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How to Buy and Invest in Shares in the UK

Are you looking to Buy and Invest in Shares in the UK? Start by reading out in-depth guide on how to go about it.
Kane Pepi
Author: Kane Pepi
Last Updated: February 7, 2020
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Buy shares

Have a bit of spare cash that you’re looking to invest in the financial markets? If so, you might be wondering how to buy and invest in shares in the UK. The good news for you is that the process is now super easy. No longer do you need to contact a traditional stockbroker via the telephone and fill out countless documents.

On the contrary, you can now buy, trade, and sell shares at the click of a button via your desktop or mobile device. Moreover, some online brokers even allow you to purchase shares on a fee-free basis. In a time not so long ago, this would have been unthinkable.

As such, we would suggest reading our in-depth guide on How to Buy and Invest in Shares in the UK. Within it, we’ll show you what you need to do to get your stock portfolio set up today. We’ll also show you what you need to look out for in a broker, as well as how to navigate your way through the Wild West of investment-related jargon.

 

Table of Contents

     

    Note: Although the stock markets have a historical track-record of making long-term gains, there is never any guarantee that you will make any money. As such, ensure that you have a firm grasp of the risks of investing prior to parting with your cash.

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    How to Buy Shares Online: Beginner-Friendly Tutorial

    If you’re still a newbie in the world stocks and shares, knowing how to get started can be challenging. Fortunately for you, we’ve detailed a super-simple step-by-step guide for you follow. Although we’ve decided to show you the process with fee-free platform eToro, the guidelines remain largely the same regardless of which broker you go with. With that said, we’ll give you a full break down of what you need to look out for when choosing a stockbroker later in our guide.

    Step 1: Open an Account With an Online Stockbroker

    First and foremost, in order to buy shares online you will need to open an account with a stockbroker. These are platforms that allow you to buy and sell shares at the click of a button. In some cases, you’ll pay a small fee or commission to the broker for facilitating the trade. However, by opting for a fee-free platform like eToro, you won’t pay any fees at all.

    In order to open an account, you’ll need to provide some personal information. This will include the following:

    • Full Legal Name
    • Home Address
    • Date of Birth
    • Nationality
    • National Insurance Number
    • Telephone Number
    • Email Address

    Step 2: Verify Your Identity

    You’ll be using an established broker that is regulated by the Financial Conduct Authority (FCA), meaning that the platform will need to comply with all relevant UK laws on anti-money laundering. This means that you will need to pass a basic KYC (Know Your Customer) process in order to verify your identity.

    Although some brokers might allow you to make a deposit prior to verifying your identity, you won’t be able to make a withdrawal until this is done. As such, it’s best to get it out of the way before going any further.

    Here’s what you need to do.

    1. Take a photo of your government-issued ID from your mobile phone
    2. This can either be your passport or driver’s license
    3. Upload the photo to your email account
    4. Forward the email to your stockbroker

    Alternatively, new-age stock platforms like eToro allow you to take a photo of your ID via your webcam.

    Step 3: Deposit Funds

    Once you have opened an account and verified your identity, you are then ready to buy some shares. But first, you’ll need to fund your account. In the vast majority of cases, online stockbrokers will give you a number of payment methods to choose from.

    Below we have listed some of the main payment methods that online share dealing platforms support.

    ? Bank Account Transfer

    ? Debit Card

    ? e-Wallets like PayPal & Skrill

    If you’re looking to deposit funds instantly, then you are best off using a traditional debit card.

    Step 4: Choose Which Shares you Want to buy

    Now that you have funded your account, you can head over to the share dealing department of your chosen stockbroker. Platforms typically allow you to choose from thousands of individual shares across multiple markets. At a minimum, this should include companies that are listed on the London Stock Exchange, New York Stock Exchange, and NASDAQ.

    If you have a particular company in mind, you will be able to search for it manually.

    Note: If you’re unsure which companies to invest in, it might be worth considering a stock market index. This is where you invest in the wider stock markets through a single trade. For example, if you invested in the FTSE 100, you would be purchasing shares in the 100 largest companies listed on the London Stock Exchange.

    Step 5: Complete Your Purchase

    If you’ve chosen the company that you wish to invest in, you are now ready to complete your purchase. First and foremost, you will need to decide how much you want to invest. The good news for you is that you are no longer required to purchase whole shares. Instead, you can buy as much or as little as you like, as stockbrokers can split your investment with other members of the site.

    For example, let’s say that you want to purchase shares in Apple. At the time of writing, one share would cost you $298 (£227). However, what if you only wanted to invest £100? If using a new-age share dealing platform, you can do exactly that. As such, simply enter the exact amount that you wish to invest in your chosen company.

    Next, you then need to decide what your entry point is. You’ll have two options – a market order or a limit order.

    • Market Order: The easiest way to purchase your chosen shares is to opt for a market order. This is where you instruct the stockbroker to purchase your shares at the next available price.
    • Limit Order: If you opt for a limit order, this means that you get to choose the share price that you wish to make a purchase. For example, if Apple shares are at $298, but you want to purchase them at a slight discount, you can set your limit order at $290. You would then need to wait for the order to be filled by the market.

    Best 3 Share Dealing Platforms in the UK

    So now that you know how to buy and invest in shares, you now need to make some considerations on your chosen platform. We will discuss some of the main factors that you need to look out for in a broker further down in our guide. However, we are now going to list our top three UK picks for 2020 and beyond.

    Note:  It is important that you still perform your own due diligence on your chosen broker prior to depositing funds. Even if you like the sound of one of our recommendations, the broker in question might not necessarily be right your individual needs.
    1. eToro – Best Share Dealing Platform for Beginners

    eToro makes our number one list for a number of key reasons. First and foremost, the platform is super-easy to use, so it’s ideal if you’re just starting out in the world of stocks and shares.

    The platform allows you to buy and sell thousands of shares from heaps of financial markets. This includes the main markets in the UK and the US, as well as less popular exchanges in Sweden, Spain, and Australia. As such, you can diversify your portfolio with ease.

    eToro also stands out in the fees department. You won’t be charged anything to deposit funds, nor will you need to pay any fees or commission to buy shares. Instead, eToro makes its money from the spread. We also like the fact that eToro offers lots of payment methods. This includes a debit/credit card, e-wallets like PayPal and Skrill, and a UK bank transfer.

    Finally, eToro offers what is known as ‘Copy Trading’. This allows you to copy the portfolio of other traders like-for-like. For example, if you come across a successful stock trader that has made consistent profits all year, copy trading allows you to mirror their trades at an amount you feel comfortable with!

    Key Points:

    ? Supports multiple payment methods including e-wallets

    ? No trading fees other than the spread

    ? Fast registration and KYC process

    ? Thousands of shares to choose from

    ? Perfect for beginners

    2. DEGIRO – Best for Diversification and Low Fees

    DEGIRO is a Dutch-owned stockbroker platform that now has a huge presence in the UK investment space. The broker literally offers tens of thousands of stocks and shares, so the platform is great for diversifying.

    In fact, on top of mainstream exchanges found in the UK, US, and Europe, DEGIRO also gives you access to emerging markets. Although DEGIRO doesn’t offer fee-free trading like eToro, commissions are super low. The exact fee will depend on the market that you are trying to access.

    However, if buying shares in the UK, you shouldn’t pay more than a couple of pounds per trade. In order to get started at DEGIRO, you will be required to make a £1 deposit from your UK bank account. Once you do, you’ll be able to buy shares at the click of a button. DEGIRO also has an easy-to-use mobile department.

    This is useful if you have a tendency to buy and sell shares on the move. Finally, if you want to diversify outside of the shares space, DEGIRO offers heaps of other asset classes. This includes mutual funds, bonds, and indices.

    Key Points:

    ? Access to global stock exchanges

    ? One of the few UK platforms to offer corporate bonds

    ? Super-low trading fees

    ? Simple to deposit funds via a UK bank account

    ? Strong regulatory standing

    3. Interactive Brokers – Best for Advanced Traders Looking for Short-Term Gains

    Although most investors prefer to buy and hold shares long-term, this isn’t the only strategy utilized by traders. On the contrary, some traders like to buy and sell shares on a short-term basis with the view of netting small, but frequent gains.

    If this sounds like you, then we would suggest checking out the merits of Interactive Brokers. First and foremost, the platform charges a mere $0.05 (about 4p) per share. For example, if you bought 20 shares at £7 each, you would pay just 40p in fees. Interactive Brokers also has one of the most extensive trading platforms in the space.

    This gives you access to tens of thousands of shares, as well as other asset classes like mutual funds, metals, indices, and even forex. The platform has a good regulatory standing in the UK market, including that of an FCA license.

    Interactive Brokers is also a worthy choice for those of you that want access to state-of-the-art research tools. This includes in-depth stock analysis with suggestions on how to trade a particular company. Finally, if you want to take things to the next level, Interactive Brokers offers a fully-fledged trading platform that allows you to utilize technical indicators and other charting tools.

    Key Points:

    ? Heavily regulated in the UK and has a great reputation

    ? Tens of thousands of shares to choose from

    ? Buy and sell shares at super-low fees

    ? Other asset classes supported

    ? Excellent research tools

    How do I Make Money From a Shares Investment?

    So, you’ve successfully purchased shares from a UK broker. Now what? Well, the overarching aim is to make a long-term profit on your investment. You will be able to achieve this in two ways – capital gains and/or dividends. Let’s break down how each revenue stream works.

    Capital Gains

    Regardless of what company you invest in, you will want to make capital gains. In its most basic form, this means that the price of the shares goes up in value. As such, you’ll be hoping to sell your shares at a higher price than what you paid for them. In order to calculate your capital gains, you will need to work out the difference between the buy and sell price, and then multiply this by the number of shares you hold.

    Here’s an example of how to calculate your capital gains.

    1. You purchase shares in British American Tobacco, which is listed on the London Stock Exchange
    2. When you bought them in 2017, they were priced at £25 per share.
    3. You purchased 100 shares, which amounted to a total investment of £2,500.
    4. In 2020, the price of British Amount Tobacco shares is £40.
    5. This means that your profit per share is £15 (£40 – £25).
    6. As you hold 100 shares, we then need to multiply £15 by 100.
    7. This means that were you to sell your shares, you would make capital gains of £1,500.
    Note: There will always come a time when a shares investment goes against you. If it does, you would then need to calculate your losses. Simply follow the above instructions but in reverse.

    Dividends

    The second way that you can make money when investing in shares is through dividends. For those unaware, dividends allow companies to distribute some of its profits to shareholders. If the company does pay dividends, and you hold at least one share, you will have a legal right to a dividend payment.

    Not all companies pay dividends. Some well-known examples of non-dividend-paying companies includes Facebook, Alphabet, and Monster Beverage. Dividends are typically paid on a quarterly basis, meaning that you’ll receive a payment every 3 months. The exact amount is determined by the board of the company, and it can vary depending on how successful the business is at the time of the dividend announcement.

    Here’s an example of how a dividend payment works.

    1. You hold shares in Microsoft, which is a dividend-paying company
    2. Dividends are paid once every 3 months
    3. Microsoft announces strong quarterly sales, so it decides to pay a dividend of $0.51 per share
    4. This amounts to an annualized yield of 1.4% of the company’s total value
    5. As you hold 100 shares, you will be entitled to $0.51 x 100
    6. This means that you’ll receive $51 in dividends
    7. Once Microsoft distributes the dividends, they will be paid into your stockbroker account
    Note: Even if a company has historically paid dividends to its shareholders, there is never any guarantee that it will continue to do so each quarter. This is especially true if the company is experiencing cash flow problems, or it needs its cash reserves to fund an investment opportunity.

    How Long Should I Hold on to Shares?

    There is no one-size-fits-all answer to this question, not least because no two investments are the same. The general rule of thumb is that you should hold on to shares for at least 5 years. This will allow you to ride out the ups and downs of the stock markets. However, you should never hold on to shares indefinitely with the assumption that the price will ‘eventually recover’. There are plenty of examples where this hasn’t been the case.

    Let’s take MoneyGram as a case in point. Had you purchased 100 shares in 2007 at $240 per share, you would have invested a total of $24,000 (about £18,000). Fast forward to 2020 and the very same shares are worth $2.20. This means that your 100 shares are now worth $220. As such, although you paid £18,000 13 years ago, the shares are now worth just £167! Will MoneyGram shares ever recover to its previous highs? Probably not.

    How do I Reduce the Risks of Buying Shares?

    Regardless of what asset class you decide to invest in, installing a sensible risk mitigation plan is crucial. In the investment space this is known as ‘diversification’. The importance of diversification should not be understated, as this will ensure that you are never over-exposed to a single company. If you were, and the company subsequently went out of business, you could lose your entire investment.

    What is Diversification?

    In its most basic form, diversification simply means to hold a portfolio with multiple companies. Moreover, your portfolio should consist of companies that operate in multiple industries. In doing so, you will reduce the risks of holding too many shares in a single industry.

    • For example, let’s say that 80% of your portfolio consisted of tech shares. This would include the likes of Apple, Facebook, IBM, Netflix, and Amazon. If the tech industry went through a prolonged period of decline, 80% of your portfolio would be heavily affected.
    • A shrewd investor would never hold 80% of their portfolio in a single industry. Instead, they might distribute their holdings into 10 or more industries. This could include companies operating in the finance, agriculture, entertainment, travel, telecommunication, tobacco, retail, and automobile sectors.
    • Moreover, a shrewd investor would not only hold shares in multiple industries, but they would have heaps of companies within each field. For example, you could buy shares in 10 companies for each industry.

    Diversifying With a Single Trade

    Although the above example illustrates how a shrewd investor might seek to diversify their holdings, manually purchasing hundreds of companies would not only be a logistical nightmare, but it would likely cost you an arm and a leg. This is especially true if you are using a stockbroker platform that charges fees on a share-by-share basis. The good news for you is that there is a way to diversify across hundreds of companies by placing just a single trade – investing in a stock market index.

    As we briefly noted earlier in our guide, an index allows you to invest in the wider stock markets, as opposed to purchasing individual shares. Each index tracks a particular stock market, such as the London Stock Exchange or NASDAQ.

    Below we have listed some of the most popular indexes currently active in the stock markets.

    • FTSE 100

    If you want access to the wider London Stock Exchange, then it might be worth considering the FTSE 100. This is an index that tracks the prices of the 100 largest companies publically listed in the UK. The index will be weighted to ensure that your investment is diversified as best as possible. This means that the FTSE will have a single price attached to it, which will go up and down just like an individual share.

    • NASDAQ 100

    The NASDAQ 100 tracks the 100 largest companies traded on the NASDAQ. This particular index is dominated by big tech firms like Apple, Amazon, and Facebook.

    • Dow Jones

    The Dow Jones is arguably the most famous stock market index in the world. “The Dow closed 100 points up today” is something that we have all likely heard at some point. But what exactly is the Dow Jones? Well, the Dow is an index that consists of 30 listed US companies. These are not necessarily the largest companies in the world, but they will have a major influence on the wider US economy.

    • S&P 500

    The S&P 500 is one of the easiest ways to diversify your share dealing portfolio. This particular index tracks the largest 500 companies listed in the US. The index covers firms from both the New York Stock Exchange and NASDAQ.

    How to Choose a Platform to Buy and Invest in Shares?

    Although we have listed our top three UK stockbroker picks of 2020 and beyond, it is crucial that you find an exchange that best meets your needs. With hundreds, if not thousands of online brokers now operating in the space, knowing which platform to go with can be challenging.

    However, by reading through the guidelines below, you’ll be able to ensure that the platform is right for you prior to signing up.

    • Regulatory – Is it FCA Regulated?

    First and foremost, you should only join an online stockbroker that is regulated by the FCA. If it isn’t, then the platform is operating illegally.

    You can check the FCA register to ensure that your chosen platform is regulated.

    • Deposits and Withdrawals

    You need to explore what payment methods the share dealing platform supports. In an ideal world, the platform will allow you to choose from a debit/credit card, bank transfer, or e-wallet. You also need to assess whether the broker charges any deposit/withdrawal fees, and whether or not any account minimums are in place.

    • Fees

    You must assess the fee structure employed by your chosen stockbroker. This will either come as a flat-fee for each trade that you make, or a percentage of the total investment amount. Some UK brokers allow you to trade on a commission-free basis, meaning you’ll only pay a fee indirectly via the spread.

    • Tradeable Shares

    Once you’ve covered the fundamentals, you then need to see what shares the platform actually lists. The best share dealing platforms will list thousands of stocks across heaps of markets. At the very least, this should include popular stock markets like the London Stock Exchange, NASDAQ, and the New York Stock Exchange.

    • Customer Support

    Don’t forget about customer support, as there might come a time where you need assistance. We prefer brokers that offer a 24/7 customer support service, although this won’t always be the case. Crucially, the best platforms will offer support via multiple channels, such as live chat, email, and telephone.

    • User-Friendliness

    Finally, if you’re still a newbie in the share dealing space, you’ll want to stick with brokers that cater to beginners. As such, your chosen platform should make it a seamless process to buy and sell shares, as well as deposit and withdraw funds.

    Conclusion

    If you’ve read our guide on How to Buy and Invest in Shares in the UK, you should now have a really good idea of how the space works. Notably, not only should you now know how to buy shares, but you should also have the required tools to choose a stockbroker that meets your needs.

    We have also explained the different ways in which your shares can make you money, as well as how to best diversify your investments. Ultimately, while the stocks and shares industry is an excellent way to grow your money long-term, you still need to ensure that you have a firm grasp of the underlying risks before parting with your money.

    FAQs

    What is the difference between stocks and shares?

    Although the two terms are often used interchangeably, they actually refer to two different things. While 'stocks' refers to the actual asset, 'shares' determines how much of the stock you own.

    Can I buy US shares if I am based in the UK?

    You certainly can. The New York Stock Exchange and NASDAQ are the two largest markets in the world, so it makes sense that UK brokers provide seamless access.

    Do UK stockbrokers need a license?

    If an online stockbroker wishes to facilitate trades for UK investors, it will need to be regulated by the FCA. You can check the regulatory standing of a broker by visiting the FCA's website.

    Will I need to provide ID when I join a UK share dealing site?

    All stockbroker sites will need to verify your identity as per FCA regulations. This means that you will need to provide a copy of your passport or driver's license.

    What is the minimum amount that I need to buy shares?

    This will depend on the share dealing platform in question. While some platforms allow you to get started with just £10, others will ask for more.

    Do I have to buy an entire share?

    New-age investment platforms based in the UK now allow you to purchase partial shares. For example, even if a share costs £90, you can buy just £30 worth. The remaining balance will be sold to another investor on the site.

    Can I go short on a company?

    The only way that you can go short on a company is to purchase a CFD (Contract-for-Difference).

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    Kane Pepi

    Kane holds academic qualifications in the finance and financial investigation fields. With a passion for all-things finance, he currently writes for a number of online publications.