How to Buy Stocks: A Comprehensive Guide

To buy stocks, you’ll generally need the help of a stockbroker, as you can’t directly contact a stock exchange to purchase stocks. When you work with a stockbroker—whether a human advisor or an online platform—you choose the stock you want to buy or sell and specify how the trade should be executed.

You can choose from two broad types of brokers: full-service and online/discount brokers. Below, we’ll explain how these options work when you want to trade stocks independently. We’ll also introduce a third option: the Direct Stock Purchase Plan (DSPP). This method lets you buy stocks directly from certain public companies without a broker. However, this option has its drawbacks. You would need to maintain DSPPs with each company you own stock in, making portfolio management complicated. On the other hand, many online brokers today offer commission-free trading, making them a more accessible and cost-efficient option, and giving you the power to manage your investments at your convenience.

Key Takeaways

• You’ll typically need a broker to place orders on an exchange to trade stocks.
• Full-service brokers offer comprehensive financial planning, research, and investment advice at a higher cost.
• Discount brokers are cheaper and provide essential execution services, leaving the research and decision-making to the investor.
• Many online brokers now offer commission-free trades, tools, and resources, simplifying self-directed investing.
• Some companies offer direct stock purchase plans (DSPP), which can be cumbersome compared to modern online brokers.

Where to Buy Stocks

Stocks are most often listed and traded on exchanges, which are regulated platforms where buyers and sellers meet. Typically, a broker or another intermediary handles the transactions on behalf of the investor. In the U.S., the major exchanges include the New York Stock Exchange (NYSE) and Nasdaq.

Smaller companies with less liquid stocks and lower market capitalization (often called penny stocks) might be traded over-the-counter (OTC) on less regulated platforms such as OTC Pink Sheets. These stocks can be riskier and more volatile. Therefore, investors trading on the OTC market should exercise additional caution and thorough research, which will make them feel more informed and confident in their investment decisions.

Most brokers today have access to both significant exchanges and OTC markets.

Buying Stocks With a Full-Service Broker

Full-service brokers provide a comprehensive approach to investing. Many picture these brokers as well-dressed professionals who meet with clients to discuss their financial goals. These brokers take time to get to know their clients’ personal and economic situations, including marital status, risk tolerance, income, assets, debts, etc.

Full-service brokers can help create a long-term financial plan by gaining a deep understanding of your situation. This might include investment advice, estate planning, tax strategy, retirement planning, and budgeting. Full-service brokers can manage your financial needs for the long haul, making them suitable for investors who prefer an all-inclusive service.

While full-service brokers are more expensive than discount brokers, their personalized advice and financial guidance can be well worth the additional costs. Today, you can open an account with a full-service broker for as little as $1,000, making it more accessible for most people—especially beginners.

If you prefer a more automated and lower-cost approach but still want some guidance, consider a robo-advisor. These algorithm-driven platforms offer investment advice through apps or websites, usually at a fraction of the cost of a traditional advisor.

Buying Stocks Online

Online or discount brokers do not offer personalized investment advice. Instead, they act as order-takers, allowing you to buy and sell stocks at a lower cost than full-service brokers. Discount brokers are much less expensive since there’s no office to visit and no dedicated advisor to speak with. The fees are typically based on a per-transaction basis, and you can often open an account online with little or no money. Once your account is set up, you can instantly log in and trade stocks.

Because discount brokers don’t offer advice or stock tips, you’re responsible for managing your investments. These platforms provide technical support and often have research tools, educational resources, and market news that can help inform your decisions. A discount broker could be a good option if you’re comfortable making investment decisions and want to handle your portfolio independently.

Ultimately, choosing between a full-service and discount broker depends on your needs. Full-service brokers are ideal for those who want a professional to manage their finances. Discount brokers are better suited for investors willing to take on the risk and rewards of investing independently, with minimal assistance.

Buying Stocks Via a Direct Stock Purchase Plan (DSPP)

Some companies, particularly well-established and financially sound firms like Coca-Cola, IBM, or Walmart, offer a unique program called a Direct Stock Purchase Plan (DSPP). DSPPs were created to allow smaller investors to purchase company shares directly, bypassing the need for a broker. Each company’s DSPP is unique, and to participate, you’ll need to deal directly with the company, often through a third-party transfer agent.

Suppose you’re interested in a company’s DSPP. In that case, the best way to get started is by contacting the company’s investor relations department. However, this method is more cumbersome, and many investors prefer the simplicity of managing their investments through a broker or online platform.

How to Trade Once You Have a Broker

Once you’ve selected a brokerage, the next step is to open and fund your account. Most brokerages allow you to link a bank account and transfer funds online. You can also transfer an existing brokerage account from another firm. Many investors opt for recurring deposits to grow their portfolios gradually.

After funding your account, placing a trade is straightforward. Every stock is identified by a ticker symbol—a unique code assigned to each company. For instance, Microsoft’s ticker symbol is MSFT, and Apple’s is AAPL. If you don’t know a company’s ticker symbol, your broker’s website will typically provide a way to look it up.

When you’re ready to place an order, you’ll see a stock price quote showing the last trade price and bid and ask prices. The bid represents the highest price a buyer is willing to pay, and the ask is the lowest price a seller is willing to accept. The difference between these prices is called the spread. After evaluating the quote, you can proceed with placing your order by specifying the stock you want to buy or sell, the quantity, and the type of order (market order, limit order, etc.).

There are several types of orders you can place. A market order immediately buys or sells the stock at the current market price. A limit order allows you to set a specific price you want to buy or sell. If the price doesn’t reach that level, the order remains pending until it’s executed or cancelled. Other orders include stop-loss, day-, and good-’til-canceled (GTC) orders.

How Old Do You Have to Be to Trade Stocks?

In the U.S., you must be at least 18 years old to open a brokerage account. Minors can trade stocks through a custodial account set up by a parent or guardian.

Is It Possible to Buy and Sell Stocks for Free?

Yes. Many online brokerage platforms, like Robinhood, offer commission-free trading for most stocks and exchange-traded funds (ETFs). While they don’t charge a commission, these platforms still generate revenue by selling order flow to financial firms and lending your stocks.

What Is the Easiest Way to Buy Stock?

The easiest way to buy stocks is to open an online brokerage account and place a market order. This approach allows you to make trades quickly, but it’s essential to conduct thorough research before investing.

How Can You Buy Stocks Online Without a Broker?

While most investors use a broker to buy stocks online, some companies offer a direct stock purchase plan (DSPP) where you can purchase shares directly from the company. Instead of a broker, a transfer agent handles the transaction.

The Bottom Line

You need to open a brokerage account to buy or sell stocks independently. Once your account is linked to your bank, you can deposit funds and start investing. However, take the ease of setting up an account for the ease of making informed investment decisions. It’s a good idea to seek advice from a financial advisor or educate yourself about investing through reputable sources like “The Intelligent Investor” by Benjamin Graham.

Smart investing is highly rewarding, so take your time, research, and choose a broker that aligns with your investment goals and needs.