How to buy Costco (COST) stock

• Want to trade Costco stock?
• Compare broker offerings to decide which is right for you.
• Learn what trade types are suitable for your strategy.

Costco (NYSE: COST) is one of America's leading big-box retailers. The company has nearly 215,000 employees and continues to see strong growth in the post-pandemic era.

If you want to trade COST stock, this guide gives you everything you need to know to prepare for your first trade.

Company overview

Founded in 1983 by James Sinegal and Jeffrey Brotman, Costco offers a unique, membership-only model to its customers. The company is the fifth-largest retailer globally, offering traders the opportunity to profit from steady growth in the company's earnings and stock price.

Step 1: Open your stock broker account

To start trading COST stock, you're going to need to set up an account with a broker. The broker acts as an intermediary between your trading account and the market, allowing you to buy and sell stock on various stock exchanges.

When you're comparing your broker options, make sure you choose a firm offering you all of the following account features.

Commission-free trading

With the advent of commission-free trading apps like Webull and Robinhood, more discount brokers follow the zero-commission model. As a result, you have a slew of brokers looking to capture your business offering you zero commissions on your trades. That's a big deal for small accounts, helping you avoid the hefty commissions involved with your transactions.

Fractional share trading

A single share of Costco trades at well over $300. Since most new traders start with small accounts, typically $300, you can barely afford to purchase one COST share. However, fractional share trading lets you buy a 1/10th of COST stock without buying a whole share and gives you the flexibility to invest in other companies as well.

Low account fees

Compare the fee schedules of your prospective brokers. Look at the costs of transaction fees, inactivity fees, and account management fees.

Trading on margin

Brokers offer you cash and margin accounts. With cash accounts, you can only trade the balance in your account.

With a margin account, you get to access "leverage" from your broker. Leverage allows you to buy three to six times the amount of stock you can afford with your trading account balance. In other words, if you have a $300 account, a 3:1 leverage ratio would increase your account buying power to $900. As margin trading involves “loans” from the broker, you may have to put more money into your account if the share price falls.

Real-time data and charts

Your trading platform comes with charts. However, the data feed will lag by around 15 minutes. If you're day trading, you need live market data. Your broker or trading platform should offer you the option of purchasing real-time data for an affordable monthly fee.

Step 2: Add funds to your trading account

Your broker requires you to fund your cash or margin account to start trading. Brokers accept deposits using debit cards and bank transfers.

It may take your broker a few days to set up your account and deposit your funds. Many brokers take several business days or longer to process your first deposit or withdrawal. However, subsequent transactions will be much faster, clearing in 24 to 72 hours.

Step 3: Decide how much you want to invest

We recommend you start slow with your trading. Some brokers — particularly new investment apps like Robinhood — have a very low minimum deposit.

Avoid investing large sums into your trading account until you have built up experience.

Step 4: Choose between a share of stock or ETFs

When it's time to purchase your stock, you have two methods of getting exposure to the asset. You could buy the stock outright in whole or fractional shares.

You could also buy an ETF holding COST stock. ETFs, such as Vanguard Consumer Staples ETF (VDC), are vehicles containing the stock of several companies. It's a good way to spread risk, but you won't get the same volatility you do when buying the stock outright.

Step 5: Set up your order

After deciding on your asset, it's time to place an order. You'll use one of the following four order types when trading Costco stock or ETFs.

Market order

This order gets you into COST stock at the next quoted price. However, it's risky, and you could end up filling above your expected price. For instance, you might want to get into COST stock at $100. However, the market order might fill at $105, leading to $5 of "slippage."

Limit order

The limit order is the best choice for day traders. This order gets you in COST stock at a set price and not a cent more. For instance, you enter your limit order at $100, and your order fills at this price. However, if the price action is moving fast, your order might not fill or you'll only get a partial fill.

Stop limit

This order lets you automatically sell your shares when the price reaches your specified target. For instance, the price is $100, and you want to sell when it reaches $110. The stop-limit will automatically liquidate your position and realize the profit in your trading account when the market reaches this price.

Stop loss

If you want to enter COST for $150, you'll set your stop loss at $140. If the price dips to this level, the broker automatically sells your COST stock to prevent further losses. The stop loss is a must-have risk management tool for beginners.

Step 6: Place the order

After picking your order type, it's time to purchase your stock. Open your trading platform. Enter the COST ticker symbol and complete the fields for your share size and your order type.

Click the buy button on your platform when you want to enter COST stock. When you realize your price target, click the sell button to realize the profits in your trading account.

Step 7: Monitor performance

Costco is a big player in big-box retail. As a result, its earnings reports form the largest catalyst for traders, providing the best price action and opportunities.