MoneyMagpie

Feb 03

How to buy shares

Anyone can buy shares. You don’t need to be rich to get started, but good planning is essential. Nowadays, with online brokers, buying shares is cheaper and easier than ever before. You can research shares, buy shares, and track the stock market from the comfort of your own home. You don’t need to be on the floor at the London Stock Exchange to buy shares. However, you do need to make sure you plan, set your investment limits and your desire for risk. Here’s our step-by-step guide to 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. Now initially this involves a lot of research before your decision is made.

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. Yahoo has a version that is free called Virtual Stock Exchange, Halifax has a Fantasy Trader Account and there are several more. It is advisable to do this 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.

A good piece of advice is never to 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, whether you are investing for a short or long period.

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

stock marketYou 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.

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, the prices range from £5 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  Transfer Out Fee
Interactive Investor Yes £10 £5 Yes
Halifax Yes £11.95 x Yes
Hargreaves Lansdown Yes £11.95 £5.95 Yes
AJ Bell Youinvest Yes £9.95 £4.95 Yes
TD Direct Investing Yes £12.50 £5.95 Yes

Once you have chosen an online broker you will need to register on the website. Then you use your debit card to get started and pay money into your account. You are then set to buy and sell shares. Remember to check your account or the mobile app regularly.

six_magpie
Sign Up – Newsletter

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 therefore 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 thereby benefitting from the cheaper rates.

If you are planning on being a regular trader – maybe trying to profit from the ups and downs of the stock market – you will need to keep track of the shares’ value more frequently. Keep in mind that each trade will cost you and therefore each time there are costs and benefits to each. If you are planning a longer term investment – i.e. investing on a ‘buy and hold’ basis – then you can track your shares less frequently.

Step 6: How to sell your shares

Think carefully when you sell your shares, as the timing of this is important. Look at the difference between your purchase and sale price. Have you made a sufficient profit? Do you expect the price to rise further or fall? Have you made a loss but you expect the share to fall further? Can you afford to keep your money locked up in shares?

When you have decided to finish trading and want to sell your shares you will need to log in to your account and sell them. You can decide to sell at any time and the money will be put into your account. When you decide to finish trading for certain then you can sell all your shares and close your account.

Experian Free Credit Score
Get your free Experian credit score with Credit Matcher

WHAT DO YOU THINK?

Add your comments here

Related Articles

Experian Financial Control
 

Make Money and Save Money

ideas for everyone
 

Send this to a friend