How to Buy Stocks

To buy stocks, you need a brokerage account to enter your buy orders, which you can setup in as little as 15 minutes.

Once your account is open, you can deposit funds and buy your favorite stocks during pre-market hours, normal market hours, or after-market hours Monday through Friday.

Buying stocks is tedious at first but you’ll get the hang of it once you get started. Here’s everything you need to know about buying your first stock.

How to Buy Stocks for Beginners

1. Choose an Online Broker

The easiest and quickest way to buy stocks is through a stock trading app. After opening and funding your account, you can start buying stocks within minutes during open market hours. Other alternatives include using a full service broker or buying stock directly from the company.

Opening a brokerage account is simple and straight-forward like opening a bank account. You complete your application, provide proof of identification, and fund your account via mailing a check, transferring money from your checking or savings account, or transferring any securities you may already own.

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2. Research Your Favorite Stocks

Now the fun part begins. After you setup and funded your brokerage account, it’s time to dive into the exciting process of choosing stocks to buy. A good place to start is by researching companies you have personal experience with as an employee or customer.

The goal is simple: look for companies that you want to buy a part of.

Once you identified a few companies, start by doing some research on the company’s business model, revenue, earnings, and future growth potential.

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You can find all of this information in the following places by reading the company’s:

  • Annual Report
  • Quarterly Reports
  • SEC filings
  • Earnings conference call transcripts
  • Recent News
  • Financials

I use several stock buying resources to research companies before I buy any shares. Most brokers provide key financial information and statistics on their website.

3. Decide How Many Shares You Want to Buy

Don’t feel pressured to buy lots of shares when you are first starting out. Many smart investors scale into their positions and buy a few shares at a time to get a better average price.

Buying stocks is risky and you don’t want to buy too many shares then watch the stock fall in price right after you purchased it. It’s a terrible feeling and can lead to massive losses and mental stress.

If you’re a complete beginner with limited money then consider buying 1 share to get started. You can always buy more shares later once your confidence grows over time.

I normally buy at least 100 shares (aka a round lot) to take advantage of selling covered calls to generate income. You can buy stocks then trade options to boost your portfolio returns.

Newbies may consider buying fractional shares that allow you to buy less than 1 share of a stock. For example, Tesla stock trades at over $800 and you may not have enough money to buy 1 share.

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Fidelity, Robinhood, and Webull are among the many brokers that offer fractional shares.

4. Choose Your Stock Order Type

When you enter the number of shares you want to buy, your broker will ask you to select a trade type. Don’t worry if you’re confused because it’s really easy to understand once you get the hang of it.

Here’s a list of basic stock trading terms you need to know before buying your first stock:

TermDefiniton
QuoteThe current market price of a stock.
AskFor buyers: The price that sellers are willing to accept for the stock.
BidFor sellers: The price that buyers are willing to pay for the stock.

SpreadThe difference between the highest bid price and the lowest ask price.

Market OrderAn order to buy a stock ASAP at the current price.
Limit OrderAn order to buy a stock ASAP only at a specific price or lower.
Stop (Loss) OrderIf a stock rises to a fixed price, a buy order is triggered.
Stop Limit OrderIf a stock rises to a fixed price, a limit order is triggered
Trailing Stop OrderIf a stock rises above its lowest price by a specific amount, a buy order is triggered
Recurring InvestmentBuy a certain amount of stock on a recurring schedule.

There are more advanced buying strategies but don’t worry about those right now. Most stock brokers offer the above buy orders and you really only need two types of orders to be successful: market and limit orders.

Market Orders

With a market order, you are buying a stock at the current market price no matter how much the bid and ask price is. This is a good starting point for beginners who want to buy their first stock.

Market orders get executed immediately but you may not pay the exact quoted stock price you see on the screen. That’s because some stocks are extremely volatile and experience wild price swings during market hours. Penny stocks or stocks with a low float can soar or crash within minutes during a high volume trading day.

If you are worried about “buying at the top” then only use market orders for boring, blue chip stocks that rarely move in price. You will probably hold these stocks for the long run to receive dividends anyway so use market orders to buy more shares.

If you want to buy stocks in smaller, more volatile companies then consider using limit orders to protect yourself.

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Limit Orders

A limit order is the best order type if you plan to buy those high volume, volatile stocks for swing trading profits. You set a maximum price to pay and you will only buy the stock if it dips to or below your limit price.

This protects you from executing a market order at an expensive price but also gives you the opportunity to buy stocks at cheaper prices.

Limit orders carry different conditions than a market order so you need to select either Good ‘Til Canceled (GTC) or Good For Day (GFC). GTC limit orders will remain open until your limit price is reached. GFC orders will be cancelled at the end of the day if the stock doesn’t reach your limit price.

5. Track Your Stock Portfolio

Tracking your buys is an important step in the process to maximize your returns and minimize the chances of blowing up your brokerage account.

Most brokers allow you to monitor your buys and see how much money you have made or lost. You will experienced unrealized gains or unrealized losses after placing your stock trade.

If you bought a lot of stocks or have multiple brokerage accounts then consider using a stock portfolio management tool to keep an eye on your positions.

Personal Capital is a free portfolio management tool for tracking your stock portfolio.

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Personal Capital

Personal Capital is the best investment portfolio tool & net worth tracker for investors.

It’s normal to feel emotional after buying stocks because they can often move widely for no apparent reason.

Remain calm and take a deep breathe before making any decisions. Deep breathing helps relax the body and claim the brain. Proper hydration is important as well so drink plenty of water throughout the day.

If you are feeling extremely anxious then try taking a walk or going outside for a breathe of fresh air.

Of course, you can always sell your stocks and buy them back later if you are up or down big.

Summary

Buying stocks is a great way to grow your savings and increase your net worth. Follow some of the tips in this guide to help manage your first stock purchase.

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