You've probably imagined many times how you're going to buy shares in a company and make enough money to travel the world or enjoy a carefree retirement. Achieving this is not easy, but you don’t need a huge amount of money to start your investment journey. In fact, some people start with just $100 or less. And the good news is that you can do all of this completely online, from the comfort of your own home; all you need is a brokerage account.
In this article, we will explain, jargon-free, how to buy shares in a company. Let's see how to buy stocks online in six easy steps, from making up an investment plan and opening a broker account to actually buying stocks and managing your – hopefully – growing portfolio.
A six-step plan for buying shares and starting stock investing
Buying shares online is not all that difficult. Just follow this simple six-step guide:
- Think of an investment plan
- Find a good online broker
- Open a brokerage account and upload money
- Find a stock you want to buy
- Buy the stocks of your choice
- Review your stock positions regularly
Step 1: Make a stock investment plan
Before you launch into stock investments, you should first make a plan. You can do this by asking yourself a few basic questions around three main topics:
- Goals: What are your objectives? What is your timeframe?
- Time: How much time do you want to spend managing your investments?
- Risk: Are you okay with high risks or do you prefer to worry less?
Knowing the answers to these questions will help determine what kinds of stocks are the best fit for you, or whether stocks are for you at all.
Are stocks for you?
It's a fair question to ask whether stocks are the right investment for you or you should focus on other asset types instead. This mostly comes down to your risk tolerance. A good rule of thumb: if your stocks are down 20% in a week, how badly would that affect you? If that's too much and you think you couldn't handle it, then stay away from stocks and invest in some less risky assets such as bonds, for example. If, however, you're OK with such a short-term loss in the hope of long-term gains, then stocks might be right for you.
Step 2: Find a good online broker
Once you’ve decided that you want to invest in stocks, you need to find a good online broker. There are hundreds of online brokers to choose from, but AwardBroker will help you here: get a free recommendation by answering just a few questions in our broker finder tool.
When recommending a broker, we take into account its fees, the quality of its trading platforms, its asset selection and the range of accessible markets, and how easy it is to open an account. Safety is also very important – in fact, AwardBroker only recommends brokers where the majority of clients fall under top-notch regulation, and that we have tested by opening live accounts, using real money.
Step 3: Open a broker account and deposit money
After finding your online broker, you need to open an investment account to begin trading. What is an investment account? Think of it as a bank account where, in addition to holding cash, you can also hold shares and other securities.
Opening an account at a broker can usually be done online. At the majority of online brokers, the process involves filling in your personal data, choosing an account plan, providing some information about your financial background, and then identifying yourself by uploading some personal documents – so make sure you have those ready. After this, you need to wait for the broker to verify and activate your account; this can take anywhere between a few hours and a couple of days.
Funding your account
Once your account is up and running, you need to deposit some money in order to be able to start investing in stocks. This process is referred to as funding your account. Depending on the broker, this can be done via bank transfer, credit/debit card, or electronic wallets like PayPal or Apple Pay.
Some brokers require a minimum deposit amount that you have to upload before you can start trading, so keep this in mind when making the transfer. This can be as low as a few dollars, and in some extreme cases, as high as $2,000.
Tip: open a demo account
Many online brokers offer demo accounts, where you can try out what stock trading is like, without risking any actual money. These accounts and trading platforms look the same as the live ones, but no actual transactions are carried out on the open market – all deals are virtual. It's a useful tool for getting a hang of stock trading and familiarizing yourself the trading platform interface before jumping into the market with your hard-earned savings.
Step 4: Find a stock to buy
When searching for stocks to buy, you can get inspiration from others' ideas or you can do your own research. For example, you could choose to buy into some stocks that Warren Buffett owns. Investment ideas can also come from your broker in the form of regular stock analyses and trading recommendations. You can also turn to independent research such as financial blogs or investment courses.
Want to do your own research? This is where your investment plan comes into play. Your larger investment objectives and your risk tolerance will probably point you to some types of stocks and sectors and perhaps rule out some others. To see how you can narrow down your choices and find the right stocks, read our tips for beginners on how to select stocks.
Step 5: Buy your stocks
You have the account, the cash, and the stock you want to buy. Now all you need to do is press the ‘Buy' button. Yes, it's that easy! Just log in to your online trading platform; find the stock you have selected by using the search function; enter the number of shares you wish to buy; and click ‘Buy,' which will initiate the purchase of the shares. Alternatively, you can just type in how much money you’d like to spend on your chosen stock.
When placing an order, you can choose from various order types. For example, a market order buys immediately at the current market price, while a limit order allows you to specify the exact price at which you want to buy the shares. For more details, read our guide on how to choose the right stock order type.
At an increasing number of brokers, you can now also buy fractional shares. This means that, for example, if a stock costs $500 apiece, you can decide to buy just a $20 slice of it, making you the owner of 1/25th of a share.
Ready to buy your first shares but still need a helping hand? Check out our My First Stock Trade Quest, where we guide you, step by step, through the process of opening your first broker account and buying your first stock.
Step 6: Review your share positions regularly
You're done, you've bought the shares, they are yours. Now it is key to monitor your investments.
If you bought your shares with the goal of holding them for a longer term, you don’t need to check price movements every day, but you might want to check the company's quarterly or annual reports and guidance. It's also a good idea to keep an eye on market movements, check how economies are doing, and see which sectors are booming and which are struggling. Based on these, you can review your investment strategy from time to time: either sell some of your holdings of a stock or add some more shares, or even look for new stocks to invest in.
If you are such a buy-and-hold investor, check out the best brokers for long-term investing.
Short-term buyers also need to be aware of the fundamentals, but they will need to be prepared for more active position management. This could mean setting up a stop-loss price of where to cut losses, or a target price of where you'd want to sell your stocks to realize a profit.
What does buying shares in a company really mean?
When you buy shares in a company, you become a shareholder, i.e. an owner of that company in a very small percentage.
For example, Tesla has 185 million tradable shares (outstanding). When you buy 100 Tesla company shares, you will be one of the owners of Tesla. Your ownership percentage will be very tiny, just 0.000055% (100/185 million). Still, you will be an owner with all the rights that come with this ownership:
- The right to receive dividends – when the company allocates dividends from its profits at the end of a financial year, you will receive a part of this. In our Tesla example, if the company paid $100 million in dividends, you would receive $55 (0.000055%*100 million).
- The right to vote – if you are a shareholder of a company, you have the right to participate at the company's annual meeting. At the annual meeting, you will have the right to vote on the topics that will fundamentally influence the future of the company. These topics can vary from the election of the board of directors to the amount of the dividends allocated. Of course the weight of your vote will be proportional to the number of shares you hold.
Speaking about financial literacy: when you read about buying shares online, you may find that both the expressions stock and share are used. So what is the difference between stocks and shares? The word ‘stock' is the general term for company ownership, as in “I invest in American tech stocks like Apple and Facebook.” The word ‘share', meanwhile, usually refers to a piece of ownership stake in a company. For example, you can say “yesterday I bought 100 Tesla shares.”
How to manage the risks of buying shares
Stock investments always come with some risks that need managing. Below, you can find the most common risks and how to mitigate them.
Avoid scams
Risk: Unfortunately, tons of scam “brokers” are out there on the market trying to steal your money. When you see ads for binary options trading or automated investment algorithms that generate outstanding returns, start to get suspicious. In these cases, the best thing to do is to ignore these ads.
How to manage it: When buying shares online, go with our broker selection. We have an active account with the brokers we reviewed and we test them regularly.
Diversify your portfolio
Risk: If you put all of your savings in just one or two stocks, and the company you selected goes bust, you could lose all your invested money. A similar risk is when the majority of your stock holdings are in the same industry.
How to manage it: Diversify your investment portfolio. This means buying many different shares across many industries and not putting all your eggs in one basket.
Avoid crappy stocks
Risk: When buying individual stocks, there is always a risk of selecting the wrong ones. Here, ‘wrong' could mean anything from a company that defaults to simply buying an overpriced share.
How to manage it:
Learn: This is the tricky part, since you need some knowledge and experience. It is best to start learning by reading books on investment and taking online courses. There are tons of great books out there, but you can start with The Intelligent Investor by Benjamin Graham. This is also the book on investment most recommended by Warren Buffett.
Gather information: While you are learning, start collecting as much information about your target companies as possible. Read the company presentations and quarterly reports on their website (usually found in the ‘Investor Relations' section), understand their business profiles, start playing around with their income statements, look at their management background or even attend their annual meetings. These will help you gain a better understanding of the company and the industry it operates in.
Compare multiples: When it comes to pricing, use earnings multiples to compare your target stocks. P/E is a basic and widely used multiple, but each sector has its own favorite.
How your investment account can be protected
Since you are trading with your savings, it is very important to pay attention to safety. Most of the brokers we recommend have solid investor protection schemes in place for a majority of their clients. Investor protection means that up to a certain limit, you get your money back if the broker goes into bankruptcy or commits fraud.
The level of investor protection depends on the regulatory body that oversees the broker, and therefore varies from country to country. In most of Europe, the amount of investor protection is usually €20,000, while in the US it is significantly higher, at $500,000. Brokers under UK regulation typically come with investor protection up to £85,000. The investor protection amount is usually guaranteed by a state fund.
Tip: Use national tax-free accounts
In your country of residence, you may have the option to open special investment accounts that offer favorable tax conditions. For example, in the UK, this account is called ISA, or Individual Savings Account, which is exempt from income tax and capital gains tax on investment returns. In the US, Individual Retirement Accounts (IRA) offer many similar benefits.
📈 Are you worried about inflation and its potential impact on your investments? Our Inflation page is here to help! Learn how inflation can impact your investments and discover practical ways to protect them with our beginner's guide to inflation.
Bottom line
Stocks can be an excellent investment, especially in the long term. It is worth learning more about the process before diving into it, so once again, just remember these six easy-to-follow steps:
- Think of an investment plan
- Find a good online broker
- Open a brokerage account and upload money
- Find a stock you want to buy
- Buy the stocks of your choice
- Review your stock positions regularly
If you have made up your mind to invest in stocks, use our special tool to find the most suitable broker for you; or head straight to our selection of the best stock brokers available in your country.
