This post is Part 3 of a Beginner’s Guide to Stock Investing series.
Part 3: How to Buy and Sell Stocks
How do investors actually buy and sell stocks? The answer depends on the market in which the stock is sold.
In Part Two of this guide, we learned how the stock market consists broadly of two markets: the primary market and the secondary market. In the primary market, stock is “sold” (issued) by the company itself. The funds from the sale of stock go into the company’s coffers. In the secondary market, shares which have been previously issued are sold by investors to other investors. The company is not a party in the transaction. The funds from the sale go to the selling shareholder.
Private vs Public Stock Transactions
The secondary stock market consists of private transactions and public transactions. In a private stock transaction, the buyer and seller agree on a price for the shares. An attorney drafts a stock purchase agreement, outlining and binding the terms of the sale. Once the sale is completed, the company updates its corporate records to reflect the new shareholder.
In public markets, stocks trade on an exchange or over-the-counter (OTC). With publicly traded stocks, a small piece of business ownership can be purchased by anyone with a brokerage account.
Since most beginner investors will purchase public stocks through public exchanges and OTC markets, we’ll devote the balance of this post to stock transactions on public exchanges.
Opening a Brokerage Account
To buy and sell stocks on a public exchange, an investor needs to open an account with a broker-dealer. A broker-dealer is a firm that is registered with the Securities and Exchange Commission (SEC) to transact in securities for their own account and on behalf of customers.
The respective terms broker and dealer refer to the specific capacity in which the firm is operating.
When acting as a broker, the firm operates as an agent, matching buyers and sellers. The firm is compensated for this role by either charging the customer a commission or by routing trades to specific market makers for a fee.
When acting as a dealer, the firm trades for its own account. The firm is compensated by charging a markup when selling stock from its inventory.
Types of Brokers
Broadly, there are two types of brokers that an investor can work with:
- Full-service brokers
- Discount brokers
Full-service brokers provide a range of financial services to clients, such as estate and tax planning, and investment advice. Customers working with a full-service brokerage often pay a fee on the value of assets kept with the firm along with any transaction commissions. Full-service brokers have minimum account requirements which can vary depending on the firm.
Discount brokers provide a much narrower suite of services, often little more than trade execution and some basic research tools. These accounts are appropriate for beginner and DIY investors. Almost all discount brokers operate through online platforms. Many discount brokers have no minimum account requirements and offer low-to-zero cost stock trading.
Since this is a beginner’s guide, I am going to assume that the reader is opening an account with an online discount broker.
Brokerage Account Types
The two basic brokerage account types are:
- Standard brokerage accounts
- IRA accounts
Standard brokerage accounts are accounts owned by an individual or owned jointly by two or more individuals. Any realized gains or dividend income received in these accounts is fully taxable, but funds held in standard accounts can be easily accessed.
Individual retirement arrangement (IRA) accounts, in contrast, allow investment gains to grow on a tax-deferred or even tax-free basis, depending on the kind of IRA account. However, these accounts are subject to rules put forth by the Internal Revenue Service (IRS). Any withdrawals from an IRA account made before the account owner reaches the stated eligibility age are subject to penalties.
Regardless of the type of account you choose, the first step is to fill out an application with the brokerage. The personal information needed on the application is required by the SEC, and the applications are standard across brokers. Online applications are usually approved (or rejected) the same day.
Once the account is opened, it must be funded. Brokers allow the account to be funded by mailing a check or through electronic transfer.
Once you have your account opened and funded, you can begin to buy stocks.
Order Types: Market vs Limit
There are two basic order types to be aware of:
- Market orders
- Limit orders
With a market order, you are directing the broker to buy or sell a stock at the best possible price available. For a buy order, the broker is trying to get you the lowest possible price available in the market. For a sell order, the broker is trying to get you the highest possible price.
With a limit order, you are placing a ceiling or floor on the transaction price. For a buy order, you are instructing the broker to only purchase the stock if it can be purchased at or below a specified price. For a sell order, you are instructing the broker to only sell the stock if it can be sold at or above a specified price.
Limit orders do not guarantee execution, and orders that go unfilled are canceled. The expiration time for the order depends on the broker’s policy.
Limit orders are especially useful for smaller stocks with limited trading volume. For a large stock, such as Wal-Mart, a market order can be executed relatively close to the ticker price (the price that is shown on a stock ticker screen). That is because for a large stock such as Wal-Mart, millions of shares trade in a given day, and it is unlikely that even a well-capitalized private investor will move the stock price.
On the other hand, a smaller stock, especially one trading in the OTC market, may go days without a single trade. In such situations, placing a market order is very risky because the actual execution price could deviate significantly from the ticker price.
Understanding a Stock Quote Page
Before executing a trade, you will need to look through a stock quote page either through the online broker itself or through an information service provider. Below are two sections from a stock quote page for Apple, Inc. taken from yahoo!finance (finance.yahoo.com). This is from the closing price for February 20, 2026.
The first thing to notice is that next to the company’s name is a four-letter symbol. All publicly traded stocks have a unique ticker symbol. For stocks trading on the NYSE, the ticker symbol consists of two or three letters. For stocks trading on the NASDAQ and OTC market, the stock ticker consists of four letters, as shown with Apple’s ticker AAPL.
Beneath the company name and stock ticker is the ticker price. In this case, the ticker price was $264.58 per share. This price represents the execution price for the last trade in the stock. Because I ran the stock quote after normal trading hours, the ticker price is the closing price for the trading day.
Regular trading hours for the NYSE and the NASDAQ are 9:30 AM to 4:00 PM Eastern. To the right of the main ticker price is an after-hours price. In after-hours trading, stocks trade on electronic networks outside of the main exchange during non-trading hours.
Underneath the main ticker price and the after-hours ticker price are two columns of numbers that provide important information to investors.
- The previous close is the closing price on the previous day’s trading session (if the market was open). This price is based on normal session trading, not after-hours trading.
- The open is the first trade price recorded for the current trading day. The opening price can deviate significantly from the previous closing price depending on information that came out after normal hours trading in the previous trading day.
The bid and ask are two of the most important pieces of information on a stock quote page. The bid is the highest price at which a buyer is willing to pay. The ask is the lowest price at which a seller is willing to accept. The values next to the bid and ask prices are the number of shares associated with the quotes. In trading parlance, 100 shares is called a round lot, while a trade for less than 100 shares is called an odd lot.
In the above example, the bid is 100 shares at 251.39 and the ask is 100 shares at 277.47. The difference between the bid price and the ask price is called the bid-ask spread. For stocks that trade in substantial volumes, the bid-ask spread is small. In the above example, the bid-ask spread is relatively large because the bid and ask prices represent after-hours trading, where trading volume is significantly less than normal hours trading.
The day’s range and the 52-week range represent the highest and lowest trading prices for the trading day and trading year, respectively.
The volume and avg. volume indicate the number of shares and average number of shares which have traded in the day and 52-week period, respectively.
Continue the Beginner Guide to Stock Investing
If you’re just joining the series, you may want to start with:
Part 1: What Is a Stock? – An introduction to stock ownership and what it means to own equity in a business.
Part 2: What Is the Stock Market? – A breakdown of how primary and secondary markets function.
Summary
The process of buying and selling stocks depends on whether the transaction occurs in a private or public market. While private transactions involve negotiated agreements between buyers and sellers, most beginner investors participate in public markets through brokerage accounts.
In public markets, investors work with broker-dealers to execute trades on exchanges or in over-the-counter markets. Understanding the difference between full-service and discount brokers, as well as the differences between taxable brokerage accounts and IRA accounts, is essential before placing a trade.
Investors must also understand order types, particularly the distinction between market orders and limit orders. Finally, learning how to read a stock quote page—including ticker symbols, bid and ask prices, trading volume, and price ranges—provides the foundation for executing informed transactions.
Knowing how trades are executed transforms investing from a vague concept into a structured, understandable process.
Key Takeaways
- Stocks are bought and sold either in private transactions or on public exchanges.
- Public market investors must open and fund a brokerage account before trading.
- Discount brokers are typically most appropriate for beginner investors.
- Market orders execute immediately at the best available price; limit orders set price boundaries.
- The bid-ask spread represents the difference between what buyers are willing to pay and sellers are willing to accept.
- Understanding a stock quote page helps investors interpret real-time pricing information.
