How To Buy Stocks Online or With a Broker in 4 Steps

Here's what beginners should know about purchasing stocks.

For the uninitiated, the idea of buying stocks can seem a bit intimidating. In reality, buying a stock can be as easy as ordering a new pair of shoes from Amazon. Of course, just as you’ll be happier with your shoes if you know what you’re buying, you’ll be more successful at buying stocks if you understand some basic principles.

If you’re ready to take the plunge and buy stocks, don’t bother visiting a company’s headquarters. All you need is a computer or a phone to make a trade. First you’ll need a brokerage account — keep reading to learn how to set one up, and what else you need to do to start your investing journey.

Here’s what you’ll learn in this guide:

Step 1: Understand How To Open a Brokerage Account

In the early days of the stock market, you could only open a brokerage account with a so-called full-service firm. For many investors, the idea of a full-service brokerage firm is still the picture they imagine when they think about buying stocks, complete with a well-dressed financial officer in a nice office. Unfortunately, this very image keeps some investors, who think they don’t have enough money to invest, out of the market. While those types of firms still exist,  you can now easily buy stocks online, as many modern brokerage firms have extremely user-friendly interfaces in addition to brick-and-mortar support offices.

Regardless of whether you prefer a more traditional, full-service experience or a more modern, online-based brokerage, the steps to opening an account are essentially the same. If you’re looking to do most of the heavy lifting yourself, you might not need the additional expertise that comes with the full-service experience.

Here’s a look at five established online brokers, some of which are included in GOBankingRates’ Best Brokers of 2018. In addition to operating online, all of these brokers offer the opportunity to conduct business with a flesh-and-blood representative, either by telephone or via an in-branch visit.

For all of these brokers, you’ll need to provide both personal and financial information to open an account. At a minimum, your name and address, date of birth and Social Security number will be required, along with information on your investment experience and goals. You’ll also need to provide funding information, such as your routing number and account number or debit card number.

Online Brokers for Beginner Investors
FidelityGOBankingRates Best Investment Broker 2018
Charles SchwabGOBankingRates Best Online Stock Broker for Beginners 2018
TD AmeritradeGOBankingRates Best Roth IRA 2018
E-TradeGOBankingRates Best IRA 2018
Citigroup

Fidelity

Fidelity was ranked the best investment broker overall by GOBankingRates due to its breadth of services and user-friendly educational tools. Stock trades cost just $4.95 when conducted online. Fidelity has no minimum to open an account and offers a host of no-load mutual funds. You can open a Fidelity account online or call customer service at 800-343-3548.

Charles Schwab

Like Fidelity, Charles Schwab also charges $4.95 per online stock trade. It also offers hundreds of commission-free exchange-traded funds. Schwab also offers a robo-advising platform known as Schwab Intelligent Portfolios that has no advisory fees, commissions or service fees, although there is a $5,000 minimum. You can get started at the Charles Schwab website or by calling 866-232-9890.

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TD Ameritade

TD Ameritrade charges $0 to buy stocks, it also offers account-opening incentives. Currently, you can trade free for 60 days at TD Ameritrade, and you can earn up to $600 in cash for opening an account — although that would require an opening deposit of at least $250,000. Hop over to the TD Ameritrade site to start the account-opening process. You can also call the firm at 800-454-9272.

E-Trade

E-Trade, one of the pioneers of internet banking, charges $6.95 per online trade, but that drops to $4.95 per trade if you make more than 30 per quarter. The firm also offers more than 4,500 no-load, no-transaction-fee mutual funds. If you transfer in at least $10,000, you can get up to $600 in promotional cash, along with 60 days of commission-free stock and options trades. You can either call 888-639-4353 or visit the E-Trade website to open an account.

Citigroup

Citigroup is a more traditional broker that has expanded beyond full-service financial planning into online investing. You can open a Citi account online or talk to a personal wealth management financial advisor at 877-357-3399. Depending on the extent of your relationship with Citi, online equity and ETF trades cost between $2.95 and $12.95. If you place a trade through a financial advisor, it will cost you the greater of 1% of your investment or $65.

Where Will You Keep the Most Money? Brokerage Fees Comparison

Step 2: Decide Which Type of Stock You Want To Buy

There’s no shortage of choice when it comes to buying stocks. In fact, the number of options can be downright overwhelming. That’s why it’s important to understand your risk tolerance and investment objectives before you begin investing. You should also take the time to learn as much as you can about the individual stocks you are considering investing in. One of the most famous investment axioms on Wall Street, attributed to famed money manager Peter Lynch, is that you should only invest in what you know.

Generally speaking, your best chance at making money in the stock market is by owning companies with growing earnings and revenue. If a company can outperform the expectations of the analysts on Wall Street, its stock will typically go up.

Warren Buffett, the billionaire investor known as the Oracle of Omaha, uses the concept of moats to describe his investment style. According to Buffett, the type of company he wants to own is one with an established competitive advantage over others that is difficult to overcome, just like a wide and deep moat makes it hard for attackers — business competitors — to cross. For example, Buffett has long maintained a position in Coca-Cola because while there are certainly plenty of competitors in the beverage industry, Coca-Cola itself is hard to duplicate or surpass.

See: These Are the Stocks Warren Buffett Bought and Sold in 2018

If you’re researching stocks on your own, consult analyst research reports, industry trend bulletins and company annual reports and conference call transcripts. All of this data can help you get a handle on how a company is performing and where it might be headed next. Analyst reports in particular can help teach you if a company’s current share price is fair, rich or undervalued. These determinations are made by comparing a company’s stock price to its earnings, future revenue forecasts and competitor valuations, among other factors.

Of course, it’s hard to do in-depth research on hundreds of stocks and still have time to live your life. For some investors, this makes other investment options, such as mutual funds or ETFs, better choices.

Both traditional mutual funds and ETFs are run by professional money managers who invest money in various stocks on behalf of individual investors. Look for a fund or manager with a proven track record of success who invests in a manner consistent with your investment goals and capacity to handle risk. This can not only relieve you of the burden of endless stock research but also diversify your portfolio, so that one wrong stock pick doesn’t tank your whole investment account.

Consider: 9 Safe Investments With the Highest Returns

Step 3: Understand Market Orders vs. Limit Orders

When you buy your first stock, you’re likely to put in a market order, which is the most common type. With a market order, you’ll buy the stock at whatever the current price is. A limit order is a special type of order that designates a price you’re not willing to exceed. For example, if you want to buy Apple stock at $150 per share but it’s currently trading at $153, you can put in a limit order at $150. Your order won’t be executed unless the share price trades down to $150.

Whether you’re entering a market order or a limit order, be sure to do the math so that you can afford to pay for your purchase. For example, if you want to buy 100 shares of Apple at $150 per share, you’ll have to pay at least $15,000. If your broker charges commissions or other fees, you’ll have to incorporate those into your total purchase price. And remember, if you place a market order, you can’t guarantee what price you’ll receive. If the market is running red-hot, those Apple shares might be $155 per share by the time your order is executed, meaning you’ll have to pony up at least $15,500 for your 100-share order.

Check Out: 9 Safe Stocks for First-Time Investors

Step 4: Start Small, Diversify and Monitor Your Investments

Especially if you’re a beginner, you’ll want to start small when it comes to buying your first stocks. If you rush in too quickly, you may end up losing money before you even know what you’re doing. Take the time to fully understand both how to place a stock trade and how the stock market as a whole operates.

Next, be sure to diversify your investment portfolio. Even if you’re sure you’ve found the next big thing, you don’t want to toss all your eggs in one basket. The stock market is littered with speculators who were sure they were destined to become millionaires, only to find out that their “hot stock tip” rolled over and went to zero. Diversifying your portfolio with a variety of stocks, bonds, mutual funds and other investments helps to reduce your overall risk and prevent gut checks when your favorite stock drops 50%. Remember, with the potential for high reward comes the possibility of high risk, meaning any stock that can double overnight can just as easily become worthless over the same time span.

Learn: 17 Warning Signs of a Bad Investment

Lastly, realize that buying stock is not the type of investment where you can set it and forget it. Although stocks are best used as long-term holdings, this doesn’t mean that you shouldn’t check in regularly and make modifications to your portfolio where necessary. However, a day trader will view a stock as a short-term investment. Many financial advisors recommend rebalancing your portfolio at least annually, if not quarterly. This can help keep the risk and reward characteristics of your portfolio in line with the goals you had when you originally began investing.

Glossary of Terms for Buying and Selling Stocks

As you get familiar with how to buy and sell stocks, there are a few basic investment terms you should understand:

Buying and Selling Stocks: Glossary of Terms
Annual ReportA yearly summary of a company’s economic performance
AskThe lowest price at which you are willing to buy a stock
BidThe highest price at which you are willing to sell a stock
CloseThe last trading price of a stock at the end of the market day
DividendA payout to shareholders, usually in cash and typically made quarterly
SpreadThe difference between the bid and the ask price
Stop OrderAn order to buy or sell once an indicated stop price is reached
Limit OrderA stock order that isn’t executed until the limit price is reached
Stock ChartA graphical representation of the movements of a stock price
Trading VolumeThe amount of shares that a stock trades in a particular day
CommissionThe fee or charge that a broker assesses for executing a trade

Investing for Beginners: What First-Time Investors Need To Know

The Final Word on Getting Started as a Stock Investor

Buying stocks used to be a complicated process that was for wealthy investors only. Now, with the advent of online brokers, stock trading and investing is open to everyone. With even $1,000 or less to invest, you can open an account with a broker in about five minutes online, and you can buy or sell stocks for minuscule commissions. However, just because the door to investing is wide open doesn’t mean you should just plunge in without doing your homework first. Understand how stocks work, what it will cost you to buy and sell stocks, and which brokers are best suited for your trading needs before you put all of your hard-earned funds to work.

Up Next: 13 Ways To Invest That Don’t Involve the Stock Market

John Csiszar has written thousands of articles on financial services based on his extensive experience in the industry. He has earned a certified financial planner designation, was a registered investment advisor, had a life insurance license and earned his Series 7, 63 and 65 licenses while serving for 18 years as an investment counselor before converting to full-time writing.

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About the Author

John Csiszar is a freelance writer and article curator. He served as a registered investment advisor for 18 years before becoming a writing and editing contractor for private clients. In addition to writing thousands of articles for various online publications, he has published two educational books for young adults.