The first step to buying shares is selecting an online stockbroker. The most important way these vary is by the amount charged in commission for each purchase and sale you make. It is also worthwhile to read stockbroker reviews to see what other people have to say; cheaper commissions do not always represent the best value for money if, for example, there are problems with service availability.
To move money into your stockbroker account, you’ll typically need to use a debit card displaying a Vista Delta or Maestro symbol. Any share purchases or sales you make are normally made in what’s known as T+3. This means that your account is debited (when you are buying) or credited (when selling) the cost of the shares and the commission charge 3 days after your order is placed. Some stockbrokers will offer extended settlement periods, but you should always be careful when buying shares on credit this way in case the market moves against you.
There are two main costs involved in purchasing shares. These are stamp duty, which is currently 0.5%, and the commission charged by the stockbroker for facilitating the purchase. This is normally around £10 or so. This means the total cost involved in buying £2500 worth of shares would be around (£2500 * 1.005) + £10 = £2522.50. When you subsequently make the decision to sell your shares, no further stamp duty is payable but you would pay the £10 commission again.
I’ve deposited money into my account, now how do I buy the shares I want?
To buy shares online, you will need to place an order with your stockbroker. The two most common order types used when purchasing shares are market orders and limit orders.
With a market order, you ask for an immediate quotation which is displayed on screen and you then decide whether or not you want to deal at that price. If you do, the order is executed and the shares are added to, or if selling removed from, your account. The advantage of this type of order is you are able to assess the market conditions, with the downside being you do have to be sat at your computer.
With a limit order, you specify a price at which you would be willing to deal and wait to see if the order is executed. For example, if Company X is trading at 500p but you decide you don’t want to buy until 480p, you could place a limit order at 480p which would be executed only if the share price reached that level. The advantage of this is you can place an order outside of market hours, perhaps when you’re at home after work. The main disadvantage is that market conditions or sentiment surrounding the share could have deteriorated significantly at the time the limit price is reached and the share price could continue falling.