How To Buy Shares
Many people think buying stocks and shares is risky, complicated, and only for the very rich.
We’d say that none of these are true. In this guide, we’ll show you how to buy shares with the minimum of fuss.
What is a share?
Simply put, a share gives you part-ownership of a company.
You’re entitled to any dividends it pays out and you can vote on certain matters. If a company is wound up, then you’re entitled to part of what’s left after all its bills are settled.
Crucially, under the legal concept known as limited liability, as a shareholder you are not responsible for a company’s debts.
And if a share is traded on a public market, like the London Stock Exchange – as are companies like Tesco, HSBC and BP – then you can buy and sell its shares very easily and cheaply, hopefully making a handsome return.
How to Safely Invest in the UK Economy
The United Kingdom (UK) may be the sixth largest national economy in the world, but it houses the world’s largest financial center alongside New York. In fact, London is one of the largest cities in the world and with the highest city gross domestic product (GDP) in Europe. This makes the UK a very important financial hub for international investors.
The London Stock Exchange has a market capitalization of over $6 trillion, making it the third-largest stock exchange in the world. There are around 3,000 companies like eToro is the largest stockbroker in the United Kingdom from over 60 countries listed on the exchange, including those from Africa, China, Latin America, Europe, and Asia.
Benefits & Risks Investing in the UK
Investing in the UK may be safer than many emerging and frontier markets, but there are still many risks that investors should take into account. Some benefits of investing in the UK include:
- Financial Hub: London has one of the most advanced financial markets in the world next to New York, which makes the securities market a very stable and liquid one for investors looking for exposure outside of the United States.
- Blue Chip Stocks: The UK houses many of the largest blue chip companies in the world, ranging from Rio Tinto to BP to GlaxoSmithKline, which makes investing in the region less risky than other financial markets around the world.
Some risks to investing in the UK include:
- Service Economy: The UK’s economy is made up of over 70% services, which is common among developed countries. While this can mean more stability, changes in consumer credit and commodity prices can quickly cause problems.
- Political Risks: Britain threatened to leave the European Union in 2016, which introduced a high level of political risk to its economy. Scotland has made similar threats to leave the United Kingdom. These kinds of threats could lead to economic volatility.
How to trade or invest in stocks in the UK
Find out what shares are
Learn why people invest in or trade shares
Choose how you want to buy stocks: investing or trading
Understand the risks and charges
Open a shares account
Discover what moves the price of shares
Pick a stock or ETF
Choose your timeframe and place your trade.
How do share dealing accounts work?
A share dealing account allows you to buy and sell shares in listed companies. A share dealing account can be opened online using an online investment platform or through a stockbroker. When you buy and sell shares you can do this on an execution-only basis, advisory or discretionary basis.
Online investment platforms are usually provided on an execution-only basis. This is where you receive no advice for your investment choices and will be completely responsible for these. When you use a stockbroker to buy and sell shares, they may offer you advice on an advisory or discretionary basis. The former means they will give you guidance on your investments and you then make the final decision, while discretionary advice allows the broker to trade on your behalf.
If you bought shares through an investment platform then you will need to use the same platform to sell your shares. You can sell shares either as a specific number to sell or by value.
Invest in the UK with ETF & ADRs
The easiest way to invest in the UK is through exchange-traded funds (ETFs), which provide investors with diversified exposure in a single security that can be traded just like a stock. The most popular ETF in the market is the MSCI United Kingdom Index Fund (EWU), but there are several other funds that also have exposure to the region.
Here are some popular ETFs to invest in the UK:
- MSCI United Kingdom Index Fund (EWU)
- BLDRS Europe 100 ADR Index Fund (ADRU)
- SPDR DJ STOXX 50 ETF (FEU)
- STOXX European Select Dividend Index Fund (FDD)
- BLDRS Developed Markets 100 ADR Index (ADRD)
The cheapest way to buy, sell and hold shares
When it comes to buying stocks, there are plenty of brokers to choose from these days.
They all have different charging structures so which one is cheapest for you will depend on a number of factors such as the size of your portfolio, what sort of accounts you want, how often you trade, and what additional services you might need.
Many brokers charge a flat fee for trades, e.g. £10 to buy or sell. Some will offer discounts if you trade more than a certain number of times a month and others provide free trades on basic trading accounts (i.e. not ISAs or SIPPs).
Some brokers will charge extra for dealing in non-UK shares and for converting money to and from sterling.
