What Is Buying?
Buying means swapping cash for shares. Your cash goes down and your shares go up, but at the moment you buy, your total assets don't change.
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Text version · Stock Basics, lesson 4: “What Is Buying?”
Buying means swapping cash for shares. Your cash goes down and your shares go up, but at the moment you buy, your total assets don't change.
Buying = swapping cash for shares
Cost = price × shares. The money comes out of your buying power, and you get shares of the same value.
At the moment you buy, total assets don't change
The money didn't disappear; it's just held in a different form: total assets = cash + market value.
How many shares can you buy?
Max you can buy = buying power ÷ share price, rounded down, leaving room for the commission. Some markets trade in board lots; on China's A-share main boards, for example, buys must be in multiples of 100 shares.
Key takeaways
- Buy: cash → shares. Cost = price × shares (plus commission).
- At the moment you buy, total assets stay the same (ignoring fees). Some cash simply becomes market value in your position.
- Max shares you can buy = buying power ÷ share price, rounded down. Some markets also require buying in fixed board lots.
Try it yourself
You can do these exercises in this lesson's interactive simulation:
- Confirm a buy with the default 100 shares at $50 each: how much cash is left?
- Keep an eye on the total assets bar on the right: after buying, does its total length change? What about the color split?
- Raise the quantity to 300 shares: why does the confirm button turn gray, and how many shares does the hint say you can still buy?
- Buy again and watch how your cost basis adds up.
Quiz and explanations
- 1. You have $10,000 and buy 100 shares at $50 each. How much cash is left?
- Answer: $5,000.100 × $50 = $5,000, so $5,000 is left.
- 2. Right after you buy (before the price moves), your total assets will…
- Answer: Stay the same, cash just became shares.The money didn't vanish. It's just held in a different form (ignoring fees).
- 3. You have $10,000 of buying power and the stock is $60. Ignoring fees, what's the most shares you can buy?
- Answer: 166 shares.$10,000 ÷ $60 ≈ 166.7. Shares come in whole numbers, so the max is 166 (costing $9,960). 167 shares would need $10,020, which you don't have.
Terms in this lesson
- buying power (Buying Power): The cash in your account you can use to buy stock right now.
- commission (Commission): The fee you pay your broker each time you buy or sell, which comes straight out of your profit.
- cost basis (Cost Basis): How much you spent in total to buy those shares.
- market value (Market Value): Number of shares × current price: what your stock is worth right now.
- profit (Profit): Sale proceeds − purchase cost − fees: the money you actually pocket.
- total assets (Total Assets): Cash + the market value of your shares at today's price.