- You buy and sell stock through a brokerage firm.
- Most people use online/discount brokerages.
- You can buy stock in whole or fractional shares.
A brokerage firm is a company that is licensed to buy and sell stocks. Brokerages provide you with a connection to the stock market and charge a commission when you make a stock trade. Some brokerages charge you just to have a brokerage account. A broker is a stock salesperson.
Until the 1980s, there was only one game in town. Full-service brokerages like Merrill Lynch had offices in fancy buildings and catered to rich people. They required large minimum investments (tens or hundreds of thousands of dollars), made you trade in “round lots” (you couldn’t buy fewer than 100 shares without paying a “odd lot” surcharge), and charged high commissions (hundreds of dollars or more per trade).
In the last few decades, discount brokerages and online brokerages have come onto the scene. They have become the way most people invest because they have lower minimums, charge lower commissions, and allow you to buy or sell the exact number of shares you want (odd lots are fine). They generally have a lot less overhead than full service firms.
Most brokerages today require you to buy or sell whole shares of stock. But this can get real expensive real fast because the top stocks can cost hundreds of dollars a share. For example, Amazon costs about $1,000 per share!
To enable you to buy the stock you want without regard to its share price, some brokerages allow you to buy fractional shares of stock. For example, you can buy $50 of Amazon stock, which would translate to 0.05 shares if Amazon is trading at $1,000 per share. This lets you invest in quality stocks at your price point.