Key takeaways
- Opening and funding a brokerage account is the first step to buying stocks online.
- Do some research to understand the companies whose stocks you are buying.
- Buying stocks online is safe if you’re using a reputable broker, and it doesn’t require much money to get started.
The stock market can feel like an intimidating place for those who are just getting started with investing. But buying stocks online is actually fairly simple once you understand a few basics about where to buy them and how they’re traded. Let’s take a look at what you need to know if you’re just beginning to invest and build a portfolio.
Buying stocks online: A step-by-step guide
1. Open a brokerage account
If you’re buying stocks online for the first time, you’ll need to open a brokerage account at one of several brokers, such as Fidelity, Schwab or Webull. The process of opening an account is fairly straightforward and shouldn’t take 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 to see more options.)
2. Fund the account
The next step is to actually put money into your account so that you have the funds to invest. This can be done by sending a physical check through the mail, but it’s much more convenient to set up an electronic transfer. To transfer funds electronically, you’ll provide the account information and the financial institution you’d like to transfer money from. Your money should arrive in your account within a few days.
3. Research stocks you’re interested in
Before buying any stock, you’ll want to do some research on the companies you’re considering. Make sure to read a company’s annual report, or 10-K filing with the Securities and Exchange Commission (SEC), as well as the most recent quarterly reports to get a better understanding of the business and how it’s performing.
Before you make a purchase, you should be able to explain how a company makes money, its position relative to competitors and what you think the next three to five years are likely to look like for the business. Be sure to pay attention to valuation, or what you’re paying compared to what you’re getting as a shareholder.
4. Place a trade order
Once you’ve zeroed in on a stock to buy, you will need to place a trade order. You will likely have a few different options when placing a trade. Here are the two most common types:
- Market order: A market order means your trade will be executed immediately at the best available price. This type of order puts no price parameters around 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 lots of shares each day because your order is unlikely to move the stock price in one direction or another.
- Limit order: This order type will execute your trade only at a specific share price or better. For example, if you place a limit buy order at $10.00, the trade won’t go through unless someone is willing to sell at $10.00 or lower. This gives you more certainty about the price you’re paying going into the trade, but you’ll run the risk that the price never reaches your limit, meaning your order won’t be filled. Limit orders are good for stocks that don’t trade very many shares and when your order might influence the share price. This would typically occur with small or micro-capitalization 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 trade order to be valid and whether you want the order to be “all or none,” which means the order won’t be filled unless you can purchase all the shares you’ve asked for. Orders are valid for the rest of the trading day or are “good till canceled,” meaning the order will usually stand open for 60 to 90 days or until it’s filled.
FAQs about buying stocks online
Bottom line
Buying stocks online is fairly simple once you understand a few key terms and processes. But just because it’s simple doesn’t mean it’s easy. Make sure to carefully research any company before buying (or selling) its stock to better understand the risks that come with investing in individual shares.
— Kim Husband contributed to an update of this article.
Editorial Disclaimer: All investors are advised to conduct their own independent research into investment strategies before making an investment decision. In addition, investors are advised that past investment product performance is no guarantee of future price appreciation.
Why we ask for feedback
Your feedback helps us improve our content and services. It takes less than a minute to
complete.
Your responses are anonymous and will only be used for improving our website.
Help us improve our content
Read the full article here
