One key aspect of investing that is sometimes overlooked is the way different securities are bought and sold. With the rise of digital platforms, reductions in commission fees, and an evolving regulatory framework, investors now have more options than ever for buying and selling stocks, bonds, and mutual funds. Whether you’re a seasoned investor or just starting out, understanding the different trading venues available—and their respective advantages and drawbacks—is crucial for making informed investment decisions..

In general, you can buy and sell securities via four primary channels:

• Brokerages
• Directly from the company that issues them
• Banks
• Peer-to-peer from private investors

Brokerage Houses

One of the easiest and most common ways to buy and sell stocks, mutual funds, and bonds is through a brokerage house. Brokerage firms typically require you to open an account with them and deposit a certain amount of money as a show of good faith.

Brokerages are popular because they (rather than you) do much of the behind-the-scenes work, such as completing the necessary paperwork and ensuring timely dividend payments. Choosing the right broker is an important first step for new investors.

Full-Service Brokers

Historically, the primary way for investors to enter into the securities market was to contact a full-service broker and have them purchase different stocks and bonds on their behalf. Because of the personal relationship that often develops between investor and broker, full-service brokers typically call their clients and provide recommendations for buying or selling particular securities.

Discount Brokerages

Discount brokerages have become increasingly popular with investors thanks to ever-falling commission fees. These brokerages, like large supermarkets, offer investors a huge selection at a low cost. However, investors have to do most of the work themselves. At almost all discount brokerages, you can buy stocks, bonds, or mutual funds either by calling one of the investment representatives—who will collect a commission—or by completing the transaction online yourself.

Either way, you’ll need to enter an order ticket, which states the type of security you want to purchase (bond, stock, or mutual fund), the price you want to pay for it, the quantity you would like to buy, and the duration for which you would like to leave the order active (e.g., one day to one month). Upon proper completion of the order, it is sent to the exchange, where the stock, bond, or mutual fund is bought or sold at whatever terms are on the order ticket.

Robo-advisors

Robo-advisors represent a recent innovation using automation and algorithms to provide personalized investment management at a lower cost than traditional advisors. These apps or web-based platforms typically start by having investors complete a questionnaire to assess their risk tolerance, financial goals, and time horizon.

Based on these inputs, the robo-advisor creates and manages a diversified portfolio of low-cost ETFs or index funds. Many companies offering robo-advisors now offer a “hybrid” model where investors can also access human financial advisors for specific questions or periodic reviews.

Direct Stock Purchase Plan With Issuing Company

In the past, buying or selling shares directly from the issuing company was more of a hassle than going through a broker. But it offered advantages. By skipping the middleman, investors could buy shares with minimal or no transaction costs and avoid any requirements for a minimum investment.

These days many companies offer their direct stock purchase plans (DSPP) through transfer agents such as Computershare Trust Company and American Stock Transfer & Trust Company, two of the largest. You could argue that buying through a transfer agent means you aren’t actually buying directly from the issuer, and you would have a point. In any case, these transfer agents make it easier to buy shares online from the issuing company while offering many of the benefits previously available when buying directly from a company without the use of transfer agents.

First, you can still avoid brokerage commissions, though transfer agents such as Computershare will often require you to set up an account and pay a transaction cost when you buy or sell shares. The minimum investment size differs by company. Caterpillar Inc. (CAT), for example, requires a minimum investment of $250 for new shareholders. S&P Global Inc. (SPGI), on the other hand, requires a minimum investment of $500 for new shareholders.

Even with minimum investments, participating in a DSPP still enables investors to buy smaller batches of shares—in some cases, less than one share. For example, a $250 investment in Caterpillar will get you less than one share. So this option could make sense for people who want to start investing but don’t have much money to do it.

One thing to keep in mind: When you buy stocks or bonds directly from the issuer, even through a transfer agent, they will be held in certificates, either in registered or bearer form. If your purchase is in bearer form, the issuing entity does not keep any records of transactions, which means that you are responsible for the safekeeping of the security. If you lose a security in bearer form, there is no way to retrieve it; the person who finds it is the proud new owner of your stock.

Banks

Although most banks don’t sell stocks, they do offer mutual funds and bonds. That said, their selection will be limited to funds offered by the bank itself or through its partners. On the plus side, you can simply walk into just about any corner bank and purchase mutual funds or bonds on the spot.

A bank representative should be able to tell you the different characteristics and minimum purchase amounts of the products available.

Person-to-Person (P2P)

In theory, you can buy and sell securities peer-to-peer, meaning outside of an exchange. Suppose that a friend has a stock that you would like to buy, or a relative who needs the funds immediately would like to sell you a bond. It can be done, but beware of scams, such as false certificates.

With most stocks and bonds, the other party will have to sign the certificates over to you, the buyer. If you’d like to sell, you only have to sign the back of the certificates, which can then be sold to another party. In either scenario, after the security certificates are signed, they must then be sent back to the company to be re-registered under the name of the new owner.

The Bottom Line

There are many ways to buy and sell securities. Each comes with its own advantages, challenges, and risks. Whether you decide to deal with a full-service or discount broker, issuing company, bank, friend, or relative, make sure that you’ve done your homework and identified the best option for you.