Investing in the stock market is often considered risky and complicated. Though there are elements of truth to this, it’s also true that investing in the stock market can be one of the best wealth-building strategies available, even for those with little money.
Thus, before investing, it is very important for investors to understand how to buy shares to avoid any hiccups later.
This guide will explain exactly how to buy shares in the UK in a series of simple steps. We will also explore a variety of different brokers and strategies, in addition to critical information such as fees and legalities.
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The buying and selling of shares may seem a daunting task, but in reality, it takes less than a minute to trade shares if you have a brokerage account and know which stocks to invest in. Below is a step-by-step guide to how to buy shares UK.
1. Decide if buying shares is right for you
Even before you start buying shares, it is important to determine whether investing in shares aligns with your financial goals. Several key methods are available, including investing in shares, bonds, funds, and investment trusts.
All these investment methods work differently and have varying risk levels to cater to different types of investors. Thus, it is important for you to determine the risk level you are comfortable with and your short—and long-term financial goals.
This, in turn, will help you to decide on investment methods, including the types of shares to buy.
2. Open a share trading account
This is the first significant step, and arguably the most difficult. Several share brokers are available in the UK, such as eToro, XTB, Avatrade, and more, but choosing one is a daunting task. It is crucial that you carry out thorough research of the best UK stock brokers, and choose the one that best meets your requirements.
Most brokers offer more or less the same service, but may charge different fees. When selecting a broker, it is important that you take into account your portfolio, the investments you plan to make, your trading frequency, and the service you require.
Once you have selected a broker, opening a share trading account is an easy task. All account opening processes include know-your-customer (KYC) verifications, but this shouldn’t take more than 10 minutes. Applicants will have to provide basic details, including bank account information, identity, and more.
3. Add funds to the account
Once you have opened a brokerage account, you will have to transfer funds to that account to start trading. You can easily transfer funds through your debit card or electronic bank transfer.
To deposit funds into your brokerage account, you first need to log in and then select ‘deposit funds’. Next, select the deposit method, such as debit card or bank transfer, and enter the amount you want to deposit.
You generally require enough money to buy at least one share, but some brokers allow users to buy fractional shares. The fractional share feature becomes important if you want to invest in UK companies with high share prices. Some brokers also have a minimum deposit requirement, usually ranging from around £50 to £100.
4. Decide which shares you want to buy
If you haven’t already decided on the stocks you want to buy, now is the time to do it. It is recommended that you carry out thorough research to decide on the stock or stocks you wish to buy.
If you don’t have time or don’t want to spend time in research, you can make use of copy trading features that some brokers now offer. Such a feature allows you to copy the trades of successful traders, thus saving you the daunting task of manually selecting your own.
If you don’t want to invest in individual stocks, you can also invest indirectly into stocks through professionally managed investment funds.
5. Decide how many shares you want to buy
Once you have decided which shares to buy, you face the next question – how many shares should you buy? How many shares you buy should depends on the amount of money you have and the share price of the company you want to invest in.
Your broker will show you two prices—’bid’ (the price to be paid when buying shares) and ‘offer’ (also called ‘ask’; the price you receive when selling shares). The difference between the two prices is the bid-offer (or bid-ask) spread, which is the earnings of market makers for their work in completing each transaction.
Market makers sell shares when you want to buy, and they also buy shares when you sell them. Your broker works as the middleman between you and a market maker.
Now, if you are happy with the quoted price, you need to enter the number of shares you wish to buy. Brokers generally allow users to enter a pound value, and then calculate how many shares that value will buy.
If you don’t get an option, you simply need to divide your fund amount by the share price to get the share count.
To decide how many shares of each company you want to buy, you need to consider your risk tolerance and financial goals. It is also recommended that you don’t invest all your funds. Instead, you should keep aside some idle cash to take advantage of future buying opportunities.
6. Select order type
To buy or sell shares, you need to select the order type. There are usually four types of order to choose from:
- At Best: The broker will execute the buy or sell at the best available price.
- Buy-Limit: Under this order type, the broker will execute a buy trade only if the share price drops below a specified price. Such orders, however, attract higher trading fees and have an expiry date.
- Sell-Limit: Similar to buy-limit, a sell-limit order means the broker will execute a sell trade only if the share price goes above the specified price.
- Stop-Loss: In this order type, the broker executes a sell order if the share price drops below a set price. Stop-loss works as an effective risk management tool that helps in minimizing losses.
7. Review your order
Now that you have selected the order, you are all set to execute your first trade. However, before you hit the buy button, it is very important that you review your order to ensure there are no mistakes.
Once you have filled in all order details, your broker will show the summary of the transaction for confirmation. The summary will include the stock (or stocks you selected), the amount you want to invest, commission, and other applicable charges, such as currency conversion fees, order type charges, and more.
You must carefully review the details to ensure the trade meets your expectations.
8. Place your order
After you have verified and confirmed the details, you are now finally a click away from placing your first trade. Your broker will now show the final quote, valid for a few seconds. This final quote could differ from the preview as stock prices constantly change.
Don’t panic even if the timer for the final quote runs out. It is more important that you are comfortable with the trade, including the price. Now, if you are satisfied with all the details, you just need to hit the accept button, and that’s it – you are an investor now.
If you are unsure if the order has been placed, you can check the completed and pending transactions page for more information.
9. Monitor your portfolio
You now know how to buy shares UK, but this isn’t the end of the process. In fact, the more difficult part starts now. It is very important that you regularly monitor your portfolio to ensure the performance is in line with your financial goals.
You can use the broker tools to review the performance of your portfolio in real-time. If you believe any corrections are needed you can do so, either by selling some shares, or buying more shares, or both. The process of selling the shares is similar to buying.
It must be noted that if a stock pays any dividend, it will usually show as cash in your portfolio or get automatically reinvested.
| Broker | No. of Stocks | Trading commission | Inactivity fee | Minimum Deposit | Fractional Shares |
| eToro | 3,000+ | 0% | Approx £8 per month (after 12 months of inactivity) | £10 | Yes |
| XTB | 2,000+ | 0% | £10 per month (after 12 months of inactivity) | £0 | Yes |
| Avatrade | 600+ | 0% | £50 after three months of inactivity – £100 after one year | £100 | Yes |
| Trade Nation | 1,000+ | 0% | No | £0 | Yes |
| Pepperstone | 1,200+ | Variable (0.7% average) | No | £0 | No |
Individual stocks vs. investment funds
You can invest in UK shares either directly or indirectly. Directly means buying individual stocks, while indirectly means via funds. Let’s understand the two methods in detail.
Individual stocks
When you buy shares of any company, you directly invest in it. Buying individual UK stocks may appear easier, but this is often not the case, and it’s riskier as well. To buy individual stocks, you need to do a lot of research to pick the stock with upside potential.
Thus, this method of investing is better suited for experienced investors who know how to pick stocks and are confident in their research. Moreover, buying individual stocks is riskier even for experienced investors if they limit their investments to a few stocks.
Diversification is the key to reducing risk, and this is where investing via funds holds an advantage.
Pros and cons of investing in individual stocks
Pros
- Potential for higher return
- Get voting right in the company’s decision-making process
- Certain stocks may offer dividends, which serve as additional income
Cons
- It is riskier as volatility in the market can greatly impact individual stocks
- You must have in-depth market knowledge and must also be prepared to invest a lot of time
- Each time you buy or sell shares, you have to pay trading fees, and this reduces your total return
Investment funds
Investing via a fund means investing in a professionally managed investment fund. An investment fund pools money from multiple investors to buy a package, which include shares of different companies and often other assets, such as bonds. There are funds that target different industries, such as banking, or different categories, such as mid-cap and low-cap companies.
Investment funds have the potential to offer higher returns than individual stocks and are less riskier as well. There are several types of funds to choose from, including ETFs (Exchange-traded funds), investment trusts, and more.
Pros and cons of investing in funds
Pros
- Funds are professionally managed
- Are less riskier as funds invest in a portfolio of assets
- Some funds can offer tax benefits
Cons:
- Investors don’t have control over the assets in the portfolio
- Investing via funds come with different types of costs, including expense ratio, exit load, etc.
Stocks and shares are terms that describe part ownership in a public company. The owner of a stock or share is called a shareholder, who receives dividends and voting rights on company matters.
Though the terms stocks and shares are often used interchangeably,, there is a slight difference between them. Stock is usually used to denote part ownership in multiple companies. For example, Sam owns stock in Google and Apple.
The term share, on the other hand, is usually used to denote the number of ownership units in a specific company. For example, Sam owns ten Google shares.
What fees are involved in stock trading?
All investments carry charges, and investing in UK shares is no different. As an investor, it is very important for you to be aware of all costs involved in calculating your potential profit from share investments.
Bid-Offer Spread
The first cost you need to know about is the ‘bid-offer spread.’ A bid is the price that a buyer will have to pay for a share, while an offer or ask is the price a seller will get by selling the same stock.
It must be noted that there is always a gap (spread) between the two prices. The spread is likely to be less for shares that are traded frequently.
Broker Commission
Your broker’s commission is another cost that you need to factor in before executing a transaction. The commission could be a percentage of the transaction or a flat rate.
Stamp Duty
Stamp Duty is applicable only at the time of buying of shares, and it is 0.5% on the transaction. Visit the UK government’s information page on taxes to learn more about stamp duty when buying shares.
Your broker may also charge platform fees (annual fees charged for holding the shares and funds in an account), inactivity fees (for not using your account), telephone fees (if trading via phone), withdrawal fees (for withdrawing money from the platform), and a foreign exchange fee (for buying and selling foreign shares).
What are the risks of investing in stocks?
Investing in a stock market is a risky affair. Some shares are more risky than others, but irrespective of the share you buy, investing in stocks will always carry some degree of the following risks:
Investment risk
Investment risk refers to fluctuation in the price of the underlying asset. You could incur a loss on your investment if the asset price goes down. Each stock has some degree of investment risk.
Market risk
Market risk is not specific to stocks, but rather affects the entire market. For instance, interest rate changes, political situations, and natural disasters can affect the entire market.
Liquidity risk
Liquidity risk arises when there is a low demand for the asset you have. If you want to sell your asset, but the demand for that asset is low, you may not be able to sell it or get less than the expected price for that asset.
Currency risk
Currency risk comes into play when you trade foreign shares. Though your broker charges you a currency conversion, this fee may vary depending on the change in the currency’s value.
eToro is a multi-asset investment platform. The value of your investments may go up or down.
Zero commission means that no broker fee will be charged when opening or closing the position and does not apply to short or leveraged positions. Other fees apply including FX fees on non-USD deposits and withdrawals. Your capital is at risk.
Copy Trading does not amount to investment advice. Your investments value may go up or down. Your capital is at risk.
Conclusion
You now know the basics of buying UK shares. However, it is important to remember that investing in stocks and shares does not guarantee returns.
Though investing in the stock market offers several benefits, such as share price appreciation or dividends, it is not without risk, as share prices can go down as well as up. Investors, however, can reduce their risk by building a well-diversified investment portfolio.
Make a habit of investing in quality stocks and staying invested for the long term. It is also recommended that you keep records of all your dealings as this will come in handy when filing your annual tax return.
