How to buy shares is a key question you will have when looking to start generating superior returns on your money. Luckily, buying shares is relatively easily through online platforms.
Shares are issued by companies in order to generate capital – they are looking to offer you a ‘slice’ of their company. These shares are ‘listed’ or homed on stock exchanges – the London Stock Exchange is home for many Global & UK specific companies; from Vodafone to Centrica. The price of a share (often in pence) reflects the value of the company (market capitalisation) divided by the number of shares in circulation. Therefore, you should not assume a share that costs 2000p is better than a share that costs 20p – what’s important is to understand the prospect of growth.
How can Buying Shares Make Money?
You can make money from buying shares in two ways – capital gains and dividends. With interest rates at rock-bottom, buying shares is an attractive proposition:
- Capital Gains – Selling a share at a higher price than what you purchased for will result in a profit.
- Dividends – To attract and reward investors, some companies will provide a dividend to shareholders when they make a profit.
How to Identify Shares to Buy
Identifying shares to buy is equally exciting and daunting. Ideas can be provided by websites and & communities, best buy lists, share tips and so on. You can also conduct more technical analysis on shares including ratio analysis and charting to name a few concepts.
However, you should always have total confidence yourself in what you are buying and why. One of the golden rules is not to put all your eggs in one basket – the risk increases significantly due to reliance on one share. Buying into an investment fund which buys shares in lots of different companies is also a popular option.
Opening an Account to Buy Shares
You’ve identified what shares you want to buy, now comes the time to actually open an account. Online platforms will generally offer you:
- Stocks & Shares ISA – No capital gains tax & no tax on dividends, this should be the default way you invest in shares. With a generous £20,000 limit, it’s a no brainer.
- Share Dealing Account – If you’ve maxed out your £20,000 annual Stocks & Shares ISA limit, a regular share dealing account is the next best option, but you will be subject to taxes such as capital gains tax.
- Self-Invested Personal Pension – Like the Stocks & Shares ISA in terms of acting as a ‘wrapper’ for your investments, but a type of personal pension.
Selecting a Platform to Buy Shares
Online platforms provide you with the cheapest and easiest way to buy, hold and sell shares. These platforms will work on the basis of a ‘nominee account’ – you are the legal owner of the shares but they will hold the shares on your behalf.
Numerous platforms are in existence from those listed on the London Stock Exchange themselves through to mid-sized players and smaller, more disruptive providers.
Selecting the right platform for you may come down to; charges levied (platform fees, buying/selling and transfers out), customer service and level of guidance offered. If you plan to buy and sell frequently – the charges levied become ever more important.
Buying and Selling Shares
Buying and Selling shares within your account is simple – you can trade your shares by number of or by value. When you select to trade, you will be presented with a quote (which may be higher/lower respectively than the current share price). This is usually referred to as the bid-offer spread as the ‘market makers’ also need to make money.
Once the quote is accepted (with a small time limit), you’re done – you just bought or sold your shares!