How to sell stocks (2024)

The United States stock market is a powerhouse. It made up 44.9% of total global equity market capitalization in 2023, totaling $49 trillion, according to the Securities Industry and Financial Markets Association (SIFMA).

Since the law of averages dictates that stocks are bought and sold in roughly equal numbers over a long period of time, sooner or later investors are going to need to know exactly how to sell their stock shares, when to do it and with what strategies.

It turns out there’s a good reason for that.

“When you choose to buy a stock, you’re exchanging cash for an ownership stake in a business,” said Juliann Gumulak-Smith, investment educator at the Investment Academy for Women. “When you sell that stock, you’re then turning your ownership stake back into cash. Selling stock is a perfectly normal and regular part of the investing process which helps investors collect profits or change strategies.”

Whatever you think about stock sales, don’t sell the practice short.

“Selling stock is an essential step in the art of investing,” said Sankar Sharma, founder of RiskRewardReturn.com and a frequent mentor to stock traders. “An investor who bought a stock sells it to either lock in the gains or to cut losses early. If they don’t sell early, the losses could amplify, and if they don’t lock in profits, profits could evaporate.”

“That makes it a very important step for investors,” Sharma noted.

Introduction to selling stocks

While the art of the stock sale is fairly straightforward, getting the practice right is non-negotiable for investors.

Consider Warren Buffett, the CEO of Berkshire Hathaway, who is widely recognized as one of the greatest stock market investors in history.

In 2012, Buffett owned 415 million shares of Tesco, a large UK-based grocery store chain. The investment cost $2.3 billion.

While Buffett wrote in his 2014 Berkshire Hathaway shareholder letter he was growing bearish on his Tesco bet in 2013, he only sold about a quarter of his total shares in the company.

“During 2014, Tesco’s problems worsened by the month. The company’s market share fell, its margins contracted and accounting problems surfaced,” Buffett wrote. “In the world of business, bad news often surfaces serially: You see a co*ckroach in your kitchen; as the days go by, you meet his relatives.”

Sitting on the shares only made the problem worse. Tesco’s problems worsened, and investors bailed on the stock. Late on the draw, Buffett sold too late, and Berkshire Hathaway wound up losing $444 million on its Tesco bet.

“An attentive investor, I’m embarrassed to report, would have sold Tesco shares earlier,” Buffett admitted. “I made a big mistake with this investment by dawdling.”

Don’t let that happen to you, even on a significantly smaller scale than the Oracle of Omaha. That process starts by knowing what a stock sale is and what role it plays in your long-term portfolio strategy.

“Selling stocks is the process of turning your investments into cash,” said David Rosenstrock, director and founder at Wharton Wealth Planning. “You can either sell a stock at a gain (profit) or loss, and there are tax consequences to each scenario that investors should be aware of.”

Selling stocks is critical to all investors, as it represents one of three primary moves you can make with a stock — buy, hold or sell. “Stocks are well known as liquid assets that can be turned into cash quickly and efficiently on any stock market exchange,” Rosenstrock noted. “Yet when an investor hangs on to a stock, there’s a risk of market exposure (if the stock drops in price) and often volatile share price movements.”

The best time to sell stocks

Selling stock shares is primarily a personal decision that’s highly dependent on a specific investor’s unique investment goals, holding period and portfolio strategy.

By and large, though, there are a handful of times when it’s appropriate to sell a stock. Sharma advised considering selling a stock under the following conditions:

• The underlying company’s fundamentals or earnings deteriorate.
• The stock becomes too expensive.
• The stock reaches its potential price target.
• The stock starts to go down, and an investor wants to cut losses.
• The shareholder needs to rebalance a portfolio with a better alternative asset.
• The investor wants to scale out of a larger investment position.

To simplify the stock selling process even further, break your decision down to four key categories:

When you’ve made a profit

“The old saying ‘Buy low and sell high’ still applies today,” Gumulak-Smith said. “Thus, the best time to sell a stock is when you’ve made a profit and want to pocket the profits.”

When the stock starts to go south

“Another reason to sell a stock is when you’ve bought a stock and the stock trade has gone against you and you want to minimize the loss,” Gumulak-Smith said.

When market trends change

There is also a seasonality to the stock market, sometimes called the “calendar effect,” meaning certain stocks or markets tend to exhibit observable patterns during specific times of year. “Some investors even sell their stocks heading into the summer months and reinvest once September comes around,” Gumulak-Smith noted.

This is a reference to the old stock market adage, “Sell in May and go away,” which comes from the idea that the summer months tend to show lower returns than the period between November and April. However, Fidelity Investments explained, “This trading theory has flaws.”

When you want to bet against a stock

There’s also a fourth time when an investor might sell a stock, which is to make a bet that its share price will fall further. This is called shorting a stock, and it involves selling stock shares to open a new short position rather than selling stock to close a position you already own.

Here’s a brief explanation of how it works: First, you must have a margin account with your broker, which allows you to borrow shares you don’t own. Then, you sell those shares on the open market and collect the proceeds from the short sale. At this point, the goal is to buy the shares back at a lower price. If the stock falls as you expect, you can buy them back on the open market for less than you sold them for originally, return the full amount of borrowed shares to your broker and pocket the difference.

Keep in mind, however, that this is a very advanced strategy that comes with a long list of unique risks.

Platforms for selling stocks

Stock market investors should focus on trading platforms that offer the best features and the best results.

For instance, a robust stock trading platform should be reliable and secure, and offer timely, user-friendly trade execution at a fair market price.

“The biggest differentiator between platforms is the ease of use and commissions, or lack thereof,” said Aaron Shapiro, founder and CEO at Carver Edison, a fintech financial wellness company. “Platforms like E-Trade, Schwab and Robinhood all have a really simple, easy-to-use interface that makes selling really quick and easy.”

These days, there are plenty of discount and full-service brokerage platforms that offer the ability to buy and sell stocks, typically with no trading commissions, either from your desktop computer or mobile device. All reputable brokerage companies, such as those Shapiro mentioned, provide free educational resources, charting tools and easy order entry instructions that make it simple to buy and sell stocks.

Order types for selling stocks

When you plan on selling your stock, get to know the various order types available to get the trade executed promptly and efficiently.

“The two primary stock selling orders are called ‘market’ and ‘limit’ orders,” Shapiro said. “In effect, market orders say, ‘I want to sell my shares at the current market price’ while limit orders say, ‘I’m only willing to sell my shares at a certain price’,” he noted.

Market order

For example, let’s say you own a stock that you want to sell at or near the current market price. If you enter a market order to sell your stock, it tells your broker to sell your shares at the best price available in the market at the current moment. The downside to this type of order is it doesn’t guarantee you will receive a certain price for your shares.

Limit order

A limit order is typically used when you have a specific price target in mind where you want to sell your stock. “Let’s say you want to sell your stock at $50, and it is currently trading at $42,” Gumulak-Smith explained. “The order will only fill once the stock trades at or above $50. The drawback with this order is that your stock may not ever reach the $50 price target.”

There are several other order types for selling stocks, as well.

Stop order

A stop order is a type of market order that only becomes active at a specified price, called the stop price. If you place a sell-stop order at $40 per share, it becomes an active market order when the stock reaches $40 and executes at the next available market price.

Stop-limit order

A stop-limit order shares characteristics of stop and limit orders. It ensures you’ll get the price you’ve specified, but there’s no guarantee the trade will be executed. A stop-limit order is useful when you’re willing to hang on to your shares until you get your preferred price.

Trailing-stop order

A trailing-stop order can be either a limit or market order that moves along with movement in the stock. It is typically meant to protect against downside risk when selling a stock. For example, if an investor sets a 10% trailing stop on a stock trading at $50 per share, the initial stop order will be set 10% below the stock price at $45. If that stock rises to $60 per share, the stop will rise with it to $54, which is still 10% below the stock price. The trailing stop order becomes an active market or limit order only when the price declines 10% from its previous level.

“Here, sophisticated online investors often use this order to ‘trail’ the moving price so they can get maximum profit when the stock is ultimately sold,” Sharma noted.

Time in force for trade orders

When you trade a stock, the brokerage firm handling your trade will ask you to provide instructions, known as “time in force” instructions, that tell the broker how long the order should remain active until it expires.

These time parameters are useful when buying or selling a stock because they help investors avoid unintended trade executions and eliminate the need to cancel forgotten orders.

There are several time-in-force parameters you’ll have the option to specify when you place a market, limit or stop order, including:

Day orders

A day order lets the brokerage firm know you want the trade left open only until the end of the current day’s trading session. If the trade isn’t executed in that time frame, the trade ticket is automatically canceled.

Day-til-canceled orders

Some brokers also offer day-til-canceled (DTC) orders, which deactivate — but don’t cancel — a day order. That allows the investor to resubmit the trade ticket at any time without reentering the order.

Good-til-canceled orders

A good-til-canceled (GTC) trade ticket keeps a trade open until that trade is either executed or canceled by the investor. A GTC order is helpful when an investor wants to buy or sell a stock and doesn’t want to monitor the status of the order each trading day.

Some brokers allow you to set a specific date on which the GTC order will be canceled, while others automatically cancel GTC orders after a certain length of time.

Fill-or-kill orders

Investors usually want to buy or sell shares of stock in one execution at a single price and not in pieces at different prices over a specified period of time. A fill-or-kill (FOK) order tells the broker to cancel an order if the transaction can’t be filled in one execution at a single price.

Immediate-or-cancel orders

Immediate-or-cancel (IOC) orders execute the portion of an order that can be filled immediately and cancel whatever portion remains. For example, if you place an IOC order to sell 100 shares and only 50 shares can be filled in the market, the portion of the order for the remaining 50 shares is automatically canceled. Traders usually deploy IOC orders to get a specific price within a short period of time, which could be within several hours or even several minutes.

At-the-open & at-the-close orders

Some brokers also offer “at-the-open” or “at-the-close” trade orders, which do just what they say. They may be limit or market orders and are sometimes called “market-on-open,” “market-on-close,” “limit-on-open” or “limit-on-close” orders.

An “at the open” order tells your broker to execute a market or limit order at the opening price of the day. If any portion of the order can’t be executed, it is canceled. Similarly, an “at the close” order instructs the broker to execute your market or limit order at the closest possible price to the market’s closing price. If not, the order is automatically canceled.

What to consider when selling stocks

There are myriad reasons to sell stocks, the primary one being to make a profit. But the following reasons are also common.

Tax implications

When selling a stock, considering capital gains tax implications is important. “Essentially, the shorter time period you own the stock, the higher taxes you’ll pay on the profits,” Gumulak-Smith said. “Work with a tax advisor to get the numbers right on stock sales tax implications.”

Panic and emotional selling

New investors often panic when they see stock prices fall and sell in a hurry to limit losses. “Beginning investors should remember these losses will only be realized if they sell it when the stock is underperforming,” Sharpa noted. “If the stock is otherwise solid, and if you hold on to the stock, the share price should recover, depending on the situation.”

Economic and market conditions

If the economy, the stock market and the underlying company’s conditions are strong, “you may want to hold on to the investments a bit longer,” Sharma said. “Correspondingly, if the market is weak, you may want to sell and/or use a matching strategy (like buying another stock with good share price potential or switching into fixed assets like bonds or cash) to benefit from a struggling stock market.”

Investment goals, strategy and holding period

When selling stocks, investors should stick to their script (ideally formulated with the help of a professional money manager). “Always align your stock sales with a rule-based portfolio management strategy, securities holding period and your unique investment goals,” Sharma added.