Explainer · Stock Market Basics
How to buy your first stock, step by step
Buying a stock takes a brokerage account, some homework and one order. The order is the easy part; the checks before it are what protect you.
Quick answer
Open an account with a brokerage firm after checking it on FINRA BrokerCheck [3]. Add money, read the company's SEC filings [1], then place a market or limit order for whole or fractional shares. The trade settles one business day later [6].
Key points
- You need an account at a brokerage firm, and the firm will ask for details such as your Social Security number, income and risk tolerance [2].
- Read the firm's Form CRS and check its background, for example with FINRA's free BrokerCheck tool [2] [3].
- A market order usually fills right away at a price that is not guaranteed; a limit order sets your price but may not fill [5].
- Fractional shares let you buy less than one share, but how they work differs by firm, they may carry no vote and they generally cannot be transferred to another firm [9].
- One stock is not a diversified portfolio; the SEC says even four or five stocks are not enough [14].
On this page
What are the steps to buy your first stock?#
The whole process fits on one screen. Each step is explained in more detail further down, with the official source behind it.
- Decide how much you could lose
There is no guarantee the company whose stock you hold will grow and do well, so you can lose money you invest [1]. Decide in advance how big a fall you could live with.
- Open a cash account
Give the information the firm asks for. In a cash account you pay the full amount for what you buy [2].
- Add money to the account
Decide the amount first, then transfer it. Ask which account fees apply, such as maintenance or inactivity fees [2].
- Choose shares and order type
Pick whole or fractional shares and a market or limit order [5].
- Review, submit and keep records
Check the ticker, quantity and price, submit, and keep the confirmation. The trade settles one business day later [6].
What do you need to open a brokerage account?#
The first practical step is an account with a brokerage firm, also called a broker-dealer. The SEC lists what firms typically ask for: your name, Social Security number or taxpayer ID, address, annual income, net worth, investment objectives and risk tolerance, and your investment experience [2]. Brokers need this information to comply with laws and other regulations [2].
You will also choose between two main account types. The key difference is whether you can borrow from the firm. The table below compares them.
| Account type | Can you borrow? | Key rule or risk |
|---|---|---|
| Cash account | No [2] | You pay the full amount for what you buy [2] |
| Margin account | Yes, from the firm [2] | You can lose more money than you invested [7] |
Margin rules: FINRA requires at least $2,000 or 100% of the purchase price, whichever is less, before trading on margin, and a maintenance level of at least 25% [7].
For a first stock, a cash account avoids borrowing, and with it the margin risk of losing more money than you invested [7]. Margin is covered in our guide to the pattern day trader rule and margin.
How do you check a broker before you sign up?#
The SEC tells investors to read a firm's relationship summary, called Form CRS, and to check the broker's background and disciplinary history before opening an account [2]. FINRA's BrokerCheck is a free tool for researching the professional backgrounds of brokers, brokerage firms and investment adviser firms [3]. It shows information such as customer disputes, disciplinary events and certain criminal and financial matters [3].
Ask about fees too. The SEC's list of fees to ask about includes commissions, which are fees paid to the broker-dealer for executing a trade, along with account maintenance and inactivity fees [2]. Our brokerage fees and costs guide goes through them.
How many shares can you afford?#
Share prices vary widely, so a fixed budget can buy a few whole shares and leave cash over. Some firms also offer fractional shares, which means owning less than one full share [9]. The SEC notes that how fractional shares work differs between brokerage firms [9], so read your firm's rules first.
- Whole shares you can buy
- 4500 / 123.45 = 4.05, rounded down, calculated
- Cost of 4 shares
- $493.804 x $123.45, calculated
- Cash left over
- $6.20$500 - $493.80, calculated
- Fractional alternative
- 4.0502 shares$500 / $123.45, calculated, before any fees
Fractional shares come with limits that whole shares do not. According to the SEC, you generally cannot transfer fractional shares to another brokerage firm, you may not have voting rights, and some firms only allow market orders for them [9]. Firms may also limit which stocks are available, for example only S&P 500 stocks [9]. You still receive dividends on the fraction you own [9].
Should you use a market order or a limit order?#
A market order is an order to buy or sell at the best available price [5]. It generally executes immediately, but the price is not guaranteed and can differ from the last trade you saw [5]. FINRA notes that brokerage firms typically enter an order as a market order unless you specify otherwise [10].
A limit order sets the price: a buy limit order can only execute at or below your limit price [10]. The catch is that it is not guaranteed to execute at all [5]. Both are compared in detail in market orders vs limit orders.
What happens after you place the order?#
Your broker decides where to send the order: to an exchange, to a market maker, to an electronic network, or to its own inventory [11]. It has a duty to seek the best execution reasonably available [12]. The details are in how stock exchanges work.
The trade then settles. For transactions on or after May 28, 2024, applicable trades settle one business day after the trade date, known as T+1 [6]. Your shares are usually held in "street name": many firms hold securities that way unless you ask otherwise, and the broker's records show you as the beneficial owner [13].
What does the trade really cost you?#
Every fee raises the price the stock has to reach before you are even. Use the numbers from your own broker. The example below shows the effect of a commission on 4 shares bought at $123.45, assuming the same commission is charged again when you sell.
Mistakes beginners make with buying a first stock#
- Using margin by accident
Picking a margin account without meaning to. With margin you can lose more money than you invested [7].
- Sending a market order into a fast market
A market order's price is not guaranteed and can differ from the last trade you saw [5].
- Assuming fractional shares work like whole ones
They generally cannot be moved to another firm and may carry no vote [9].
- Putting everything in one company
Four or five stocks do not make a diversified portfolio, let alone one [14].
Frequently asked questions#
How much money do I need to buy my first stock?
There is no single official minimum in the sources we cite. The amount depends on the share price, your broker's rules and whether it offers fractional shares, which let you own less than one full share [9].
Do my shares have to be held in street name?
No. Many firms hold shares in street name unless you give other instructions. Direct registration instead records the shares in your name on the company's books, held for you by its transfer agent [13].
When do I own the shares after I buy?
Your order fills when it executes, and the trade settles one business day later under T+1, when securities and cash officially change hands [6].
Is my money protected if my brokerage firm fails?
If a SIPC-member firm fails, SIPC protection is limited to $500,000, including $250,000 for cash. It does not cover a fall in the value of your investments [8].
The bottom line#
Buying your first stock is mostly about the steps before the order: check the firm on BrokerCheck, read its Form CRS, open a cash account, know the fees and research the company in its SEC filings. Then choose whole or fractional shares and a market or limit order, and remember the trade settles one business day later. Start with what is a stock if you have not yet, or return to the stock market basics hub.
Sources
- Stocks - FAQs.
- Investor Bulletin: How to Open a Brokerage Account.
- About BrokerCheck | FINRA.org.
- Ticker | Investor.gov.
- Understanding Order Types | Investor.gov.
- New "T+1" Settlement Cycle - What Investors Need To Know: Investor Bulletin.
- Investor Bulletin: Understanding Margin Accounts.
- What SIPC Protects.
- Fractional Share Investing - Buying a Slice Instead of the Whole Share.
- Order Types.
- Trade Execution: What Every Investor Should Know.
- Executing an Order.
- Investor Bulletin: Holding Your Securities | Investor.gov.
- Beginners' Guide to Asset Allocation, Diversification, and Rebalancing.
Education only. This page is not investment, tax or legal advice. Stocks can lose value. See our risk disclosure.
