How to buy Microsoft (MSFT) stock

• Looking to invest in a leading tech company?
• Compare broker features and offerings.
• Understand what order type is best for your strategy.

Microsoft (NASDAQ: MSFT) is one of the five tech companies in the FAAMG index. These tech companies account for a significant portion of the S&P 500. Over the last thirty years of tech growth, Microsoft remains one of the top industry leaders in operating systems, software, and cloud-based solutions.

Buying Microsoft stock allows you to profit from developments and growth in the tech sector. This brief guide unpacks everything you need to know about investing from the USA.

Company overview

Founded in 1975 in Albuquerque, New Mexico, Microsoft launched its IPO on the NASDAQ exchange back in 1986, at an opening price of $21 per share.

At the end of Microsoft’s 2020 fiscal year, the company had annual revenues of over $143 billion and operating income of $53 billion. The company remains one of the best long-term investments in the tech sector, while also offering opportunities for day traders.

Step 1: Choose a broker to trade with

Before you rush out and sign up with the first broker you find, consider these tips for finding the best broker for your needs.

Commission-free trading

Robinhood and WeBull are examples of trading apps charging you no commissions on your orders. Many of the bigger trading firms are following suit, offering you commission-free trades. Reducing your trading costs makes it easier to grow a small account.

Fractional share trading

A single share of Microsoft costs around $300, which is the kind of money many people start out investing with. Buying a share will give you an unfavorable risk profile as all your money will be invested in a single company. Fractional shares let you take a piece of a Microsoft stock, with budget remaining to invest in other companies in small amounts, giving you exposure to the price action while reducing your risk.

Easy trading platform

Your broker trading platform should feature easy navigation and intuitive design. Look for brokers that let you plug in advanced trading platforms like DAS as you become more experienced.

Low account fees

Compare inactivity fees, account fees, and transaction fees between firms before signing up with your broker.

Margin trading

Using a margin account lets you "leverage" your account balance by "borrowing" from your broker. Margin is a great way to grow a small account, but it comes with significant additional risk. With margin, you could end up losing more than your starting account balance, putting you in debt with the broker and requiring you to put up additional funds.

Step 2: Funding your account

When funding your account, only use money that you can afford to lose. If the trade turns against you and you have your life savings at risk, it could end very badly for you.

Brokers accept debit cards and bank wire transfers for account deposits. Some brokers also accept credit cards. However, it may take the broker up to two weeks to set up and fund your trading account.

Step 3: Decide how much you want to invest

Professional day traders will tell you that it's not a good idea to risk more than 5% of your account balance when purchasing a stock.

Step 4: Choose between stock or ETFs

An ETF presents you with a trading alternative. ETFs are baskets of companies that contain stock holdings that align with an index or sector. When you purchase an ETF like iShares Global 100 ETF (IOO) or the Vanguard Information Technology ETF (VGT) — both of which give you exposure to Microsoft — you get exposure to the price action in each stock within the fund. As a result, you diversify your risk. On the other hand, investing in the stock means your position depends entirely on the company's performance.

Step 5: Set up your order

After choosing to buy stock or an ETF, you'll use one of the following order types to place your trade.

Market order

This order gets you into Microsoft stock at the next quoted price. However, that price may be greater than what you want to pay for the stock, leaving you with slippage. For example, if you click the buy button at $100, in a fast-moving market, your order may fill at a higher price of $101.

Limit order

The limit order prevents you from absorbing slippage. You enter the max price you're willing to pay. When you click the buy button, the broker only fills your order at that price. However, you might not get a complete fill during fast-moving price action.

Stop limit

This order lets you sell your stock when it reaches a specific price. For instance, you enter at $100, and you want to sell at $125. When the price reaches your target level, the platform automatically executes the sell order, getting you out of the trade and locking in a profit.

Stop loss

The stop loss prevents you from losing it all on a single trade. For instance, you enter at $100. Since you only want to risk 5% in the trade, you'll set your stop loss at $95. If the price dips to this level, the trading platform executes your stop loss, getting you out of the trade before the price crashes and limiting your loss.

Step 6: Execute the order

After choosing the right order type to match your trading strategy, it's time to execute it and place your trade. To do so, fill out your trading platform's order form — ticker symbol, order type, and number of shares you want to buy — and click the order button. The broker submits the order instantly, confirming your fill when executed.

Step 7: Watch for market movement

Microsoft is a leading tech company and financial reports, earnings calls, forecasts, product launches, or acquisitions provide excellent high-volatility days for trading. Microsoft is also subject to other market forces, such as regulatory actions and cyberattacks, which may cause swings in price action.

Keep an eye on other tech companies such as Amazon (NASDAQ: AMZN), Apple (NASDAQ: AAPL), Facebook (NASDAQ: FB), Netflix (NASDAQ: NFLX), and Google (NASDAQ: GOOGL) to gauge how the broader industry is performing.