To buy stocks online, you follow four steps: open an account with a broker, decide which type of stock to buy (common or preferred), choose how many shares to buy, and place a market or limit order. You can be an active trader who watches for dips and surges, or a passive investor who holds for the long run. Stocks can offer higher returns than a bank account, but they also carry more risk, including the risk of losing money.
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1. Find a broker
A broker is the firm that buys and sells securities on your behalf. Traditionally, you had to call your broker every time you wanted to buy or sell stocks, which was slow and often inconvenient.
Today there are three main broker types:
- Full-service brokers act as advisors. They consider your age, marital status, risk tolerance, income, assets, and debts, and recommend a portfolio for your goals.
- Online brokerages give you a hands-on approach. You place your own trades and keep full control of your account for a low fee.
- Discount brokers with assistance work like online brokers but offer more support, which helps beginners.
Choose the broker type that fits your goals, and read reviews to make sure you can trust the firm with your money. Alternatively, see this step by step guide on how to buy stocks online without a broker.
2. Understand the different types of stock
Buying stock puts money into a public company. Shares are usually issued as one of two kinds:
- Common stock is the typical stock investment. You own part of the company and usually get to vote on major decisions, such as electing the board.
- Preferred stock works more like a bond. Preferred shareholders usually receive a fixed dividend and are paid before common shareholders, but they typically have no voting rights.
Stocks are further grouped by company size, industry, location, and style. Diversify your stock portfolio by owning different types of stocks, which lessens the damage when one part of the market falls. Use the free Portfolio Builder to check your portfolio's diversification and risk profile.
You can also invest in environmentally friendly and ethical stocks; this guide from AskTraders covers those options.
3. Choose the number of shares to buy
Start small and add as you learn. Investing has a learning curve, so do not set a target number of shares up front. Study the market and understand how it works until you are confident putting in a larger amount.
4. Choose the stock order type
After deciding what and how much to buy, choose an order type to place the trade. Two terms matter here:
- Ask is the lowest price a seller will accept.
- Bid is the highest price a buyer is willing to pay.
The two basic stock order types are:
- Market order: buys or sells right away at the current market price.
- Limit order: buys or sells only at the price you set or better. The trade goes through only if the stock reaches that price.
Conclusion
Buying stocks online comes down to choosing a broker, understanding the types of stock and order types, and starting with an amount you can afford to risk. Research before you invest. Stock prices can fall as well as rise, and this article is educational, not investment advice.