How to Buy and Sell Shares on the Stock Market
A few readers have emailed me regarding the basics of buying and selling of individual stock along with the accompanied terminology. Even though I’m not a stock trading pro, I have a good few years experience in buying/selling individual stocks so I feel comfortable explaining the basics.
Here are the steps involved with buying and selling shares/stocks:
1. Sign up with a discount brokerage
I have written a discount brokerage comparison that indicates the various costs involved with each broker. I personally prefer to keep my trading costs as low as possible. Trading, maintenance and foreign exchange (FOREX) fees should be accounted for when evaluating how much a brokerage will cost over time. All the brokers listed in the comparison are insured by CIPF (up to $1 million of the trading account is insured).
2. Fund the Account
To fund the trading account, most discount brokerages allow funding via cheque, account transfer and EFT/bill payment from any online banking account. I personally use EFT as I find it the most convenient. After the account is open and funded, the ability to buy/sell stocks in the supported markets should be now available. Some brokerages, like Interactive Brokers, have access to most major public markets in the world.
3. Getting Quotes
After the account is opened, hopefully you’ve already determined which stocks that you are interested in buying. Before buying however, the most recent trading prices must be determined. To do this, enter into the quoting section of the interface which will display last price, bid, ask and volume.
- Last price: The last price at which the stock traded.
- Bid: The current highest price per share that a buyer is willing to pay.
- Ask: The lowest asking price per share that a share holder is willing to sell for.
- Volume: The number of shares traded during the day.
4. Start Trading
After getting the real time quote of the potential security to purchase or sell, there will most likely be a “trade” button behind which there will be bunch of form fields to fill in to place an order.
Below is a screen shot of the trading page from my Questrade WebTrader account:
Simply fill in the fields indicated and hit the “preview order” button. That will bring the account to a trade confirmation page to ensure that the correct information was entered.
What do all those fields mean? Glad you asked! I have explained them in the next step.
5. Trading Terminology
If you are anything like me the first time trading, you’ll have no idea what all the form fields mean on the trading page.
Security – This is the stock symbol of the company to be potentially purchased/sold. Some brokerages like Questrade will require an abbreviation of the market after the symbol (ie: RIM.TO). Others, like CIBC Investors Edge, will only require the symbol with the market location chosen afterwards in a drop down box.
Order Type – For basic discount brokerages, there are typically 3 types of orders, Market, Limit and Stop.
- Market Order: When a BUY market order is placed, the ask price is paid, kinda like the “buy it now” button on eBay. Chances are that the order will get filled immediately but often at a higher price than the “last price”. If a SELL market order is placed, the same happens except the shares are sold at the bid price.
- Limit Order: A limit order is where the price is specified in which to buy/sell the stock to avoid any surprises. The downside is waiting until a buyer/seller hits the limit price which may or may not happen.
- Stop: This is a little more advanced where the stop price is set for either buying or selling. For example, a stop loss sell order is set to minimize the loss that a trader is willing to take. When the stop price is reached, a market order is sent out at that price. There are also variations to stops such as stop limit orders and various types of trailing stops. These are out of the scope of this article, but I may get into them another time.
Quantity – The number of shares to purchase/sell.
Price – If a limit order is selected, this is the price at which the stock will be purchased/sold IF the market reaches the limit price.
Duration – This is the duration that the order will remain open if not executed immediately. Day will keep the order open until the end of the trading day and Good Till Canceled (GTC) will remain open until manually canceled.
Preferred ECN – Most of the bank brokerages do not allow ECN to be chosen. Even if they do, I always leave it on auto. Brokerages like Interactive Brokers will charge extra if the Auto/Smart ECN routing isn’t selected.
This concludes the very basics of buying/selling stock with an online stock broker. If you have any questions, or anything to add, please leave them in the comments.
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19 Comments, Comment or Ping
1. abcstocks
Hi MDJ, Another great post from you. Thank you.
I would like to share my trading tools with you and others, Links below are very helpful if someone wants to start swing trading or day trading, I would recommend that person first read and understand most features of different tools.
For Stock Charts :
http://stockcharts.com/
http://www.prophet.net/
Stock Filters based on Technical and Fundamentals :
Option 1 :
http://stockfetcher.com/ui2/index.php
Option 2 :
http://www.stockhouse.com/tools/?page=%2Fsmallcapcenter%2Ftools%5FtechnicalSearch%2Easp%3Fpage%3DANALYTICSSEARCH%5FIN%2EASP
Last on the list, My favourite for Live intraday charts with Technical Indicators, Level II quotes, Time and Sales, alerts, news monitoring – FREE download at:
http://www.quotetracker.com
Hope this information will help a few individuals to be better trader. I have no affiliation with any of above websites. Thank you.
Jun 16th, 2008 @ 11:41 am
2. Tax Resource
Simple enough and I am a believer in taking control over your life. But knowing what to buy is just as important as making the purchase itself. It’s like making any purchase, you can’t buy on impulse. There is a lot of junk in the financial markets and throwing your hard earned dollars into those stock is like buying a car simply because it has a cup holder regardless of the price.
I would have added a point between 2 and 3 that covered the all important topic of research.
Just my ten cents.
Jun 16th, 2008 @ 11:50 am
3. Dividend Growth Investor
Now that I know how to create a stock account, what stocks should I be buying? :-)
Or should I start with index ETF’s if my account is less thant $15K?
Jun 16th, 2008 @ 5:09 pm
4. Writer's Coin
Nice primer on getting started. This stuff kind of gets lost in the mix sometimes when people write to beginners. They say, “OK, now go out and buy stocks!” But no one tells them the details. Well done.
Jun 18th, 2008 @ 9:44 am
5. Derek
Thanks for the basics. I’ve been wanting to test the waters and this post gives me a little more info on how to get started. I’ve been following and researching a few stocks and wondered how hard it would be to take action. I now feel more comfortable logging on to an online discount brokerage.
Jul 3rd, 2008 @ 11:10 am
6. Ky
I’ve done a little research online and have no clue how the stock market works, I did stumble across a site (american) that talked about direct stock purchases from the company to decrease the amount of money your paying a brokerage, can you do this in canada?
Nov 22nd, 2008 @ 8:13 am
7. FrugalTrader
Ky, some companies will allow this and it’s called DRIP. The companies that do offer DRIP sometimes offer a discount/share to purchase this way.
Nov 22nd, 2008 @ 9:13 am
8. DAvid
There are a number of companies in Canada who offer a share purchase plan. For instance, Fortis Inc offers a share purchase plan to interested parties in Newfoundland and Labrador, as well as PEI, as well as a DRIP and Share purchase plan to shareholders. In the case of Fortis, they will allow one to invest up to $20,000 annually though these programs in addittion to any dividends reinvested.
DAvid
Nov 22nd, 2008 @ 10:32 am
9. Rob
People interested in DRIP investing might start at the website -cdndrips.googlepages.com/home.
It’s a nice primer on the subject with many links to other pages.
Nov 23rd, 2008 @ 10:17 am
10. nariv
can i show my stock loss during the year 2008 as a my bussiness loss in year 2008 tax year. i am really confused about it
Jun 3rd, 2009 @ 6:14 pm
11. Compare UK Share Brokers
Great post but I’d like to highlight that stock trading may be a bit different depending on the country and tax laws. Thus in the UK you can trade stocks through financial spread betting, CFDs and share dealing brokers.
Whereas in the states financial spread betting is not allowed, thus you have to be carefull with choosing your broker and what you want to trade.
Jun 9th, 2009 @ 5:41 pm
12. luton
Thanks for the buy/sell shares basics.
Concerning “Quantity – the number of shares to buy or sell” — Is there a minimum on the number of shares to buy/sell for each trade? Can I just buy one share?
Jun 16th, 2009 @ 1:13 am
13. Paul
Hi guys,
Quick question. I had placed a GTC limit trade with Quest, but my price never hit. And the trade is still pending.Does it effect my buying power on other shares as it is accepted by quest. Also would there be any cost in cancelling the trade? I have two pending trade, one for call option and other for stock.
Thanks!
Jul 25th, 2009 @ 4:16 pm
14. FrugalTrader
Paul,
A GTC order usually does not affect your buying power and there should be no fee for cancelling the trade. However, you might want to double check with Questrade.
Jul 25th, 2009 @ 4:25 pm
15. MASOOD
HI
But one thing i wanted to know there is no such information that how much amount i can invest or in other words is there a min. or max. amount for the investment.
As thats my first experience
Thanks
Aug 14th, 2009 @ 2:19 am
16. Investing 101
I like the step by step approach. To paraphrase a famous commercial, “so easy, a caveman could do it” :-)
@ Masood: As a beginner, you should go with the simple technique of investing a set amount at specific intervals (say, every paycheck or every other paycheck). This is known as dollar cost averaging and is very effective as an investment technique. You haven’t asked what to invest in, but again, as a beginner, you should definitely look into index funds.
Nov 16th, 2009 @ 2:40 am
17. Paul
Hello,
Would anyone know which symbol i can use to buy gold and silver commodity?
Thanks,
Paul
Nov 17th, 2009 @ 12:05 am
18. Robert
Thanks MDJ for explaining in a short article what has puzzled me for a week! Questrade should pay you to post the article!
Just created my first self-directed account (a TFSA). Very excited, trying to stay rational.
Jan 31st, 2010 @ 4:31 pm
19. Investor X
I’ve heard that one of the indexes (TSX?) provided a return of 10% over the past 50 years or so. How would that figure have been determined? Does that take dividends paid and reinvested or is it just a stock value without any earnings paid out?
Mar 1st, 2010 @ 10:01 am
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