A stock is an ownership stake in a company, which is why stocks are also called equities.[S8] The stock may rise in value and pay dividends, or the holder may lose some or all of the money.[S1]
This page explains how the parts work: accounts, orders, costs and diversification. It does not say whether, when or what to invest.
What kind of account holds stocks?
Investors can buy and sell stocks through a brokerage firm, using a brokerage account.[S3] Opening one typically means signing a new account agreement, which sets out the holder's legal rights.[S1]
The SEC says the broker should ask about goals, income, net worth, investment experience and willingness to take risk.[S1] The agreement also records who makes the final decisions in the account.[S1]
Brokerage accounts differ on borrowing:[S2]
- Cash account: the investor pays the full amount for securities bought and cannot borrow from the broker-dealer to pay.
- Margin account: the broker-dealer lends the investor cash, using the account as collateral, to buy securities.
The SEC's bulletin gives an example of a $50 stock that falls to $25.[S2]
An investor who paid in full has lost 50 percent. One who paid $25 and borrowed $25 has lost 100 percent and still owes interest.[S2]
The SEC adds that a margin account holder can lose more money than was invested. The firm can also sell the securities without consulting the holder, to pay off the loan.[S2]
How does an order work?
An order is an instruction to the brokerage firm. The two most common types are the market order and the limit order.[S3]
Market order. This is an order to buy or sell at the best available price. It generally executes immediately, but the price is not guaranteed.[S3]
Limit order. This is an order to buy or sell at a specific price or better. It only fills if the market price reaches the limit, so it may not execute.[S3]
Timing is part of the order too. Unless the investor sets a time frame, an order is a day order, good only for that trading day.[S3]
Brokerage firms may offer other order types, and not every firm offers every type.[S3]
After a trade comes settlement, when the money is paid and the shares are delivered.[S10] For most broker-dealer trades, the standard cycle became T+1 on May 28, 2024: one business day after the trade date.[S4]
What does it cost?
The SEC sorts fees into two types: transaction fees and ongoing fees. Transaction fees come when an investor buys, sells or exchanges an investment, and ongoing fees come regularly.[S5]
Costs can include these:
- Commission: where a firm charges one, it pays the financial professional and the firm for acting as agent on a trade.[S5]
- Markup or markdown: when a broker-dealer sells from its own holdings, it may charge above the market price. When it buys, it may pay below.[S5]
- Spread: the difference between the purchase price and the sale price. A brokerage may earn a profit on it.[S6]
- Account fees: for example, for account maintenance, transfers, wires, inactivity or falling below a minimum balance.[S5]
- Fund expenses: mutual funds and ETFs take annual fees from fund assets, shown as a percentage, the expense ratio.[S5]
An ETF, or exchange-traded fund, is a fund bought and sold like a stock.[S5]
Ongoing fees matter over time because they cost twice. The balance is reduced by the fee, and any return that money would have earned is lost as well.[S5]
The SEC says the types and amounts of fees can be found in account opening documents, statements and confirmations.[S5]
What does diversification do?
The SEC describes diversification as "the practice of spreading money among different investments to reduce risk".[S7]
It can happen between asset categories, such as stocks, bonds and cash, and within them, across companies and industries.[S7] Funds are one route: the SEC notes that a total stock market index fund owns stock in thousands of companies.[S7]
FINRA describes the opposite as concentration risk. The more money sits in one investment, such as a single stock, the greater the risk taken.[S9]
Diversification has limits. The SEC says it "can't guarantee that your investments won't suffer if the market drops".[S1]
A company's own spread of businesses is a separate idea, and it is what Cityfort pages show.
Largest segment at Amazon: North America: 59.5% (1 of 3 segments) (FY2025). At Nvidia: Compute & Networking: 89.6% (1 of 2 segments) (FY2026).
Those figures describe each business. They do not measure how spread out any investor's holdings are.