and the broker executes the sale.
• Tax reporting happens automatically; your broker sends you a 1099 form at year-end showing your gains, losses, and dividends.

Understanding order types and execution

When you place a trade, you choose an order type that controls how and when your trade happens. A market order buys or sells immediately at the current price — the fastest way to trade, but the price you get may differ slightly from what you saw on screen because prices move constantly. A limit order lets you set a maximum price you will pay (when buying) or a minimum price you will accept (when selling); the trade only happens if the stock reaches that price.

Most individual investors use market orders for stocks they plan to hold for months or years, because the price difference is usually small. Limit orders are useful if you are trying to buy at a specific price or sell at a target profit level. You can also set a stop-loss order, which automatically sells your stock if the price drops to a certain level — a way to limit losses if a stock falls sharply.

All trades execute during market hours: 9:30 a.m. to 4 p.m. Eastern time, Monday through Friday. If you place an order after 4 p.m., it waits until the market opens the next trading day. Some brokers offer after-hours trading, but prices are wider (the difference between buy and sell prices is larger) and volume is lower, so most individual investors avoid it.

What fees and costs you will encounter

Most major brokers charge zero commission on stock trades — you do not pay per trade. However, other costs exist. Some brokers charge account maintenance fees if your balance falls below a minimum (often $2,500 to $10,000), though many waive this for accounts that receive direct deposits or meet other conditions. Some charge inactivity fees if you do not trade for a certain period.

When you buy a stock, you pay the ask price (the lowest price a seller will accept) and when you sell, you receive the bid price (the highest price a buyer will pay). The difference is called the spread, and it goes to market makers, not your broker. For large, heavily traded stocks like Apple or Microsoft, the spread is usually just a penny or two per share. For smaller or less-traded stocks, the spread can be wider.

You also pay taxes on gains when you sell. If you hold a stock for more than one year before selling, you pay the long-term capital gains tax rate, which is lower than the short-term rate (for stocks held one year or less). Your broker reports all this to the IRS on a 1099 form, and you report it on your tax return.

How to research and choose stocks

Before you buy a stock, you should understand what the company does and whether its price makes sense. Most brokers provide free research tools: stock quotes, charts showing price history, earnings reports, and analyst ratings. You can also read financial news on sites like Yahoo Finance, MarketWatch, or the financial sections of major newspapers.

Key numbers to look at are the price-to-earnings ratio (P/E), which compares the stock price to the company's annual profit per share, and the dividend yield, which shows what percentage return you get from dividends alone. A stock with a very high P/E may be expensive relative to its earnings; a stock with a very low P/E may be cheap or may be cheap for a reason (the company is struggling). Neither number tells you whether to buy — they are just starting points for comparison.

Many new investors start by buying stocks they know: companies whose products they use, or large established companies like Johnson & Johnson or Coca-Cola. Others use a screening tool (available free on most broker sites) to filter stocks by criteria like industry, size, or dividend yield. The goal is to understand what you own and why you own it, not to chase hot tips or trade constantly.

Selling stocks and managing your positions

Selling a stock works exactly like buying: you enter the number of shares, choose your order type (market, limit, or stop-loss), and the broker executes the sale. The money from the sale lands in your brokerage account as cash, which you can then use to buy another stock, withdraw to your bank account, or leave sitting.

When you sell, your broker automatically calculates your gain or loss. If you bought 100 shares at $50 and sold them at $75, your gain is $2,500 (before taxes). If you sold at $40, your loss is $1,000. These gains and losses are reported to the IRS, and you report them on your tax return. Long-term gains (stocks held over one year) are taxed at a lower rate than short-term gains.

Some investors set a target price before they buy — "I will sell when this stock reaches $100" — and use a limit order to execute automatically. Others hold for years and only sell when they need the money or when the company's situation changes. There is no single right approach; it depends on your goals and how much time you want to spend managing your holdings.

Tax reporting and record-keeping

Your broker handles most of the paperwork. At the end of each year, they send you a 1099-B form (for sales) and a 1099-DIV form (if you received dividends). These forms show your gains, losses, and dividend income. You report this information on Schedule D of your tax return (Form 1040). If you have large gains or losses, or if you trade frequently, you may want to work with a tax professional.

Keep records of every trade: the date you bought, the price, the number of shares, the date you sold, and the sale price. Your broker keeps these records, but it is useful to have your own backup, especially if you trade across multiple brokers over many years. Some investors use tax software like TurboTax or TaxAct, which can import data directly from your broker.

If you hold a stock for more than one year before selling, you may have access to for long-term capital gains tax rates, which are lower than ordinary income tax rates. If you sell within one year, you pay short-term rates (the same as your ordinary income tax rate). This is one reason many investors hold stocks for the long term — the tax treatment is more favorable.

Common mistakes to avoid when trading

The biggest mistake is trading too often. Every time you buy and sell, you pay the spread and potentially incur taxes. If you are buying stocks to hold for years, frequent trading eats into your returns. Most successful individual investors buy and hold, not trade in and out constantly.

Another common mistake is buying stocks you do not understand. If you cannot explain in one sentence what the company does and why you own it, you probably should not own it. This is especially true for stocks that are "hot" or that friends are talking about — hype is not a reason to buy.

A third mistake is putting too much money into a single stock. If one stock makes up half your portfolio and it drops 50%, your entire portfolio takes a huge hit. Most investors spread their money across multiple stocks, or use funds (mutual funds or ETFs) to get diversification automatically.

Frequently Asked Questions

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

No. Most brokers have no account minimum and no commission on trades. You can open an account with $100 or even $50. However, some brokers offer premium accounts with extra features that require a higher minimum, typically $2,500 to $10,000. You can start with a basic account and upgrade later.

What is the difference between a market order and a limit order?

A market order buys or sells immediately at the current price. A limit order sets a price you will pay (when buying) or accept (when selling), and the trade only happens if the stock reaches that price. Market orders are faster and more certain to execute; limit orders give you price control but might not execute if the stock never reaches your price.

How long does it take for a stock trade to settle?

Stock trades settle in two business days. You see the shares in your account immediately, but the cash does not move out of your bank account until two days later. This means you can sell a stock and use the proceeds to buy another stock the same day, even though the cash has not fully settled yet.

Can I lose more money than I invested in a stock?

No. If you buy 100 shares at $50 per share and the stock goes to zero, you lose $5,000 — your entire investment. You cannot lose more than you put in (unless you use margin, which is borrowing money from your broker, but that is a separate and riskier strategy).

What happens to my stocks if my broker goes out of business?

Your stocks are protected. Brokers are required to hold customer securities separately from their own assets, and most are members of the Securities Investor Protection Corporation (SIPC), which insures up to $500,000 per account if a broker fails. Your stocks belong to you, not the broker, so they are safe even if the brokerage closes.