Buying shares allows you to invest in businesses and gradually build up your wealth. If you’re new to the stock market, you’re probably wondering how to buy shares in a company.
This guide walks you through the process step by step, from selecting the right account to executing your first trade and formulating a long-term investing strategy.
What Is a Brokerage Account?
A brokerage account is a financial account that lets you trade stocks, bonds, mutual funds, and ETFs. It’s not a standard bank account — it’s an account specifically tailored for investing, complete with tools to help you follow your stock portfolio and carry out trades.
Types of Brokerage Accounts
You have two primary options for your brokerage account:
Online Brokerage Accounts
Best for hands-on investors, online brokerage accounts allow you to buy and sell investments directly on a broker’s website or app. Discount brokers have choices such as individual stocks, mutual funds, and bonds.
Managed Brokerage Accounts
If you want a more hands-off approach, you can have a financial advisor or robo-advisor manage the account for you. Robo-advisors employ algorithms to create and manage your portfolio according to your goals — usually for less than human advisors charge.
How to Open a Brokerage Account
Opening a brokerage account is a quick and easy process that usually takes less than 15 minutes online.
- Choose a standard brokerage account or a tax-advantaged retirement account (like an IRA), depending on your appropriate investment objectives
- Give certain personal information, such as your name, address, and Social Security number
- Transfer money from your bank account or another brokerage account
- Begin purchasing shares once your account is funded; many new investors use lower-cost index funds to create a diverse portfolio
You might also require a Central Depository System (CDS) account for stocks trading in certain countries. This will require you to fill out an application and provide passport pictures and verified identification documents.
How to Buy Shares in a Company and Pick the Right Stocks
After opening your brokerage account, the next step is to figure out how to buy shares in a company and choose the right ones.
Researching Companies
Before buying shares in any company, research its economic structure, fiscal position, and future outlook. Some important considerations include:
- What does the company sell?
- Is demand for its products or services increasing?
- What are its levels of revenue growth, profitability, and debt?
- Does it have a competitive advantage over other companies?
To guide stock evaluations, many investors use earnings reports, analyst opinions, and financial metrics, such as price-to-earnings (P/E) ratio, earnings per share (EPS), and return on equity (ROE).
Each publicly traded company has its own stock ticker symbol, which is what investors use to trade. Here are some examples of stock ticker symbols:
- Apple Inc.: AAPL
- Microsoft Corporation: MSFT
You’ll use the ticker symbol, not the full name of the company, when you place an order to buy shares.
Portfolio Diversification: Spreading Out Your Risk
The rationale behind stock diversification is to reduce risk by spreading the investments across various sectors, company sizes, and asset classes. If one investment does not perform well, others can help make up the losses. Diversification leads to a balanced portfolio that minimizes risk while retaining growth potential.
The following are some investments you can consider:
- Stocks: Higher returns with greater risk
- Bonds: Safer, offer regular income from interest payments
- Cash and Cash Equivalents: Risk-free, low return, but good for stability
A balanced mix of investments helps you minimize the risk and maximize your chances of long-term stability.
Determining How Many Shares to Buy
Now that you’ve settled on what stocks you want to invest in, the next step for how to buy shares in a company is to determine the amount you can purchase. This typically depends on your investment budget, stock prices, and whether your broker offers fractional shares.
Traditional Shares
In the past, investors could buy only whole shares of a stock. For instance, if the stock of a company has a price of $130 a share and you have $20,000 to invest, you could purchase:
153 shares ($130 × 153 = $19,890), with $110 left uninvested.
This method often leaves small amounts of cash idle in your account, especially when stock prices don’t divide neatly into your available funds.
Fractional Shares
These days, most brokers offer fractional shares, so you don’t have to buy a full one. This approach has several benefits:
- Makes the Most of What You Have: Using the same $20,000 hypothetical example, you can buy 153.8 shares of fractional shares, maximizing your investment
- Streamlines Trading: Rather than trying to determine how many whole shares you can buy, you can invest a dollar amount (e.g., $500 in a stock rather than figuring out how much stock that buys)
- Provides Access to Expensive Stocks: Certain stocks, such as Amazon (AMZN) or Berkshire Hathaway (BRK.A), often trade for thousands a share — fractional shares allow you to buy into these companies without an upfront investment of thousands of dollars
Fractional shares work the same way whole shares do — you receive dividends, the price goes up or down, and you face the same risks in your investment. But as with any stock, fractional shares can still drop in value.
Regardless of whether you decide to buy whole shares or fractional ones, the key is to invest within your budget, stay diversified, and focus on long-term growth.
Placing Orders to Buy Shares
After choosing your stocks and how many shares to purchase, the next step is to place an order. There are different stock order types that let you control how and when your trade is executed.
Market Orders: Speed Over Precision
A market order instructs your broker to purchase shares right away at the best available price. Execution is almost always assured, but the price typically isn’t. In fast-moving markets, prices can change between the time you submit the order and when it executes.
If you are trading a highly liquid stock with minimal price movement, a market order guarantees prompt execution.
Limit Orders: Control Over Price
A limit order allows you to specify the most you’ll pay for a stock. If the price of the stock hits your target, the order executes. If it doesn’t hit, the order remains unfilled.
A limit order can be helpful when you want more control over the price and don’t require an immediate trade. If, for example, a stock is trading at $241, placing a buy limit order at $245 guarantees that you won’t pay more than that, even if prices suddenly spike.
Stop-Loss Orders: Protecting Against Losses
The stop-loss order typically sells your shares once the stock reaches a specific price. This helps you to limit potential losses. If the stop price is reached, the order becomes a market order and gets executed at the best available price.
You’ll typically find two types of stop orders:
- Buy Stop Order: Placed above the current price, often used to limit losses in short-selling
- Sell Stop Order: Placed below the current price to prevent further losses or lock in profits
The stock order type you choose depends on your risk tolerance and overall investing approach — whether you’re following a buy-and-hold strategy, short selling, or contrarian investing.
If speed matters most, a market order ensures quick execution. If controlling the purchase price is your priority, a limit order is the way to go. And if you want to protect against losses, a stop-loss order can help safeguard your investment.
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