Last Updated: June 1, 2022
When you hear financial terms like shares, you might feel intimidated or worried, but there’s no need to be. In this article, we’re going to explain everything you need to know about shares: what they are, how they work, how to buy shares and make a profit from them, and the difference between stocks and shares. Make sure to keep reading!
What Are Shares?
Shares are the smallest units of a company’s stock, with the person holding them possessing part-ownership of the company. People that own shares of a company are known as shareholders; depending on the type and amount of shares they own those individuals are entitled to certain privileges.
If a share is traded on the public market (for example, the London Stock Exchange), you can easily learn how to buy and sell shares and earn a profit. However, this also depends on the type of shares, the main differentiation we make when discussing shares is between common shares and preferred shares.
These two types of shares are traded at different prices, with each type carrying privileges and rights.
- Common shareholders have voting rights in the company. They get to have a say in company policy and participate in making personnel decisions.
- Preferred shareholders have no voting rights, but they have priority over the company’s income. In the case of bankruptcy, these shareholders are the first ones to receive dividends, which is known as a residual claim.
In case you were wondering how to get shares without taking on too big of a risk, you should keep in mind that as a shareholder, you’re not responsible for any of the company’s debts due to the concept of limited liability. You should also know that you don’t always have to choose between common and preferred shares – companies can customise different types of stock to accommodate investors’ requirements.
|DID YOU KNOW? In the past, people would receive paper stock certificates when they acquired shares, which would have to be presented if they wanted to sell them.|
How Do Shares Work?
When you buy shares of a company, you become the owner of a small part of that company. Shares are usually issued to raise capital if a company needs money or another financial asset to expand operations or pay off debt; a business could use the funds from the sale of the issued shares for other reasons as well.
When a company or corporation issues shares on the market for the first time, this is known as an initial public offering or IPO. However, there’s a limit on how many shares a company can issue for sale; these are referred to as authorized shares.
At this point, you may already be thinking about how to buy shares in the UK and earn a profit. Well, once you’ve bought your shares from the stock market, you assume that the company will earn money, and you as an investor will earn a return from the profits.
There are two basic ways you can earn money from owning shares:
- Dividends – Whenever the company is earning a profit, they might decide to share some of the funds with their shareholders through dividend payments. These payments are divided into two categories.
- Scheduled – In most cases, companies distribute dividend payments on a specified schedule so investors can expect payments regularly. If you were wondering ‘How can I buy shares?’ and earn a steady income, this is one way.
- Unscheduled – Sometimes a company decides to give out unscheduled dividend payments, which are known as special dividends.
- Price appreciation – Also referred to as capital appreciation, this is the second way you can earn money from shares. Appreciation in this scenario means that the value of a share has increased, which means you can sell it for profit. Money acquired from the sale of shares are called capital gains and are subjected to taxation. If you sell a share for a lower value than what you paid for, you’ll be facing a capital loss.
Many people are trying to figure out how to invest in stocks in the UK. The answer to success is simple – turn to some of the best software for trading shares (we recommend eToro) and have someone else take care of all the hard work for you!
|DID YOU KNOW? The largest stock market is the US stock exchange – 40% of all stock trades worldwide happen in the US, even though there are more than 60 stock exchanges in the world!|
How to Buy Shares
The process of buying shares is not as complicated as it sounds: If a company is listed on a public stock exchange, anyone can buy shares in it. Before making an investment, there are several things to take into consideration, such as how much money you are willing to invest, what type of shares you want to buy, and how many of them. Only then you can start thinking about how to buy shares in a company!
After you’ve answered these basic questions, you need to decide on the company you want to invest in since you’ll become a part-owner; you’ll need to do some research into the financial state of the company and determine whether or not there’s a possibility of investment growth.
Now you’ve reached the point of seriously figuring out how to buy shares in the UK. Well, the first thing to do is find a broker – unsure and need to know what a broker is? You can either turn to a traditional broker or select one of the many operating brokers online.
If you’ve chosen to use an online broker (also known as a discount broker), you need to open an account on their website. The process is quick and simple: you need to complete an application, provide proof of identification, and choose the type of funding for your account. Once you’ve deposited money into your account, you can immediately buy shares.
If it’s still unclear how to buy shares online, here are all the need-to-knows:
- Find the company of your choice – If the company is listed at the stock exchange, you can find it by name or ticker code. Some companies may be listed on multiple exchanges, so make sure you select just one of the offered options.
- Select the type of shares – Most companies list different share types, so you need to be careful when selecting what you want – in most cases, the choice is between preferred and common shares.
- Select the number of shares – You need to specify the exact number of shares you want to buy, but if you’re new to the world of share-trading this might be difficult. Most sites offer a guide on how to buy shares for beginners, and they also allow you to specify an amount in pounds and convert it into shares.
- Double-check the price – Share prices are constantly fluctuating, so make sure that the shares you’ve selected are still trading at the same cost.
If you decide to turn to a traditional full-service broker that will be responsible for buying your shares, there are certain things you need to discuss with them. For inexperienced investors that are asking themselves ‘How do I buy shares?’, choosing a full-service broker is usually more convenient since all you need to do is have a meeting.
Brokers will usually ask you to state your investment goals and the level of risk you are willing to undertake. Other things you’ll be asked to specify are the types of accounts you want, how often you plan on trading, the size of your existing portfolio (if you have one), and any other services you may need.
Although this is often considered to be the best way to buy shares, it comes at a cost – brokers charge fees that are either based on the size of the portfolio or impose a regular admin charge paid on a monthly or quarterly basis. Additional fees may be charged for trading with non-UK shares and for converting money to-and-from sterling.
|DID YOU KNOW? When you purchase UK shares, you are obliged to pay the stamp duty – 0.5% on all share purchases and an additional £1 on all transactions that are above £10,000.|
|Shares are the smallest units of company stock and represent part-ownership of a company.|
|Shareholders can earn a profit in two ways – via dividends or by the price appreciation.|
|When buying shares you should consult a broker – you can choose between an online or a full-service broker.|
|Shares can be bought on stock exchanges, share dealing platforms, or through mobile apps.|
|You need to be 18 years old to legally buy and own shares, although minors can acquire shares with parental consent.|
Where to Buy Shares
Once you’ve understood the process of buying shares, you need to decide where you’re going to buy your shares. Luckily for you, there are several options you can choose from; we’ve listed all the most popular locations where you can buy shares. If you want to know how to buy shares in the UK, don’t skip this part of our article!
- The London Stock Exchange (LSE) – The primary share-trading place in the UK. Here, you can choose from a wide range of companies, including some of the most profitable on the UK market.
- The Alternative Investment Market (AIM) – You can buy shares in smaller companies that are still in the development stages. Although this might be riskier than buying shares in an established company, it could also be profitable if the business you’ve invested in grows significantly.
- Share dealing platforms – If you’re wondering how do you buy shares without frequenting a stock market, the answer is from a share dealing platform. This is an online stock exchange that lists many companies you can choose from. On these platforms, you can buy and sell shares on your own, without the help of a professional broker.
- Robo-advisors – Don’t be intimidated by the name! These are just mobile apps that allow you to buy and sell shares in a simple way. All you need to buy stocks is to install the app on your mobile device; they help you learn how to buy shares online without a broker!
|DID YOU KNOW? In Somalia, there is a pirate stock exchange. On this exchange, people can publicly invest in pirate gangs and their activities.|
How Old Do You Have to Be to Buy Shares?
To open a brokerage account in your name, you need to be at least 18 years old. At the age of 18, you are legally an adult and can make your own financial decisions, including entering into binding financial contracts. However, if you’re interested in investments from a young age, don’t despair: there’s always a way to invest.
How to Buy Stocks and Shares if You’re Under 18
Minors (anyone under the age of 18) that want to buy shares in a company need to open a custodial account if they want to partake in share trading. A custodial account is a joint account between the minor and at least one of their legal guardians. Minors are not allowed to buy or sell any shares without approval from their joint account holder, but as soon as they turn 18, they assume complete control of their brokerage account.
How to Buy Stocks in the UK in Your Child’s Name
If you want to invest in your child’s name and ensure financial stability for their future, you can start a Junior Stocks and Shares ISA (Individual Savings Account).
The money you put into this account can be invested in stocks, shares, bonds, or mutual funds. The biggest advantage of these accounts is that any returns on the investments are not subjected to taxation, resulting in larger profits. Another important feature of these accounts is that no one, not even you, can access the funds in the account, so the child will receive everything upon their 18th birthday.
|DID YOU KNOW? If you’re wondering how to get into stocks and shares, one of the most important things you need to know is the lingo – a market with falling stock prices is a bear market, and a market with rising prices is a bull market.|
Shares vs Stocks: Are They the Same Thing?
Stocks and shares are two financial terms that are often confused and used synonymously, when in fact they are not the same thing. Before you invest, you need to learn to differentiate between the two, so we’re going to break down what are stocks and shares.
- Stocks – These are securities that represent partial ownership of a corporation. When corporations are selling stocks, they are selling a significant portion of the company.
- Shares – A share is a single unit of a company’s stock, and it’s often referred to as equity stock. If you acquire one share in a company, that signifies that you’re the owner of a single unit of that company.
|DID YOU KNOW? The first modern stock market was conceived in Amsterdam in the 1600s, and the Dutch East India Company was the first-ever publicly-traded company. The result of this was the establishment of the official Amsterdam stock exchange in 1611.|
Once you understand how to buy shares in a company, you’ll see that this isn’t an overly complicated process; anyone can engage in share trading. You can get help from a traditional broker or online brokerage and easily buy shares in your favourite company. Good luck!
If you want to know how to buy shares in the UK, keep in mind that you need to open an account with a licenced broker (either online or the old-fashioned way), choose a company, and buy a specified number of shares.
Although it is possible to buy shares without the help of a broker, this is not advisable unless you’re an experienced investor. If you’re a first-time investor, the best course of action is to consult a broker before making any purchases.
In case you’re still ruminating on how to buy shares, you should remember that there are share trading apps you can use. Some of the best apps for trading with shares in the UK are eToro, Pepperstone, Plus500, and Interactive Brokers.