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Oct 22

How to buy shares

Reading Time: 6 mins

Shares aren’t for the elite or mega-rich, nor are they restricted to Those In The Know. Anyone can buy shares.

You don’t have to be on the floor of the London Stock Exchange, either. Thanks to online brokers, you can buy and sell shares more cheaply and easily than ever before.

You do, however, need to create a plan. This includes investment limits, risk level, and research into the companies you want shares in.
Here’s our step-by-step beginner guide for buying shares.

 

Step 1: Which Shares do you want to buy?

First you need to decide which company you are going to buy shares from. Make sure you spend time doing plenty of research on this bit of your investment plan.

There are some key questions you should ask yourself when choosing your shares:

  • What sector is the company in – like media, technology or pharmaceuticals? And why do you think that sector will do well?
  • Is the company growing? Look at their previous performance and read their company reports.
  • Does the company show high dividend payouts? Generally, there are two types of listed company – those that have potential for growth and those that give good dividends. A growth company will usually have a low dividend as their main aim to to reinvest profits and increase share price through growth. A dividend company will generally be a fully established company with a strong reputation which has the ability to return its profits to shareholders each year.
  • Is the company seen as high risk or is it stable and slowly growing?
  • Is the company affected by seasonal ups and downs?

You can spend time online using a virtual portfolio to better understand the process. MarketWatch’s portfolio simulator tests your skill before you invest a penny. You can also try your hand at the London Stock Exchange simulator!

It is advisable to try these virtual portfolios for a long period of time, maybe even a year to really engage with the process and understand how the markets work.
Remember that the virtual portfolio will show you how easy it is to make money and also how easy it is to lose money by trading shares. Happily, though, because it’s virtual you won’t really lose anything.

 

Step 2: How much do you want to invest?

Once you have decided which company you are going to buy shares in, the next decision is how many shares you want to buy.

Never invest more than you can afford to lose because investing in shares is risky. Ultimately the number of shares you buy is up to you. It will be based on your income and how much you can afford to invest.

You might want to buy a few shares in some different companies in order to spread the risk. Initially aim for around three or four. You can then grow this over time to around seven or so. Remember you don’t want to invest in so many companies that you lose track of them. Think carefully about the timeframe:, do you want to invest for a short or long period?

 

Step 3: Get the ‘EPIC code’ of the company you are interested in

You will need to find the EPIC code (known in the States as the Ticker Symbol) for the company, which you can find on a number of websites such as Reuters, Marketwatch, or the Telegraph shares section. You could even put the company name + EPIC into Google to find out what it is.

For example, if you want to buy shares in Tesco, you can search for them on one of the above websites. The symbol is TSCO.L telling you that the shares are from a UK company on the London Stock Exchange. The EPIC code for HSBC is HSBA. The one for Glaxo SmithKlein is GSK, and so on.

When you have this code, it’s time to sign up to an online broker so you can buy the shares you want.

 

Step 4: Sign up to an Online Broker

Today, share ownership doesn’t require buying share certificates. It is all recorded electronically and you will have a nominee account.

A nominee account is where you own shares without becoming involved in any of the associated administration or paperwork. Thanks to the internet, information on shares is freely available and you can check how your shares are performing at the click of a mouse.

An online broker arranges the purchase of the shares for you, for a commission. This service means you can check prices, buy and sell online with speed and ease.

Costs are low in comparison to previous years and you can find brokers who charge very little even if you are buying thousands of pounds-worth of shares.

There are several online brokers available; prices range from £0.99 to £12.50 per trade.

Sometimes the prices are based on how much trading you actually do over a period of time.

Most companies offer mobile trading and a virtual portfolio. Fees are usually charged to transfer out of the account and a discount is offered for those who trade often (frequent trader rate). Here are some possibilities for you to consider:

Company Mobile Trading Cost per trade Frequent Trader  Annual Platform Fee
Degiro Yes £1.75 £0.99 x
Halifax Yes £12.50 x £12.50
Hargreaves Lansdown Yes £11.95 £5.95 £45
AJ Bell Dealing Account Yes £9.95 £4.95 x
Interactive Investor Yes £7.99 £0.99 £119.88
eToro Yes £0 £0 £0

eToro doesn’t charge fees in the usual way, which is why it looks so cheap compared to the rest! It’s a great platform, but there will be fees involved in some trade types. You can read more on their website.

Once you have chosen an online broker you will need to register on the website. You’ll need to confirm identity information such as your address, to help prevent fraud.

Each website has a slightly different setup process, but you should expect these steps:

1. Enter your personal details
2. Register your debit card
3. Transfer cash (some will simply take payments from your bank account when you buy)
4. Buy shares
5. Profit! (or, we have to tell you, loss – but let’s hope not).

You can buy and sell shares as you wish once your account is set up.

If you find a different platform at a later date, you can transfer your shares across to the new account. Your shares aren’t linked to the broker you’ve bought them through – they’re entirely yours.

Keep an eye out for the added fees you may come across. For example, Degiro is a cheap online broker – but adds small fees such as €4 for the purchase of European stocks. Over time, these fees can add up.

Once you have shares, use your online account or the mobile app to keep an eye on their performance.

 

Step 5: Keep Going

It’s a good idea to check your shares regularly to keep track of their rise and fall in value. Most websites will send you tips and information from the sector you have invested in. Remember to do your own research too: look at the bigger picture, consider other shares in similar companies to compare the trends in your share price.

Shares react to real life events so keep an eye on the news and the general state of the economy.

Take your time to make decisions and remember that even though it is tempting to trade regularly, charges apply each time you buy or sell. If you find that you’re trading more frequently as time continues, you may choose to switch to a frequent trader rate to benefit from cheaper rates.

If you want to use your shares as a long-term investment, a ‘buy and hold’ basis, you won’t need to track them so often. However, it’s a good idea to still check them regularly so that you can make sure the stock is still the best place for your money.

 

Step 6: How to sell your shares

Selling shares is a risk in itself. The timing needs to be perfect: too early and you miss out on a better price, too late and you could lose a lot of money.

Look at the difference between the price you paid for the share and what it would sell for now. Have you made a profit? Or have you made a loss – and expect the share price to keep falling?

Finally, consider if you can afford to keep your money tucked away in shares. If you need money quickly, they may not be the best investment for you. You can always sell your shares at any time – but if you’re making a pressured sale to get out of a tight financial spot, you could lose on your initial investment.

Investing in shares can be a profitable and exciting way to make money over a long period of time. However, the risk factor can put some people off.

If you’re unsure about whether shares are the right path for you, consider using them as part of a more diverse investment portfolio. A mix of high- and low-risk investment products can make sure you don’t put all of your eggs in one basket. Check out our investment guides to find out more about your investing options.

 

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