To Buy and Sell Stocks, you’ll typically need the assistance of a stockbroker, since you cannot simply call up a stock exchange and ask to buy stocks directly. When you use a stockbroker, whether a human being or an online platform, you can choose the investment that you wish to buy or sell and how the trade should be handled.
In this vein, there are two broad categories of brokers to choose from: a full-service broker or an online/discount broker. Below, we discuss how you can use these options to trade stocks on your own.
We’ll also talk about a third option: the direct stock purchase plan (DSPP), whereby investors can obtain shares directly from certain public companies. This lets you buy stocks online without a broker; however, this option is limited in its usefulness as you would have to maintain DSPPs at every company that you own stock in, rather than having your entire portfolio housed in a single place. Moreover, many online brokers today offer commission-free stock trading, often making this an easier and cost-effective option.
KEY TAKEAWAYS
- To trade stocks, you’ll often need to use a broker to place your orders on an exchange.
- A full-service broker, while more expensive, provides expert investment research, advice, and commentary in addition to comprehensive financial planning.
- A discount broker is a cheaper option that provides basic execution services for investors who do their own research and analysis.
- Today, many online brokers offer commission-free trading along with free tools and screeners, making it easier than ever to trade stocks on your own.
- You can also buy stocks online without a broker through some companies' direct stock purchase plans (DSPP), but this can be cumbersome.
Where to Buy Stocks
Most of the time, stocks are listed and traded on exchanges, licensed venues where buyers and sellers meet, often with the assistance of a broker or other intermediary. These intermediaries will be members of the exchange and use their access to buy and sell shares on your behalf. Major exchanges in the United States include the New York Stock Exchange (NYSE) and the Nasdaq market.
Smaller companies with less liquid shares and minimal market caps (sometimes called penny stocks) may alternatively trade over-the-counter (OTC) on more loosely regulated platforms such as the OTC Pink Sheets. Shares of these companies are often more volatile and risky, so investors choosing to trade on the OTC market should engage in extra due diligence and understand the risks involved.
Buying Stocks With a Full-Service Broker
Full-service brokers are what some people visualize when they think about investing—well-dressed businesspeople sitting in an office and chatting with clients. These are the traditional stockbrokers who will take the time to get to know you personally and financially.
They will look at factors such as marital status, lifestyle, personality, risk tolerance, age (time horizon), income, assets, debts, and more.1 By getting to know as much about you as they can, these full-service brokers can then help you develop a long-term financial plan.
Another Fact
These brokers can not only help you with your investment needs but also provide assistance with estate planning, tax advice, retirement planning, budgeting, and any other type of financial advice—hence the term “full service.” They can help you manage all of your financial needs now and long into the future and are for investors who want everything in one package.
In terms of fees, full-service brokers are more expensive than discount brokers, but the value of having a professional human investment advisor by your side can be well worth the additional costs. Accounts today are setting up with as little as $1,000. Most people, especially beginners, would fall into this category in terms of the type of broker whom they require.
Those who want a set-it-and-forget-it approach to investing but don’t have the money or time to hire a full-service broker can opt for a roboadvisor. These are algorithmic investment platforms that you can manage through an app or website for a fraction of the cost of a traditional financial advisor.
Buying Stocks Online
Online/discount brokers, on the other hand, do not provide any investment advice and are basically just order takers. They are much less expensive than full-service brokers, since there is typically no office to visit and no certified investment advisors to help you. Cost is usually based on a per-transaction basis, and you can typically open an account over the Internet with little or no money. Once you have an account with an online broker, you can usually just log on to its website and into your account and be able to buy and sell stocks instantly.
Remember that since these types of brokers provide absolutely no investment advice, stock tips, or investment help of any kind, you’re on your own to manage your investments. The only assistance that you will usually receive is technical support. Online (discount) brokers do offer investment-related links, research, and resources that can be useful. If you feel that you are knowledgeable enough to take on the responsibilities of managing your own investments, or if you don’t know anything about investing but want to teach yourself, then this is the way to go.
The bottom line is that your choice of broker should be based on your individual needs. Full-service brokers are great for those who are willing to pay a premium for someone else to look after their finances. Online/discount brokers, on the other hand, are great for people with little start-up money and who would like to take on the risks and rewards of investing upon themselves, without any professional assistance.
Buying Stocks Via a Direct Stock Purchase Plan
Sometimes, companies (often blue-chip firms) will sponsor a special type of program called a direct stock purchase plan (DSPP).2 DSPPs were originally conceived generations ago as a way for businesses to let smaller investors buy ownership directly from the company. Participating in a DSPP requires an investor to engage with a company directly instead of with a broker, but every company’s system for administering a DSPP is unique.
Participating companies will offer their DSPP through transfer agents or another third-party administrator. To learn more about how to participate in a company’s DSPP, an investor should contact the company’s investor relations department.
How to Trade Once You Have a Broker
Once you’ve chosen your brokerage platform, you will need to establish and fund an account before you can begin trading. Today, it’s easier than ever to link a bank account online and transfer funds, or to electronically roll over an existing brokerage account to another firm. You can also choose to make recurring deposits into your brokerage account to increase your portfolio on a regular basis.
Once funded, you simply need to go online or call your broker to place a trade. Stocks are designated by a unique ticker symbol, a one- to four-letter mnemonic assigned to a particular company. MSFT, for instance, is the ticker for Microsoft Inc., and AAPL is the ticker for Apple Inc. If you don’t know the ticker of your stock, it is easy to look it up online or via your broker.
Stock ticker
When you select the stock ticker that you would like to trade, you’ll be met with a price quote. A set of information about the stock’s price and activity. This will show you the last price at which the shares traded, as well as a bid and an offer. The bid is the highest price at which somebody in the market will buy a share (and thus is the best price at which you can sell to them).
The offer, or ask, is the lowest price at which somebody in the market is willing to sell (and thus, it's the best price at which you can buy from them). The difference between the bid and offer prices is known as the spread. A narrower spread typically indicates that the market for the stock is quite active and liquid. A wider spread indicates the opposite. After considering the price quote, you may place your order.
Market orders are the most basic type of order and will give you immediate execution at the prevailing market price. A limit order, on the other hand, allows you to set a specific price at which to buy or sell. If the price never reaches that limit level, then the trade will remain active until it cancel. Many such trades are day orders that will remain good until the end of the trading day. If you want the order to be active only briefly, you can instead specify with your broker that it is immediate or cancel (IOC). Alternatively, if you want the order to remain in force for longer than a day, then you can designate it good ’til canceled (GTC). Other conditions can also place on an order, such as a stop-loss.
FAQ
How Old Do You Have to Be to Trade Stocks?
You must be at least 18 years old in the United States to open a brokerage account and trade stocks.3 For somebody younger than 18, a parent can set up a custodial account on their behalf.
Is It Possible to Buy and Sell Stocks for Free?
Yes. Several online brokerage platforms (such as Robinhood) offer commission-free trading in most stocks and exchange-traded funds (ETFs). Note that these brokers still earn money from your trades, but by selling order flow to financial firms and loaning your stock to short-sellers.
What Is the Easiest Way to Buy Stock?
The easiest way, in terms of getting a trade done, is to open and fund an online account and place a market order. While this is the quickest way to buy stocks, it might not always be the wisest. Do your own research before deciding what type of order to place and with whom.
How Can You Buy Stocks Online Without a Broker?
Usually you need to open an account with a broker to buy and sell stocks online. Some publicly traded companies, however, do offer a direct stock purchase plan (DSPP), where you can buy shares directly. Instead of using a broker, the company’s transfer agent manages the transaction.
The Bottom Line
You can buy or sell stock on your own by opening a brokerage account with one of the many brokerage firms. After opening your account, connect it with your bank checking account to make deposits, which are then available for you to invest in.
However, do not equate the ease of opening an account with the ease of making good investment decisions. It is generally recommended that beginners speak to a qualified financial advisor. New investors might benefit from reading the key book The Intelligent Investor, by Benjamin Graham. Smart investing can be highly satisfying, so take it slow, do your research, and seek out a broker that suits your interests and goals.