I know many people who would like to invest in the stock market but don’t know-how. They want to know how to open a stock brokerage account. How to purchase shares like BP, Apple or Disney. How to collect the dividends owed to them. This article will give a step by set guide on how to buy and sell shares.
- Open An Account With A Stock Broker / Investment Platform.
In order to buy and sell shares, you need to sign up with a stockbroker/investment platform. Most investing is done online these days and all the best stock broking platforms can be found online too.
There are a number of different websites you can use to buy stocks and shares. These are just a few: Hargreaves Lansdown, Youinvest, TD Direct Invest, III, Barclays Stockbrokers, iWeb, Freetrade, Degiro.
I have written an article on what is the best online stockbroker to sign up with so have a look at it. In short, I find Hargreaves Lansdown to be the most user friendly but it is also a bit costly. If you are looking for something cheap, check out Freetrade which is set to launch later this year and has zero dealing fees.
2. Choose An Account Type
Once you sign up with your chosen stockbroker, you will need to chose which type of account you want. They are usually thee types of accounts:
Dealing Account: This is a regular account where you can buy and sell shares. If you make money in this account above the capital gains tax threshold and the dividend income threshold (you will pay tax), you will need to pay tax.
ISA Account – The ISA is a way for investors to grow their money completely tax-free – no tax on dividends and no tax on capital gains. There is a limit to how much you can put into this account each year, currently, it is £20,000
SIPP Account – A SIPP (Self Invested Personal Pension) is another tax-sheltered plan. With this, the government gives you tax relief when you put money in to the account. Whilst money is in the account, it grows tax-free. When you start withdrawing the money once you are aged 55 or over, you will be taxed at your marginal rate.
(If it helps, I personally invest via ISA and SIPP accounts. I don’t like regular dealing accounts due to taxes).
3. Decide Whether To Invest In Shares, Bonds, Funds, Investment Trusts or Index Funds
Once you open your account, there are a number of different investments you can make. You can essentially invest in the following asset allocations :
Stocks and Shares: Also known as equities. This gives you a partial ownership stake in a company. So if the company you invest in makes money, you essentially make money too. You can invest in shares of any publicly listed company. Some famous names are Apple, Amazon, BT, Coca Cola, Kellogs, Netflix, Nike, Starbucks, Sky, Tesla and Unilever.
Bonds: These are akin to loan notes and you collect a fixed rate of interest on your investment.
Funds: By investing in a fund, you let a professional pick a number of stocks for you and they charge a fee in return. Each fund has a unit price that is equal to the net asset value of the fund i.e. the price of all stocks held by the fund.
With certain platforms like Hargreaves Lansdown, you can buy and sell units in the fund for no dealing fee.
Investment Trusts – These are similar to funds mentioned above in that a professional picks a number of stocks for you. But in this case, the investment trust is traded on the stock exchange like any other company. The Investment trust has a share price (as opposed to a unit price) which could trade at a premium or discount to the assets it has. To learn more about investment rusts and the premiums and discounts, have a read of this article.
Index Fund – If you want instant diversification at a low price, you can buy an index fund ETF such as the FTSE 100. When you buy the FTSE 100 ETF, you are essentially buying an ownership stake in each of the biggest 100 companies listed in the UK; You buy 7.13% of HSBC, 6.04% of Royal Dutch Shell, 5.64% of BP, 3.72% of GSK and so on.
Buying And Selling Shares – How to do it.
Say you chose to invest in individual shares from the above list, the first thing you need to do is research which company’s shares you want to invest in or alternatively you could look at Stockflare so you’re able to get to grips with the ropes first. I have written an article on what new investors should look for in their first share purchase so have a look at it to give you a good starting point.
Once you decide which company to invest in, search for the shares on the platform you have registered with. Here is an example of a search I did for BP shares. Once you are on this page, you will see a deal now (or buy now button), click on it.
You will then be able to select how many shares to buy or how much you wish to invest.
At this stage, you will also be able to choose whether to make your purchase via a market order or limit order. A market order is a price that the market is offering i.e. the price you the stock trading for on the screen. For the biggest and most liquid stocks such as Apple and BP, I normally use a market order
A limit order on the other hand will only buy shares at a certain price. Say you want shares in BP but don’t want to to the current price of £5.50. You can set a limit order at £5.20 so you only buy shares when the price hits £5.20. The trouble with this of course is that the price of BP may never come down to £5.20 and thus you will never buy shares n BP.
Once you do all the above, you will need to click the button which usually says place order or buy. A screen will usually pop up confirming your oder and the price of the shares. By accepting this screen, your buy order will be placed and soon enough you will see the shares you have bought in your account.
If you want to sell shares, the process is more or less the same. Find the stock you wish to sell in your account and place a sell order.
I hope this article has been useful to any new investors out there. If you have any questions, please feel free to ask or comment below.