How Does Buying & Selling Shares Work?

To buy and sell shares, you need a stock brokerage account. After selecting one of the available online brokers, you complete an account application and arrange for money to be deposited into the account. The broker's website will walk you through the process. As soon as your account shows a cash balance from your deposit, you can start to buy shares. For help selecting which broker is best for you, "Smart Money" magazine publishes -- both paper and online -- an annual review and ranking of the different brokers.

The act of buying or selling stock shares is called placing a trade or order. The first step is to find the stock symbol of the company you want to invest in. The quote screen of your online brokerage account will reveal the one- to four-letter symbol when you enter the name of a company. You then select the stock trading screen of your brokerage account. To buy at the current share price, you enter the stock symbol and number of shares you want to buy, select market order and enter or submit the trade. The shares will be purchased at the current share price in the market. Selling shares works the same way with a sell order instead of a buy if you already have the shares in your account. Only submit your buy and sell orders during the hours the stock exchanges are open.

Each time you buy or sell shares, the broker will charge a flat rate commission. For example, if the broker charges $8 for a trade and you buy 100 shares of a stock priced at $25 a share, the total cost would be $2,508. If you later sell those shares and get $30 per share, the net proceeds to your account would be $2,992 -- as you had to subtract $8 for the buy order and $8 for the sell order. When you place an order to buy or sell, the broker submits the order into the stock exchange and the share price at which the order is filled will be the stock's value at that particular time in the trading day.

Although the steps to buy or sell stocks through an online account are pretty easy, you can sell and buy in other ways that make the job more complex -- and can make the profits higher. A margin brokerage account lets you get a loan from your broker to cover part of the cost of buying shares. However, margin rules can force you to deposit more money in your account if the stocks you buy drop in value. Limit and stop-loss orders allow you to set the share price at which you will buy and sell. These orders are automatically triggered and filled when the stock reaches the prices you set.

When you start to buy and sell shares, you'll learn the difference between investing in stocks and trading. An investor buys stocks because she likes the company as a long-term investment. An investor holds onto a stock until the reason she bought is no longer valid or she found another investment that has more potential. A trader buys and sells shares with short-term holding periods -- sometimes less than a day -- in the quest of high profits. A trader is usually more interested in price action than in the actual underlying business behind a stock.