how are stocks bought: A Practical Guide

how are stocks bought — this guide explains what it means to buy a stock and walks beginners through the practical steps, venues, order mechanics, account types, costs, risks, and alternatives, wit...

2026-01-28 09:28:00

By Lily Wong

Article rating

4.4

115 ratings

Bitget offers a variety of ways to buy or sell popular cryptocurrencies. Buy now!

A welcome pack worth 6200 USDT for new users! Sign up now!

How are stocks bought

Buying a share means taking an ownership stake in a publicly traded company. If you asked "how are stocks bought" the short answer is: by placing an order through a brokerage account that is routed to a trading venue where the stock trades. This article explains, in plain language, how are stocks bought and what steps, choices, costs, and risks you should expect when you take a position. You will learn practical step-by-step actions, the difference between order types and trading venues, account and legal prerequisites, settlement and tax basics, alternatives like ETFs and DRIPs, and best practices for safer, more informed trading.

As of January 16, 2026, according to FactSet, about 7% of S&P 500 companies had reported fourth-quarter results, with analysts estimating an 8.2% year-over-year increase in earnings per share for the quarter. This earnings backdrop is part of the market context investors use when deciding how and when to buy stocks.

Basic concept of buying stocks

When you buy a stock you acquire a shareholder position — an ownership interest in a company. That ownership confers economic rights (potential dividends and capital appreciation) and, for some share classes, voting rights.

Most buying and selling of stocks occurs in the secondary market: existing shares trade among investors on public exchanges and other trading venues. The company usually does not receive proceeds from these secondary trades. By contrast, a primary-market purchase — for example participating in an initial public offering (IPO) or a company direct offering — means buying newly issued shares from the company itself. Both routes answer the question "how are stocks bought," but they operate differently: primary market purchases involve issuance and underwriting, while secondary-market purchases involve brokers, exchanges, and market liquidity.

Why investors buy stocks

People buy stocks for several common reasons:

Capital appreciation: to benefit if the stock's market price rises over time.
Dividend income: to receive periodic cash or stock dividends when companies distribute profits.
Portfolio diversification: to hold different companies, sectors, and asset classes that may behave differently.
Long-term wealth building: using equities' historical potential to outpace inflation over long horizons.

An investor’s time horizon and risk tolerance shape how they answer "how are stocks bought" for themselves. Short-term traders may focus on execution speed and intraday liquidity; long-term investors prioritize fundamentals, diversification, and tax-efficient accounts.

Markets and trading venues

The venue where a trade is executed affects price, speed, and transparency.

Primary markets: where companies issue new shares (IPOs, follow-on offerings, direct listings). Buying on the primary market may require specific access or allocation.
Secondary markets: where investors buy and sell existing shares. This includes public exchanges and other venues.
Public exchanges: major central limit order book exchanges — for U.S. stocks those include the large national exchanges. Trades executed on exchanges benefit from transparency of bid and ask quoted prices and consolidated reporting.
Over‑the‑counter (OTC) markets: smaller or less-liquid securities may trade OTC. OTC trading can have wider spreads and less transparency.
Dark pools and alternative trading systems (ATS): private venues used mostly by institutional traders to execute large orders with less market impact. These venues are part of the overall execution ecosystem and can affect the liquidity available to retail orders.

Choice of venue influences execution quality, potential price improvement, and liquidity. Brokers and market makers decide where to route orders, balancing speed, price, and internal policies.

Key participants and intermediaries

Several parties participate when you buy a stock:

Retail investors: individual account holders placing buy and sell orders.
Institutional investors: mutual funds, pension funds, hedge funds that trade larger sizes and often use algorithms or directed routing.
Brokers: intermediaries that accept orders from clients and route them for execution. Types include full‑service brokers, discount brokers, and online/mobile brokers. When considering "how are stocks bought," your chosen broker is the gateway.
Market makers: entities that post continuous buy (bid) and sell (ask) quotes to provide liquidity. Market makers help ensure a tradable market, especially for smaller sizes.
Clearing firms and clearinghouses: they match trades, manage counterparty risk, and ensure proper transfer of securities and funds during settlement.
Regulators: in the U.S., regulators like the Securities and Exchange Commission (SEC) and FINRA oversee market rules, broker conduct, disclosure, and investor protections.

Brokers may internalize order flow or route it to exchanges and alternative venues. Understanding these roles helps clarify how are stocks bought and executed in practice.

Accounts and legal prerequisites

To buy stocks you must open an account with a broker. Common account types:

Taxable brokerage account: standard cash account for general investing.
Retirement accounts: IRAs, Roth IRAs, and employer-sponsored retirement plans that have tax-deferred or tax-free benefits and specific withdrawal rules.
Margin accounts: allow borrowed funds to buy securities, increasing buying power but adding leverage risk.

Brokers perform identity verification and tax documentation (for example W-9 for U.S. taxpayers or W-8BEN for non-U.S. persons) as part of know‑your‑customer (KYC) and anti‑money laundering checks. Suitability assessments or risk questionnaires may be used to determine what products and services are appropriate for an account.

Step-by-step process to buy a stock

If you’re asking "how are stocks bought" as a beginner, here is the concise sequence you’ll follow:

Choose a broker.
Open and fund an account.
Research the security.
Choose order specifications (ticker, quantity, order type, time in force).
Submit the order.
Monitor execution and wait for clearing/settlement.
Confirm and record the trade in your records.

Each step has details and options; below are practical substeps.

Opening and funding a brokerage account

Onboarding typically includes providing personal details, identity documents, and tax information. A broker will verify identity electronically or with uploaded documents.

Linking a bank account is common for deposits and withdrawals. Brokers often support electronic bank transfers (ACH in the U.S.), wire transfers, and in some cases debit/credit card funding. You can also transfer assets in-kind from another brokerage via account transfer processes.

Cash vs margin accounts:

Cash account: you must settle funds before trading (or use available cash).
Margin account: you can borrow against securities to increase purchasing power; margin rules create requirements for initial and maintenance margins and expose you to margin calls.

Know your broker’s funding timelines and any wait periods before trading certain instruments.

Researching and selecting securities

Approaches to selection:

Fundamental analysis: study financial statements, revenue growth, profit margins, and business models.
Use broker research tools: many brokers provide analyst reports, screeners, news feeds, and charting tools.
Consider ETFs and mutual funds as an alternative to single-stock exposure to achieve diversification.

Diversification reduces company‑specific risk. When thinking "how are stocks bought," decide whether you want concentrated exposure to a company or broader market exposure via funds.

Entering an order: what you must specify

When you submit an order you will typically specify:

Ticker/symbol: the stock’s exchange symbol.
Quantity: number of shares, or dollar amount for fractional shares.
Buy/sell action: buy to open a position or sell to close it.
Order type: market, limit, stop, stop‑limit, etc.
Time in force: day, good‑til‑canceled (GTC), immediate‑or‑cancel (IOC), fill‑or‑kill (FOK).
Account to use: taxable account, IRA, or margin account.

These fields answer the core operational question of "how are stocks bought" at the trade-submission level.

Order types and execution mechanics

Common order types and their tradeoffs:

Market order: executes at the best available price. Fast but without price control; useful when speed is critical and liquidity is deep.
Limit order: specify a maximum buy price or minimum sell price. Provides price control but may not fill.
Stop order (stop market): becomes a market order when the stop price is hit; used to limit losses or enter on momentum.
Stop‑limit order: becomes a limit order when the stop price is triggered; offers price control but may miss execution.
Stop‑loss and trailing stop: risk‑management variants. Trailing stops adjust the stop level as price moves in your favor.

Speed vs price control is the central tradeoff when considering "how are stocks bought": market orders favor speed, limit orders favor price certainty.

Time in force and special instructions

Day order: expires at the end of the trading day if not executed.
Good‑til‑canceled (GTC): remains active until filled or canceled (some brokers cap duration).
Immediate‑or‑cancel (IOC): attempts to fill immediately; any unfilled portion is canceled.
Fill‑or‑kill (FOK): requires complete immediate fill or the order is canceled.

Special instructions (all‑or‑none, do‑not‑route, etc.) can further shape execution behavior.

Execution quality, routing, liquidity, and slippage

Execution quality depends on bid‑ask spreads, venues, and routing choices. Key concepts:

Bid‑ask spread: difference between the best buy (bid) and sell (ask) offers; narrower spreads reduce implicit cost.
Partial fills: large or thinly‑traded orders may fill in parts across prices.
Slippage: the difference between expected price and executed price; can occur in fast or illiquid markets.
Market liquidity: deeper liquidity reduces price impact for larger orders.

Brokers route orders using policies that may include internalization (matching against other client orders), routing to exchanges, or sending to market makers or ATS. Payment for order flow (if applicable) and routing practices can influence execution; review your broker’s disclosures.

Extended hours and pre/post‑market trading

Trading outside regular market hours (pre‑market and after‑hours) is possible with many brokers but has tradeoffs:

Lower liquidity and wider spreads.
Greater price volatility on news events.
Limited order types at some brokers (many restrict market orders outside regular hours).

When deciding how are stocks bought in extended hours, be mindful that fills may occur at prices far from prior regular-session levels.

Clearing and settlement

Clearing firms and clearinghouses act as intermediaries that match trades and ensure both sides complete their obligations. Settlement finalizes ownership and payment transfer.

In U.S. equities, the standard settlement cycle is T+2: trades settle two business days after execution. Settlement means the buyer receives legal ownership and the seller receives funds; until settlement completes, brokers and clearing firms manage positions and obligations.

Settlement timing affects availability of funds to reuse for trading and has regulatory implications (for example, rules against free‑riding in cash accounts).

Costs and fees

Costs involved in buying stocks include:

Brokerage commissions: many brokers offer zero commissions on standard U.S. equity trades, but fee structures vary by product and jurisdiction.
Exchange and regulatory fees: small fees collected by exchanges and regulators may be passed through.
Margin interest: borrowing costs when using margin.
Bid‑ask spread: an implicit trading cost, especially for less liquid securities.
Account fees: some brokers charge inactivity, custodial, or account maintenance fees.

Always read your broker’s fee schedule and confirm any charges related to specific services.

Taxes and recordkeeping

Buying a stock becomes a taxable event only when you sell the position or receive taxable distributions like dividends.

Realized capital gains: taxable when you sell at a profit.
Dividends: taxed depending on type (qualified vs ordinary) and account type.
Short‑term vs long‑term gains: in the U.S., assets held one year or less are taxed at short‑term rates; holdings over one year qualify for long‑term capital gains rates, which are typically lower.

Brokers provide trade confirmations and consolidated 1099 statements for tax reporting (or the local equivalent in other jurisdictions). Keep records of purchase dates, quantities, and prices to calculate gains and losses accurately.

Alternative purchase methods

Aside from buying whole shares on an exchange, investors can acquire stock exposure in other ways:

Fractional shares: buy part of a share for a specified dollar amount — useful for expensive stocks and dollar‑cost averaging.
Dividend reinvestment plans (DRIPs): automatically reinvest dividends into more shares, often without commissions.
ETFs and mutual funds: provide diversified exposure; ETFs trade intraday like stocks while mutual funds trade end‑of‑day NAV.
Direct stock purchase plans: some companies offer services to buy shares directly from the issuer.
IPO participation and direct listings: primary-market routes for new shares, often requiring special access or allocation.
American Depositary Receipts (ADRs): allow U.S. investors to buy foreign company exposure in U.S. dollars and settlement rules.

Bitget and modern brokerages increasingly offer fractional shares and tokenized products; if you use Web3 wallets, Bitget Wallet is an option to consider for integrated custody in the tokenized asset space.

Using leverage and short selling

Leverage via margin increases buying power but also magnifies losses. Mechanics:

Buying on margin: you deposit collateral and borrow part of the purchase price from the broker.
Margin calls: if account equity falls below maintenance requirements, the broker may require deposits or liquidate positions.
Short selling: involves borrowing shares to sell now and buy back later; profitable if the price falls but risk is theoretically unlimited if the price rises.

Both margin trading and short selling require approval and carry additional rules and risks; carefully review broker disclosures.

Investor protections and regulation

Investor protections include:

Custody safeguards: brokers segregate client assets from firm assets.
SIPC (Securities Investor Protection Corporation) coverage in the U.S.: protects against custodian failure up to stated limits but does not insure market losses.
Regulatory oversight: SEC and FINRA rules govern broker conduct, trade reporting, and market integrity.

If a custodial or execution dispute arises, brokers typically provide complaint procedures, and regulators maintain avenues for escalation.

Choosing a broker — practical criteria

Factors to evaluate when choosing how to buy stocks through a broker:

Fees and commissions: check for trading costs, margin rates, and account fees.
Order‑execution quality and transparency: review the broker’s disclosures.
Platform usability: website and mobile app features, speed, and reliability.
Research and tools: news feeds, screeners, analyst reports, and educational content.
Product access: international markets, ETFs, fractional shares, and tokenized assets.
Customer service and security: responsiveness, multi‑factor authentication, and custody practices.

If you trade tokenized or crypto-linked stock products, consider platforms that support those instruments; for Web3 wallets, Bitget Wallet offers integrated options for custody and access.

Risks, best practices, and common pitfalls

Common risks when learning how are stocks bought include:

Market risk: share prices can decline.
Concentration risk: holding too much of one company or sector.
Emotional trading and overtrading: reacting to headlines or short‑term moves.
Free‑riding: buying and selling before cash settlement in cash accounts can trigger violations.

Best practices:

Diversify across assets and sectors.
Use limit orders to control execution price when needed.
Consider dollar‑cost averaging for regular contributions.
Keep an investment plan and exit strategy before entering positions.

Avoid guessing your exit; successful traders often set price targets or stop rules before they buy.

Special cases and international considerations

Non‑U.S. residents buying U.S. stocks should expect:

Tax documentation: W‑8BEN or local equivalents for withholding tax purposes.
Currency conversion: trades may involve FX costs.
ADRs or local listings: provide alternatives to direct foreign share purchases.
Differences in settlement cycles and investor protections across jurisdictions.

Always check local tax rules and broker capabilities for international trading.

Historical and technological evolution

How are stocks bought today is very different from decades past. Historically, open outcry and human brokers dominated trading floors. Electronic trading systems, centralized order books, algorithmic execution, and mobile apps democratized access, increased speed, and drove down explicit commissions. Algorithmic routing, smart order routers, and alternative venues now shape execution quality and liquidity.

The evolution has made it easier for retail investors to answer the question "how are stocks bought" with low friction, but it has also introduced complex execution dynamics that matter for larger orders or less‑liquid securities.

Practical checklist — ready to buy

Decide goals and time horizon.
Select an appropriate account (taxable, IRA, or margin).
Choose a broker based on execution, fees, and tools.
Fund the account and confirm settlement times.
Research the stock or ETF and set an entry plan and exit rules.
Choose order type and time in force.
Monitor execution and confirm settlement.

If you’re exploring tokenized or crypto-assisted products, consider Bitget’s platform options and use Bitget Wallet for custody and integrated access where available.

Final notes and next steps

Understanding how are stocks bought helps you act with clearer expectations: what you can control (order type, timing, diversification) and what you cannot (market direction and short‑term volatility). Use the checklist above before submitting orders, keep records for taxes and performance review, and prioritize safety and custodian reputation when selecting a broker or wallet provider.

To explore trading and custody options that support traditional and tokenized assets, learn more about Bitget’s trading platform and Bitget Wallet. For live market context and quarterly results that influence buying decisions, refer to reputable market data providers and broker research; for example, as of January 16, 2026, FactSet reported improving S&P 500 earnings growth estimates for the fourth quarter, which many investors use as part of their decision framework.

If you want practical next steps: open a demo account or small funded account to practice order entry and see execution confirmations in real time. Practice and clear recordkeeping are the quickest ways to build confidence in how are stocks bought.

This article provides educational information only and does not constitute investment advice. For account‑specific rules, tax consequences, and real‑time fees, consult your broker and tax professional.

The content above has been sourced from the internet and generated using AI. For high-quality content, please visit Bitget Academy.