how does a person buy stocks: A practical guide

How does a person buy stocks

How does a person buy stocks is a common question for new investors. At its core, buying stocks means acquiring ownership shares in a publicly traded company. This guide explains the full process — the accounts you can use, how to pick a broker, how order types work, fees and taxes, common strategies, and practical steps you can take today. Read on to learn how to start safely, how to manage risk, and how Bitget tools can fit into a modern trading workflow.

Overview of stocks and stock markets

A stock represents a fractional ownership interest in a company. Common stock typically gives voting rights and potential capital gains as the company grows, while preferred stock often offers fixed dividends but limited voting. Stocks trade on public exchanges where buyers and sellers match — prices move from supply and demand, company news, macroeconomic data, and investor sentiment.

Major market venues provide liquidity and continuous price discovery. When someone asks "how does a person buy stocks," it helps to know that trades occur through broker platforms that route your order to exchanges, market makers, or internalizers for execution.

Why people buy stocks

• Capital appreciation — to grow wealth as companies expand.
• Income — through dividends paid by profitable companies.
• Diversification — adding stocks to a portfolio of bonds, cash, and alternatives.
• Liquidity — public stocks are generally easier to buy or sell than private assets.
• Participation in the economy — ownership aligns investor outcomes with company performance.

Preparatory considerations before buying

Before answering the practical "how does a person buy stocks" steps, assess:

• Investment goals (short-term trading vs long-term growth).
• Time horizon (years to decades change strategy and tax treatment).
• Risk tolerance (how much loss you can accept without selling in panic).
• Emergency savings and high-interest debt — avoid using emergency funds or high-interest debt to buy stocks.
• Tax considerations in your jurisdiction — which accounts offer tax advantages.

Types of investment accounts

Cash brokerage accounts

A cash brokerage account is the standard taxable account. You deposit cash, buy and sell securities, and pay taxes on gains and dividends. Withdrawals are straightforward and flexible.

Margin accounts

Margin accounts let you borrow against your holdings to buy more stock (leverage). They increase buying power but carry risk: margin requirements, interest on loans, and margin calls if your account value drops. Understand margin rules before using leverage.

Retirement and tax-advantaged accounts

Retirement accounts such as IRAs, Roth IRAs, 401(k)s (U.S.) or RRSPs/TFSA (Canada) offer tax benefits. Rules limit withdrawals and contributions; some accounts don’t allow margin or certain investments. Using retirement funds for non-retirement purchases can have tax and penalty consequences.

As of January 17, 2024, according to MarketWatch, there were policy proposals to make it easier to withdraw from 401(k) plans for buying a home; this underscores why investors should watch changing rules closely and consider the risk of reducing retirement savings when tapping these accounts.

Custodial and trust accounts

Accounts for minors or estates (custodial accounts, trusts) have unique rules for control, taxation, and transfers. Custodial accounts are commonly used to hold assets for minors until they reach the age of majority.

Choosing a broker or platform

Answering "how does a person buy stocks" practically requires a broker. Brokers vary by service model:

• Full-service brokers provide advice and a broad suite of services for higher fees.
• Discount brokers offer low-cost trade execution and DIY tools.
• Robo-advisors automatically manage portfolios based on your risk profile.
• Exchange-native platforms (like Bitget) focus on modern execution and integrated crypto/other markets — choose features that match needs.

Key broker selection factors:

• Fees and commissions (many stock trades now have $0 commissions, but read fine print).
• Account types supported (taxable, retirement, margin, custodial).
• Order execution quality and speed.
• Platform usability — web, mobile, API access.
• Research, educational materials, and tools.
• Availability of fractional shares, DRIPs (dividend reinvestment), and international access.
• Customer support and regulatory standing.

Bitget provides an integrated platform with modern trading tools, custodial services, and wallet options that can be useful for investors who want a single provider to explore both traditional equities and digital assets in regulated products where available.

Funding an account and linking banking

To buy stocks you must fund your chosen account. Common funding methods:

• ACH or bank transfer — standard in many regions, usually low cost and 1–3 business days to settle.
• Wire transfers — faster for large amounts but higher fees.
• Check deposits — slower processing.
• Account transfers — move holdings from another broker (ACATS in the U.S.).

Account verification often requires ID, proof of address, and bank linkage. Settlement periods (e.g., T+2 for many equities) determine when funds or shares are available for withdrawal after a trade.

Selecting investments

Individual stocks

Buying individual stocks requires research: company business model, financial statements, earnings trends, competitive position, and valuation metrics. For beginners, avoid concentrating too much of your portfolio in one stock.

Mutual funds and ETFs

Mutual funds and exchange-traded funds (ETFs) provide built-in diversification. Index ETFs track broad market indices with low expense ratios; actively managed funds aim to outperform but often charge higher fees.

Alternatives (REITs, ADRs, international stocks)

Real estate investment trusts (REITs), American Depositary Receipts (ADRs) for foreign companies, and international stock listings expand opportunity but introduce currency and regulatory differences.

Fractional shares and DRIPs

Fractional shares let you buy a portion of an expensive stock, enabling diversified buying with smaller capital. Dividend Reinvestment Plans (DRIPs) automatically reinvest dividends into more shares, compounding returns over time.

Order types and how trades are placed

To understand "how does a person buy stocks," you must know order types and execution:

Market orders

Market orders execute immediately at the prevailing market price. Use when speed matters; be aware price can change between order submission and execution (slippage).

Limit orders

Limit orders specify the maximum (buy) or minimum (sell) price you accept. The order only executes at your limit price or better. Useful to control price but may not fill.

Stop and stop-limit orders

Stop orders become market orders once a trigger price is hit (useful for stop-losses). Stop-limit orders become limit orders at the trigger; they avoid unexpected execution prices but may not fill.

Time-in-force options

Orders can be day-only, Good-Til-Canceled (GTC), or have specific instruction like on-close. Time-in-force controls how long an order remains live.

Advanced order types

All-or-none, fill-or-kill, and conditional orders serve sophisticated needs; most retail investors can prioritize market and limit orders.

Order execution and settlement

Brokers route orders to exchanges or market participants. Execution quality matters — price improvement and speed can affect outcomes. After a trade, settlement (transfer of cash and securities) completes on the exchange’s settlement schedule (commonly T+2 for equities).

Fees, costs, and spreads

Costs affect net returns. Common costs include:

• Commissions — many brokers offer $0 trades for stocks, but verify other fees.
• Bid-ask spread — small for highly liquid stocks, wider for thinly traded securities.
• Platform fees — data subscriptions, account maintenance fees, or inactivity fees.
• Regulatory fees — small exchange/SEC fees on some transactions.
• Expense ratios — mutual funds and ETFs charge management fees that reduce returns over time.

Taxes and reporting

Tax rules vary by jurisdiction. Key concepts (U.S.-centric terms as examples):

• Capital gains tax — short-term (taxed as ordinary income) vs long-term (often lower rates) depending on holding period.
• Dividends — qualified dividends may be taxed at preferential rates; ordinary dividends are taxed as income.
• Wash-sale rules — disallow immediate loss recognition if you repurchase a substantially identical security within 30 days.
• Tax-advantaged accounts — defer or avoid taxes in retirement accounts; however, withdrawals may be taxed or penalized unless they meet conditions.

Always consult a tax professional for advice specific to your situation and jurisdiction.

Risk management and investor protections

Protect capital by using diversification, position sizing, and stop-loss planning. Margin increases risk significantly. Investor protection schemes (e.g., SIPC in the U.S.) protect against broker failures up to limits but do not protect against market losses.

Investment strategies and approaches

Buy-and-hold / long-term investing

Long-term investing focuses on compound growth and reduces taxes on long-term capital gains. It helps avoid short-term market noise.

Dollar-cost averaging

Investing fixed amounts regularly reduces timing risk and can lower average purchase cost during volatility.

Value, growth, income strategies

Value investors seek undervalued stocks; growth investors prioritize future earnings potential; income investors favor dividends and steady cash flow.

Active trading vs passive investing

Active trading requires time, skill, and often higher costs. Passive indexing tends to be lower cost and is effective for many long-term investors.

Research and analysis

Fundamental analysis

Examine financial statements, revenue and earnings trends, margins, return on equity, debt levels, and valuation ratios like P/E and P/B.

Technical analysis

Price charts and indicators (moving averages, RSI) can help time entries and exits for short-term trades, though they are not a guarantee of success.

Sources of research

Use broker research, company filings, regulatory disclosures, earnings calls, and reputable financial media. Bitget’s education center and research tools can help users learn trading mechanics and market data.

Step-by-step practical guide (simple checklist)

1. Clarify your financial goals and time horizon.
2. Decide the account type (taxable, retirement, custodial).
3. Choose a broker that matches fees, tools, and supported products.
4. Open and verify your account; link a bank and deposit funds.
5. Research investments — stocks, ETFs, or funds that suit your plan.
6. Choose an order type (market, limit) and set risk parameters (position size, stop levels).
7. Place your trade and confirm execution.
8. Monitor your holdings, rebalance periodically, and account for taxes.

As you walk through these steps, you are effectively answering "how does a person buy stocks" in a practical, repeatable manner.

Special topics and advanced trading

Margin trading and leverage

Margin increases potential returns and losses. Margin interest and maintenance requirements can trigger forced sales (margin calls). Understand worst-case scenarios before borrowing to buy stocks.

Short selling

Short selling borrows shares to sell them with the intent to repurchase at a lower price. It carries unlimited downside risk and requires margin and close monitoring.

Options and derivatives

Options let you hedge or speculate but are complex and may require special approval from your broker. Use options only after proper education and risk assessment.

International trading and ADRs

International stocks can broaden diversification but add currency risk and different market rules. ADRs are a U.S.-listed way to access foreign companies.

Common mistakes and pitfalls

• Lack of diversification — too much in one stock or sector.
• Chasing past winners — buying at peak prices based on recent performance.
• Overtrading — frequent trading increases costs and mistakes.
• Ignorance of fees and taxes — erodes net returns.
• Excessive leverage — amplifies losses and risk of forced liquidation.
• Emotional trading — letting fear or greed dictate decisions.

Regulation, safety, and fraud avoidance

Brokers must be registered with relevant financial regulators (for example, the SEC and FINRA in the U.S.). Customer protections exist up to specified limits if a broker fails, but market losses are not covered. To avoid fraud:

• Use regulated, reputable brokers and verify licensing.
• Watch for promises of guaranteed returns or unusual urgency.
• Keep software updated and protect account credentials with strong passwords and two-factor authentication.

Tools and educational resources

New investors can use paper trading simulators, screeners, calculators, and broker education centers. Bitget offers educational materials, demo accounts, and an integrated wallet that can help beginners learn order mechanics without risking capital.

Glossary

• Share — a unit of ownership in a company.
• Dividend — a periodic payment from a company to shareholders.
• P/E (Price-to-Earnings) — valuation metric dividing price by earnings per share.
• Market order — an order to buy or sell immediately at the current market price.
• Limit order — an order executed only at a specified price or better.
• ETF — exchange-traded fund that trades like a stock and holds diversified assets.
• Margin — borrowed money used to buy securities.
• Settlement — the process by which ownership and cash are exchanged after a trade.

See also

• Stock market basics
• ETFs and mutual funds
• Brokerage account types
• Capital gains tax
• Dividend investing
• Margin trading

References and further reading

Authoritative sources include regulator guidance and brokerage educational pages. For a practical start, consult materials from major brokers and investor education outlets from Vanguard, Fidelity, Charles Schwab, Bankrate, NerdWallet, The Motley Fool, and E*TRADE. For retirement-account rules and recent policy discussions, see financial news coverage such as MarketWatch.

Note on recent policy context: As of January 17, 2024, according to MarketWatch, there were public discussions about proposals to allow easier 401(k) withdrawals for home purchases. Those proposals—if enacted—could change how some investors treat retirement accounts when deciding how to finance major purchases. Such changes highlight the importance of considering long-term retirement impact before using tax-advantaged accounts for non-retirement needs.

Practical checklist: Quick steps to buy your first stock

1. Decide why you want to buy stocks and your time horizon.
2. Choose an account type (taxable vs retirement) and a broker (consider fees, tools, and safety).
3. Open the account, complete verification, and fund it by bank transfer.
4. Research target stocks or ETFs and decide how much to allocate to each position.
5. Place a limit or market order matching your plan and confirm execution.
6. Record the trade for tax purposes and set a review schedule.

Answering the core question

So, how does a person buy stocks? In short: choose the right account, pick a broker, fund your account, decide what to buy, pick an order type, and place the order. Monitor results and manage taxes and risk. The steps are repeatable and can be adapted as you gain experience.

Common FAQs

Do I need a lot of money to start buying stocks?

No. Fractional shares and low-cost ETFs let investors start with small amounts. Decide on position sizing and maintain diversification.

How long does a trade take to settle?

Most equity trades settle in two business days (T+2), though the timing for availability of funds to withdraw may vary by broker.

Can I use retirement accounts to buy stocks?

Yes, many retirement accounts allow stock purchases, but rules on withdrawals and tax treatment differ from taxable accounts. Consider long-term implications before withdrawing retirement savings.

Final notes and next steps

Understanding "how does a person buy stocks" is the foundation for long-term investing. Start by setting clear goals, learning order types, and choosing a trusted platform. If you want to explore an integrated trading ecosystem, Bitget offers educational tools, demo trading, and custody solutions to help you practice and scale as confidence grows. Take the next step: open a demo account, review the checklist above, and begin learning through small, disciplined actions.

This article is informational and not investment advice. Consult licensed professionals for personalized guidance.