Here is what shares are, how and when to buy, the best way to buy shares, as well as the risks and rewards of buying shares.

What is a Share?

A share is essentially a piece of a company. When you buy a share in a company, you buy a share and own part of that company, this is commonly known as investing in a company. That entitles you to receive a portion of a company’s profits through dividends and vote on how the company is run. Although in most cases, private investors buy shares as an investment in the hope that the price of the shares will rise so they can be sold for profit.

The different types of shares

Different types of shares exist for you to invest in. The two most common ones are:

  • Ordinary shares - part-owner of the company with a vote in company matters, like compensation, merger and acquisition.
  • Preference shares - owners receive dividends ahead of ordinary shareholders. Typically, preference shares carry no voting rights.

Normally, you would buy ordinary (common) shares.

How to Buy Shares in a Specific Company in the UK

If you want to buy shares in a specific company, you first need to check that the company in question is listed on a stock exchange. The main stock exchange in the UK is the London Stock Exchange and consists of over 1,000 stocks from 100 countries. There are small exchanges such as the AIM Market, which has around 850 companies worth over £104 billion.

Once you have chosen a company listed on the London Stock Exchange to buy shares in, you need an account with a stock broker to help with the purchase.

Can you lose money buying shares?

It is important to note that the price of shares can go up and down and there is no guarantee that just because a share has gone up in the past, it will continue to do so.

Risk of investing in shares

Of course, investing in shares carries risk.

Some companies will not survive over the long term. Some industries shrivel over time, thus limiting the growth prospect of all the companies in that sector. Other risk factors include:

  • Companies will experience good and bad times. This will affect share prices.
  • Industries contract due to technological changes.
  • Poor management of the company
  • Fraud and mis-statement of accounts

There are many examples of stock fraud, such as Enron.

Another risk of stock market investment comes from a lack of understanding about how markets work. Investors who buy at the wrong time will most likely lose a bundle.

Rewards of Investing in Shares

Despite all these risks, the reward for investing in shares is huge. Many investors have made a fortune over the years, in many parts of the world. The most famous investor of all time is Warren Buffett, whose personal fortune is worth more than $90 billion.

Did you know that Tesla has created many millionaires after its extraordinary bull run since 2011? Many fans of Tesla cars also bought the firm's shares (see below). Over time, these shares are worth millions, thus creating an army of 'Teslanaires'.

tesla share price graph

Another interesting statistic. If you had invested $10,000 in Amazon's IPO back in 1997, this sum would be worth about $12 million in May 2020.

Once you have an account set up and funded, you search for shares that fit your portfolio requirements.

The biggest stock exchange here in the UK is the London Stock Exchange (LSE). Nearly all major UK companies are listed on this exchange. Liquidity is extremely good for large stocks.

As of February 2021, there are about 1,900 stocks listed in the LSE, with a market capitalisation of £3.59 trillion sterling.

If we rank all the companies listed in the LSE by their market capitalisation (number of shares multiplied by share price), the 100 largest companies are banded inside FTSE 100 Index. The next 250 companies are grouped inside the FTSE 250 Index.

A heat map of the FTSE 100 companies on a particular trading day looks something like this. Each box is filled with a ticker followed by its performance. For example, the International Airlines Group, owner of British Airways, has a ticker IAG.

FTSE100 heatmap example

Source: LondonStockExchange.com

How to Set up a Stock Brokerage Account to Buy Shares

Opening a shares account with a stockbroker can be done online. You will have to provide your details, as well as identification documents. Once your account has been verified, you have to deposit funds in your account before you can buy shares.

The main stock brokerage accounts for buying shares in the UK are:

Interactive InvestorHargreaves LansdownSaxo Markets

Interactive Investor

Hargreaves Lansdown

Saxo Capital Markets

A stockbroker acts as an intermediary between traders and investors; they facilitate trades and investments normally for a fee. Some brokers can also offer managed accounts and advisory services to help you make a profit from your stock market activity. But to buy shares, you need an execution-only or self-directed account.

Can you Buy International Shares?

Capitalism has a long history in the west. The bedrock of capitalism is the formation of companies (companion in old French) to carry out businesses. One of the most famous companies in the past was the East India Company.

These days, our lives are surrounded by great modern companies. We use Apple phones or drive Tesla cars or bank with HSBC. Companies that make these fantastic products are often listed in stock exchanges, available for ordinary people to buy.

  • By buying shares of these great companies, you reap capital growth from their excellent operations
  • You can earn income from these companies via dividends

Reinvesting dividend income into stocks compound your financial returns over time.

The Best and Biggest International Shares to Buy in the UK

In 2021, the largest company in the world is Apple Inc. It is listed in the US and is worth more than $2 trillion (see below).

largest global public companies

Source: Companiesmarketcap.com

As a single unit, the most expensive price per share is Berkshire Hathaway. It costs a whopping US$370,000 to buy each share of the company.

Best International Share Dealing Accounts

If you want to buy shares in international companies, you need an international dealing account. Here are three of the best international share dealing accounts:

How can you Trade US Stocks from the UK?

You can buy and sell US stocks with most UK stockbrokers. The most popular stocks in the US as the FAANG stocks. We have written a separate guide to buying these FAANG US stocks here. There are additional costs to buying US shares, such as foreign exchange and currency exposure, to be mindful of.

Why you Should Consider International Shares

International shares are often available to investors here in the UK. For a fee, you can have access to a large number of international shares.

Why you should consider investing in international shares:

  • Growth can sometimes be better than many UK companies
  • Diversify your portfolio
  • World-class companies in other markets not available in the UK

One of the biggest risks from international investing comes from foreign exchange. As we know, exchange rates are volatile. This volatility can dramatically reduce returns if the rate is moving the wrong way against our position.

Which Markets Should you Look At?

For most UK investors, the first place they should look at is American stocks. US equity markets are the largest, deepest, and most liquid. However, you should also look at other markets, including:

  • China/Hong Kong
  • Japan
  • Other Far East markets such as India
  • Europe - Germany/France
  • Canada/Australia

What is the most efficient way to buy international stocks? One is via LSE listed funds and ETFs. This way, you will not need to monitor the foreign currency moves.

You can buy foreign shares directly, but this may incur higher transaction fees and foreign exchange costs.

What Criteria is Required to Choose International Shares?

Broad parameters for picking international shares include:

  1. Look where growth is. For example, technology is a fast-growing sector that has good long-term prospects. One such market is the Nasdaq (see below).
  2. Search for brand names, such as LVMH or BMW, that offer attractive margins
  3. Invest in themes, such as electric vehicles or alternative energy or mobile payment

Of course, buying international shares is like buying domestic shares. You need to understand the cycle and whether prices offer good returns over the years. International investment can also go up and down.

NASDAQ heatmap

Source: finscreener.org

Why do companies care about share price?

The share price of a company is a reflection of how the company is performing and an expectation of future profits. Companies listed on stock exchanges are generally valued at more or less than their actual worth because the price is based on the supply and demand of their shares.

If more people think a company will do well in the future, more people will want to buy their shares, therefore, pushing the price up and increasing the evaluation of the entire company. The value of a company is known as market capitalisation, which is the value of all the shares of the company added together.

Inversely, if everyone thinks that a company is going to do badly in the future, the share price will go down because few people want to buy shares, meaning those wanting to sell shares will have to sell them cheaper to encourage someone to buy them. It is possible to speculate on the share price of a company going down through shorting shares, but this cannot be done with a normal stockbroking account. To short stocks and profit from when they go down rather than up, you need a CFD broker or spread betting account.

How to buy shares in the UK

We have detailed how to invest in stocks, but essentially, there are three major ways you can buy shares of a company.

  1. Buy and hold shares directly
  2. Buy investment funds that select and hold shares
  3. Buy exchange-traded funds that track a specific stock market index such as the FTSE 100 Index

Can you buy stocks without a stockbroker?

The most direct way to buy shares is via a stockbroker, whose business is to transact share dealing efficiently for customers. If you don't want to pick shares yourself, it is best to buy an index fund that holds a wide basket of shares.

What stock exchanges can you buy shares from?

Through a stockbroker, you can buy shares from companies in almost any country in the world. However, the majority of shares that UK investors will buy are listed on the London Stock Exchange.

Can you buy stocks through your bank?

Most banks will provide a stock brokerage service. However, you will not be automatically signed up to it and will have to open a stockbroking account in the same way as with any other providers. There are some circumstances where buying and selling shares through your bank may be useful. For example, probate issues, or selling an old certificated share.

How much does it cost to buy shares?

The main cost of buying shares is the shares themselves. However, there are four types of costs associated with buying shares:

  • Commission
  • Account fee
  • Stamp duty

Commission When Buying Shares

The commission is the charge levied by a stockbroker for executing your buy or sell share orders. Some stockbrokers charge a percentage of the value of the transaction (normally less than a percent), whilst others charge a flat fee, no matter how big or small the transaction is.

There are some stockbrokers that offer commission-free share buying, but they have a limited amount of stocks to invest in.

Account Fees When Buying Shares

All stockbroking accounts have a fee for holding your shares in safe custody. The amount you pay depends on what type of account you have. The three main different account types are:

  • General investment
  • Investment ISA
  • SIPP

As with commission, some stockbrokers charge a flat fee regardless of how much money is in your account, whilst others charge a percentage of the value. This percentage is normally capped by the major investment platforms.

Stamp Duty When Buying Shares

When you buy shares in the UK, you have to pay 0.5% of the value of the transaction in Stamp Duty. This is not a fee levied by your stockbroker; it is a tax from the Government. It is possible to buy shares without paying stamp duty through CFDs. However, holding CFDs in the long term can incur large overnight financing charges. Generally, it is more cost-effective to pay stamp duty on shares purchases if you intend to hold them for more than a month.

How to Buy Shares Online

Almost all share purchases in the UK happen online. Most good stockbrokers will also allow customers to buy shares over the phone, but there is usually an extra administration charge for this – in some cases, up to £50 per purchase. The cheapest, quickest and easiest way to buy shares in the UK is online.

To buy shares online, you will need:

  • An account with an online stockbroker
  • Funds to cover the purchase of the shares
  • An idea of what share you want to buy

How to Buy Shares for Beginners

The most important thing to remember if you are a beginner and want to buy shares is that making money in the stock market takes time. Despite what TikTok and Instagram may tell us, sometimes, good things take time. If it is your first time buying shares, it's also important to factor in the costs of commission, account fees and stamp duty, but also things like the bid/offer spread and tax on profits.

What is the Bid Offer Spread?

The bid offer spread is the price at which people buy shares. There is also the mid-price. When a share price is quoted, it is often the mid-price, which is the price between the bid and the offer. When you buy shares, you pay the offer, and when you sell shares, you sell at the bid. The bid is always lower than the offer price and the mid-price is in the middle. This means that as soon as you buy shares, you are immediately losing money because the price at which you can instantly sell them is lower.

Paying Tax on Share-buying Profits

Whenever you make money on investments, you have to pay tax. If you sell your shares for more than you have bought them for, you will have made a profit and are therefore eligible for capital gains tax. Everyone has different tax circumstances depending on how much you earn and overall financial positions, so it's important to talk to a tax specialist about what you may owe.

Best Accounts for Buying Shares for Beginners

It may feel like the easiest option is to open a normal investment account and start buying shares, but all beginners should consider opening a stocks and shares ISA as their first account. Buying shares in a stocks and shares ISA means that you do not have to pay tax on a certain amount of the profits you make.

Here are three of the best stock brokerage accounts for beginners that offer stocks and shares ISAs:

Why a stocks & shares ISA should be considered first

If you are new to investing, you should consider a stock Individual Savings Account (ISA). Major points about an ISA:

  • An ISA is a tax-efficient wrapper that allows you to invest up to £20,000 in stocks and shares each financial year, April to April.
  • Any profit made from investments in stocks and shares ISAs is free from capital gains tax.
  • You can invest in UK stocks, investment trusts, gilts and a large number of international shares.
  • There is tax-free income in retirement – accumulation over multiple years could mean a large and diverse portfolio upon retirement.

But if you do not use your ISA allowance one year, you will only have £20,000 the next year. There is no carry-over if you do not use all these allowances.

You can buy and sell shares freely once you have invested your money in an ISA. The account is transferable to other platforms, subject to charges (if any).

You can read more about investment ISAs in our guide to stocks and shares ISAs

Stocks ISA Protection

Stocks and shares ISAs are protected under the FSCS scheme. If the firm holding your investment failed after 1st April 2019, your deposit could be protected for up to £85,000. If the firm failed before this date, the maximum protection is likely to be £50,000. Further details of the investment protection scheme are available on the FSCS website.

This protection does not cover the natural rise and fall in the value of your investment, only if all of your money is lost due to the collapse of the firm that manages your money.

Fees on a share-dealing account

Brokers these days provide a platform to hold your shares. In return, you pay a fee – monthly or annual – to the brokers.

When you buy or sell a stock, you will most likely pay a transaction fee. This fee varies from broker to broker. Some platforms are even free, such as Robinhood. However, there is a cost to these commission-free stock transactions.

How to start buying shares as a beginner

Investing is simple, but not easy. These days, you can buy and sell shares at a click of a button. But that doesn't mean your return increases. In the world of investing, activity does not equate to returns.

When starting, remember to follow some of these seven *rules*.

Seven investing rules to remember when buying shares for the first time

  1. Start with small sums. Learn how the whole game works before committing more funds.
  2. Diversify. Hold a few shares in different sectors. Consider gold and bonds too.
  3. Use stop losses. Not all investments will turn out great. Some are losers. Best to cut them before they do great damage to your portfolio.
  4. Think long term. Invest in companies that are building great operations and wealth over time.
  5. Understand your own emotions. When others are panicking and selling, it is often a good time to pick up shares. But can you do it?
  6. Avoid risky investments such as derivatives in the beginning because they are volatile.
  7. Don't overtrade. Jumping from one investment to another quickly seldom works out well over the long run.

Investing is a long-term process. You learn along the way. You adjust your style and what works for you.

A simple trick for beginners: every time you buy a stock, write down why. This often clarifies your thinking. When you buy it, write down the stop loss too. When you fail to stick to your plan, understand why.

Tailor the stock portfolio to your own needs

A stock portfolio is there to serve your financial needs. So this will depend on your circumstances. For example:

  • Cash flow - do you need cash out of the account every year?
  • Budget - do you wish to invest regularly, say, adding a pot of money every six months? If the sum to invest is too small, watch out for fees that might eat up all your returns.
  • Capital losses - what is your loss tolerance? If you dislike wild swings in your portfolio, sticking to more 'boring' sectors may be more appropriate.
  • Knowledge - do you have a lot of knowledge in any particular area/sector that can be capitalised on? Sometimes, you can find great stocks while working in a niche area.
  • Time to research - if you have no time to research companies, find someone else who knows.

The answers to these questions will set the broad perimeters of your stock investment operations.

If you do not want the hassle of picking shares or balancing your portfolios, you might better off by just buying a few ETFs that track the broad stock market, such as the FTSE 100 ETF (ISF) or S&P 500 ETF (SPY).

Where does your money go when you buy a stock?

In simple terms, it goes to the person who sells it to you. However, the process is more complicated as the stock exchanges provide an anonymous matching service known as the order book, where buyers and sellers can buy and sell shares anonymously. When you buy shares, you pay your money to your stock broker, who pays it to the exchange, who pays it to the stockbrokers of the sale of the shares, who pays it to the seller.

Trading Stocks: Investing versus Trading

Many readers are wondering – what's the difference between trading and investing?

  • Investing is putting a sum of capital in the hope that the value of the company will increase over time
  • Trading is a short-term operation that looks to profit from price changes

The key difference is a time frame. Trading involves much shorter timeframes.

Moreover, trading is often geared, meaning traders will use derivative products such as options and CFD to magnify their returns.

Trading applies to stocks and other instruments, such as foreign exchange and commodities. Here is how to trade FX and how to trade commodities.

How to sell shares

Investors sell their shares for two main reasons:

  • Crystallise profits - to nail down large profits
  • Take losses - to limit the downside exposure

During a bull market, if the stock has rallied significantly, investors sitting on sizable profits may want to book profits and sell their positions.

On the other hand, an investment may slip into a drawdown (paper losses) after you have bought it. When this loss appears to widen, you may want to exit the investment as quickly as possible.

Of course, nobody wants to suffer losses. But to survive over the long term, you may have to learn how to set limits on deteriorating positions. Learning to sell is critical because you preserve the bulk of your capital.

Remember, once you lose all your capital, you can't bet. When you can't bet, you can't win.

What is the best way to sell off shares?

The best and easiest way to sell shares is via the broker you bought them through. If you have bought shares online, they should be in your online dealing account.

The most profitable way to sell shares is when they are higher than what you have bought them for.

How much can you make in the stock market?

It is possible to make money in the stock market, but how much depends on the decisions you make around costs and investments. Most successful investors take a long-term view, so choosing an account that has low costs will make a big difference over potentially 30 years of investing. The investments you choose will also have a big impact. Low-risk investments are safer, but may produce lower returns in the long run. Whereas high-risk, shorter-term investments may perform well initially then fade over time.

It's important to understand that there is no guarantee that you will make money investing in the stock market as all investing carries risk.

Who is the best online share broker in the UK?

The top three stockbrokers in the UK are:

All offer slightly different services and costs, but essentially, both provide access to a wide range of UK and international shares and investment products.

How to buy shares FAQs:

Can you buy shares in commodities?

Yes, you can buy commodity ETFs, which track the price of a commodity like gold.

How do you buy shares online?

You need a stockbroker to buy shares online.

When is the best time to buy shares?

The stock markets are most liquid around the opening and closing bells. This is when the most deals are done, which means there is more liquidity, which reduces the bid-offer spread, giving better prices.

Should you buy shares now?

With investing, it is generally considered a good approach to start as soon as you can. The longer you are invested in the market by buying shares, the greater your chances of increasing your gains over the long term are.

Can you buy a single share?

In theory, yes, but the price you pay for that share may well be less than the commission and costs of buying it.

What is the fastest way to buy shares?

The fastest way to buy shares is through a stockbroker that provides direct market access (DMA).

Can you buy shares without a broker?

No, individuals cannot buy shares directly on the stock exchanges without a broker.

What are the best shares to buy now?

We have written a guide based on the best stocks for UK trading.

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