The stock market can be an intimidating place for those just starting out in investing. But buying stocks online is actually quite easy once you understand a few basics about where to buy them and how they trade. Let’s take a look at what you need to know if you’re new to stock trading and building a portfolio.
Buying Stocks Online: A Step-by-Step Guide
1. Open a trading account
If you’re buying stocks online for the first time, you’ll need to open a brokerage account with one of several brokers, such as Fidelity, Schwab, or Webull. The process for opening an account is fairly simple and doesn’t take much more than a few minutes. You’ll need to provide basic information about yourself and any other people on the account.
(You can also check out Bankrate’s broker reviews for more options.)
2. Fund the account
The next step is to actually deposit money into your account so that you have the money to invest. You can do this by mailing a physical check, but it is much more convenient to set up an electronic fund transfer. To transfer money electronically, provide the account information and the financial institution you want to transfer money from. Your money should appear in your account within a few days.
3. Research the stocks you are interested in
Before you buy stocks, do some research on the companies you are considering. Be sure to read the company’s annual report, or its 10-K filing with the Securities and Exchange Commission (SEC), as well as its most recent quarterly reports to get a better understanding of the company and how it is performing.
Before you make a purchase, you should be able to explain how a company makes money, what its position is against the competition, and what you think the next three to five years will likely look like for the company. Make sure you pay attention to the valuation, or what you pay compared to what you get as a shareholder.
4. Place a trade order
Once you have selected a stock you want to buy, you will need to place a trade order. When you place a trade, you probably have a few different options. These are the two most common types:
- Market order: A market order means that your trade will be executed immediately at the best available price. With this type of order, there are no price parameters associated with the order, so the price you ultimately pay may be higher or lower than the most recent quote. Market orders are best used for highly liquid companies that trade a lot of shares every day, because your order is unlikely to move the stock price in one direction or the other.
- Limit order: With this order type, your trade will only be executed at a specific stock price or better. For example, if you place a limit buy order of $10.00, the trade will not go through unless someone is willing to sell at $10.00 or lower. This gives you more certainty about the price you pay when you enter the trade, but you run the risk that the price never reaches your limit. Limit orders are good for stocks where not many shares are traded and where your order could affect the stock price. This would typically happen with small cap or micro cap stocks. Limit orders are also useful for stocks with wide bid/ask spreads or high volatility.
You will also face choices about how long you want the trading order to last and whether you want the order to be ‘all or none’, meaning the order will not be executed unless you can buy all the shares you have bought. asked. Orders are valid for the remainder of the trading day or are ‘good until cancelled’, meaning the order typically remains open for 60-90 days, or until filled.
Is it safe to buy stocks online?
Yes, it is safe to buy and sell stocks online as long as you use a reputable broker. Thanks to the Securities Investor Protection Corporation (SIPC), you even have some protection in the event that the brokerage firm goes bankrupt. Founded in 1970, the SIPC protects customers at SIPC brokers up to $500,000 on all accounts at a company, including a maximum of $250,000 for uninvested cash.
Where can you buy shares online for free?
Most online brokers now allow you to buy shares without paying commission. Charles Schwab, E-Trade, and Robinhood all offer commission-free trading on stocks and ETFs. Robinhood even offers commission-free trades in options and cryptocurrencies.
Can you buy shares online without a broker?
Opening an account with an online broker becomes the easiest way to online investing. Some companies allow investors to buy shares directly from them and participate in dividend reinvestment plans, but online brokers are a good choice for most people. They offer easy-to-use platforms and commission-free trading. Signing up for a new account only takes a few minutes.
What do you need to buy shares online?
Fortunately not too much. You’ll need an investment account with an online broker, which can be opened in minutes with some basic personal information, as well as a way to fund your account. Funds can be deposited by check or wire transfer.
Which stocks can and cannot be traded online?
If you understand the business of the company you’re buying, almost no stock is off limits to online trading. Dividend stocks, technology stocks and everything in between are all available to trade online. You can even trade options online, but most brokers still charge a small fee for this. Make sure you do your research before taking the plunge, otherwise you’ll just be speculating. However, penny stocks, which are defined by the SEC as stocks that sell for less than $5 per share, should be viewed with caution because they can be particularly volatile and ripe for manipulation.
How much money do you need to buy stocks online?
Not very much. Most online brokers have no minimum account opening requirements, and fractional share trading now allows investors to buy into their favorite companies for as little as $5. Because the shares of many of today’s leading companies sell for hundreds of dollars, some brokers offer investors the chance to buy a share of a stock for just a few dollars.
In short
Buying stocks online is a fairly simple process once you understand a few key terms and processes. But just because it’s simple doesn’t mean it’s easy. Be sure to research each company carefully before buying (or selling) shares so you can better understand the risks associated with investing in individual stocks.
Editorial Disclaimer: All investors are advised to conduct their own independent research into investment strategies before making any investment decision. In addition, investors are advised that the past performance of investment products does not guarantee future price increases.
