The first step in buying stocks is opening a brokerage account. There are many choices for your PC and friendly apps for your phone. Throughout my career, buying stocks has evolved from full-service, high-commission services for the wealthy to discount stockbrokers and now to $0-commission trading with fractional shares, catering to the masses.
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I recommend a brokerage that offers $0 commission and fractional shares, making it an ideal choice for beginners. Stocks trade in shares. One share of stock could cost $24 or $720. Without a fractional share option, you must spend $720 to buy one share. With fractional shares, you could invest $50 in the expensive stock, and the brokerage will calculate the fractional number of shares you own.
Top 3 Brokerages:
Fidelity
$0 commission and fractional shares called Stocks by the Slice. You can start with just $1 and buy shares of more than 7,000 stocks and ETFs listed on U.S. Exchanges as fractions. Fidelity has a significant presence in the mutual fund and 401(k) market, with 40 million accounts.
Robinhood
$0 commission and extensive fractional share options. You can buy as little as one-millionth of a share for various stocks. Stocks over $1 a share and with a market capitalization greater than $25 million are eligible, as well as ETFs. Robinhood also promotes cryptocurrencies and options, which are a concern and are riskier than stocks. Robinhood has 27 million accounts.
Charles Schwab
$0 commission and fractional shares called Stock Slices. However, only 500 stocks in the S&P 500 are eligible for fractional shares. Charles Schwab was one of the original discount brokerages, with 36 million accounts, and is typically the highest-rated. I’ve had my Schwab account since the early 1990s.
Brokerage Fundimentals
Even with $0 commissions, brokerage firms still generate revenue. Familiar sources include order flow arrangements, interest on uninvested cash balances, margin lending, or fees for certain services. Understanding how a brokerage is compensated can help investors learn how the industry functions.
If a brokerage firm fails, you aren’t FDIC-insured like your bank account. SIPC insurance is for brokerage accounts. SIPC doesn’t protect you against stock market losses; it protects your money in case the brokerage firm goes out of business. Protection is $500,000 for securities, which includes a $250,000 limit for cash.
New to investing? These explanations may help:
• Understanding Earnings Season
• Risk Categories & Diversification
This article is for general informational and educational purposes only. It is not intended as financial advice, investment guidance, or a recommendation to buy or sell any security. The content reflects publicly available information and broad market commentary. Readers should conduct their own research and consult a licensed financial professional before making investment decisions.