Looking to buy shares but unsure where to start? My definitive guide will walk you through everything you need to know including understanding what a share is, ways of owning a share, time frames, and where to buy and sell UK shares.
Also consider: Best stocks and shares to buy now
- Open an account with an online trading platform. Please refer to my top picks below to identify the best trading platform for your needs.
- Fund your trading account. Never invest more than you can afford to lose.
- Select the UK shares you wish to buy. Remember it is important to remain diversified and investing in exchange traded funds is a quick and easy way to achieve this.
- Complete your trade. You will now own the shares you have selected in your trading account.
- Sit back and relax. It is now important to practice patience and resist making any emotional decisions about whether to hold or sell your shares.
- Suitable for both experienced investors and newcomers.
- £25 Welcome Bonus when you invest £100 (T&Cs apply)
- A great investment app with themed portfolios
Bonus will be paid after an initial investment of at least £100 in a single portfolio. With investment, your capital is at risk. This could mean the value of your investments goes down as well as up.
- Get a free share worth between £3-£200
- Commission-free investing
- Stock universe of 6,000 stocks and ETFs
When you invest your capital is at risk, the value of your investments can go down as well as up and you may get back less than what you invest. *Other charges apply. Free share terms and conditions apply. The probability is weighted, so more expensive free shares will be rarer.
- Buy and sell shares at £11.95 per deal online, reducing to just £5.95
- Hargreaves Lansdown is a FTSE 100 company, trusted by over 1.5 million clients
As with any investment the value can go down as well as up. Past performance is no indicator of future performance. The tax treatment of ISAs depends on your individual circumstances and may be subject to change in the future.
In its simplest form, a share is a unit of value in a specific company or entity. The company will undergo a valuation which will help determine the value of its shares when it lists on the relevant stock exchange. If for example a company is valued at £100 million and there are 100 million shares available, each share will be worth £1.
Shares increase and decrease in value, however, investors like yourself, will purchase a share in the hope that the continued success of the company will drive the value of the share up so they can make a profit when they sell the share.
Happily buying shares has now become accessible to everyone with the emergence of online share dealing platforms. These online platforms list the shares of companies that are listed on a stock exchange. The main exchange in the UK is called the London Stock Exchange, and here you will find shares in all the major companies and household names. There is also the Alternative Investment Market or AIM, where shares can be found from small developing countries. Remember, in order to buy shares in any company, they must first be listed on a stock exchange.
Selecting which shares to buy is a more complex process and requires some in-depth knowledge of the companies you are considering and their current financials. Many share dealing platforms offer access to research on the companies they have listed to help you make informed decisions. Always remember that past performance is no guarantee of future results.
Share dealing platforms are the cheapest way to buy shares, however, there are still associated costs with buying and selling shares and you should be aware of these before you proceed. More often than not, there is a trading fee which you are charged each time you make a transaction, however, there are a few platforms that offer commission-free trading so you can buy and sell shares for free.
Are all companies listed on a stock exchange?
No. In order for a company to be listed on a stock exchange, it must first have gone through an Initial Public Offering or IPO. This is the process by which a company first offers to sell its shares to the general public and institutional investors. At this point the company has yet to list its shares on the stock market, however, they can be purchased through certain providers and will often be available at a discounted price. The hope for investors is that shares purchased during an IPO will increase in value on their first day of trading, however, this is a very risky strategy and the value of shares can in fact decrease once listed.
During the IPO you will be purchasing shares directly from the company in question before retail investors have the opportunity to buy and sell shares among themselves. Once the IPO is completed, the company’s shares will be listed on the stock market and will be available to buy and sell.
Find out more about how to trade IPOs in our Guide to Trading IPOs in the UK.
There are two main ways of owning a share which include:
- Owning the share as an individual
- Combining your investment money with other individuals in order to invest as a group and therefore reduce the associated risks of the investment. This is known as a fund.
What are the advantages of investing in a fund?
Investing in a fund is the most popular way to invest for many investors as the collective pooling of money enables investors to own shares in more companies and therefore reduce the risks associated with owning shares in just one company. This is because should the company you are invested in get into any sort of difficulty, you could end up losing all your capital. Conversely, owning shares in lots of companies will ensure that should one company lose ground, the other companies can help soften the blow to your portfolio. Investing in a fund also offers the following advantages:
Professional Portfolio Management
A fund will usually come with an annual management fee which you will need to factor into your costs. This management fee covers the cost for a professional manager to buy and sell shares on your behalf and continuously make adjustments in line with fluctuations in the marketplace.
Any dividends earned by the funds can be used by your fund manager to purchase additional shares in order to help the fund grow.
Your fund manager will ensure that you are properly diversified in order to ensure your risk is as mitigated as possible whilst also ensuring the best possible returns. Many funds will own in the region of 1,000 or more individual stocks across a varying range of securities.
How long should you invest for?
The value of shares can fluctuate up and down which can result in investors engaging in panicked decision making. It’s difficult to watch the value of your shares fall while you do nothing and many people will take action and sell their shares as they fall.
However, once you have sold a share that is falling in value, you have essentially locked in that loss. The main thing to remember about shares is that they will fluctuate in value, going up and down over short periods of time. However, over the long run, shares will usually go up. Therefore a trader should seek to avoid market sentiment and refrain from selling all their shares as soon as they drop in price.
Holding investments over the long term is by far the best way to mitigate risk and gives you time to ride out any bumps in the marketplace. Therefore, professionals will always recommend that you plan to hold your investments for at least five years before you attempt to sell them. This also provides scope for your investments to compound and grow, earning you better returns.
If you aren’t thinking about owning a stock for 10 years, don’t even think about owning it for 10 minutes.
We have already covered the importance of diversifying your portfolio in order to mitigate your risk. Diversifying your portfolio is done by buying different stocks, from different sectors and different geographies, so a crash in one area of the stock market needn’t be a catastrophe for your entire portfolio.
So what’s the magic number? The real answer is that it isn’t as straightforward as that. Reliable blue-chip companies will present much less risk to your portfolio and therefore you won’t need as many shares as you would if you were buying much riskier start-up shares.
It is of course possible to over-diversify, at which point it can become impossible to keep track of all your shares and you will risk spreading yourself too thin. Always remember that you will need to keep abreast of all news on any company that you own shares in order to anticipate changes to the market.
What sort of account should you invest into?
Your first £20,000 should always be invested into a Stocks and Shares ISA in order to avoid any capital gains tax on the returns you make from your investments. Stocks and Shares ISAs are offered by a majority of investment platforms, however, there are usually associated costs and it’s worth taking the time to identify the best Stocks and Shares ISA for your unique circumstances.
For more information on Stocks and Shares ISA as well as our best-in-class recommendations, please refer to our Best Stocks and Shares ISA guide.
The annual limit for depositing into a stocks and shares ISA is currently £20,000, so anything over and beyond that will need to go into a General Investment Account or GIA, otherwise known as a share dealing account. Most online trading platforms will also provide a GIA for this reason, and it stands to reason that you would be best served having both accounts with the same provider.
There are two main sources of revenue that can be made from buying shares. The first of these is when you buy a share which then goes up in value. Once you have sold that share, you have locked in your profit.
The other way to make money from shares is when buying the best stocks paying dividends. Dividends occur when a company makes a profit and pays some of that profit to its shareholders. Some pay dividends on a regular basis and other companies will make one-off payments. The good news for dividends is that the first £2,000 you receive comes under your dividends annual allowance and is completely tax-free. Anything beyond that will be charged tax which is calculated according to your tax bracket – 7.5% for basic-rate taxpayers, 32.5% for higher-rate taxpayers and 38.1% for additional-rate taxpayers.
The cost of share dealing on a trading platform can vary significantly, and even small adjustments can really eat into your potential gains so it’s important you are aware of all associated costs before you start investing in shares. The costs to check are as follows:
Platform fee: This can be charged at a monthly, quarterly or annual rate. Some platforms will waive this fee entirely
Cost per trade: This is the fee you will pay every time you buy or sell shares. This can be as high as £11.95 for some platforms whilst other platforms will offer zero-commission trading.
Frequent trader: This is a reduced fee for traders who make over a certain number of trades in a given time frame.
Annual custody fee: This is the charge for managing your investments and can either be a flat fee (great for large investment pots) or a percentage of your total investments (which is a better option for small investment pots). Again, it is worth looking for providers who have waived the custody fee entirely.
Phone dealing fee: This is only relevant if you intend to place trades over the phone. If you are comfortable with trading online then you can completely eliminate this fee. Not all platforms will accept trades over the phone so this is also something to check if relevant to your style of trading.
Exchange-Traded Funds fee: ETFs or Exchange Traded Funds come with a fee to cover the cost of managing the fund. This is usually expressed as a percentage of your investment or a flat fee, however, some platforms will waive this fee entirely so again it is worth checking.
Investment trusts fee: Investment trusts also require careful management and therefore often attract a fee. Again, this can be expressed as a percentage of your investment, a flat fee, or zero fees.
Stamp Duty: Stamp duty is charged at a rate of 0.5% when you buy shares online and you can expect to pay an additional £1 on any transactions above £10,000.
Share trading online is actually completely safe as the reputable trading platforms will be authorised and regulated by the Financial Conduct Authority. However, as with any share trading activity, there is always an element of risk and the value of your investments can fall as well as rise, regardless of how well researched your investment decisions are.
Can I buy stock at any time?
The beauty of having an online trading account is that it provides access to your share dealing account at any time of day or night. Most trading platforms now have an app that you can download on your mobile, meaning you can invest in shares on the go. Remember, the share price is dependent on demand, and therefore timing the purchase of shares can be paramount to successful share dealing.
Can I buy stock for free?
It is actually possible to obtain free shares if you open a new account with a trading platform that offers a free share as part of their onboarding process. We have gone into this in more detail in our How to Get Free Stocks and Shares in the UK guide.
Best overall trading platform – IG Investments
We like IG investments for their diverse range of investment options, full suite of accounts, low fees and an excellent range of tools and research. If this is your first foray into share trading then why not take advantage of their free demo account where you can practice trading with virtual money before you risk your own funds.
For more information on IG, please read my IG Investments Review page.
Spread bets and CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 71% of retail investor accounts lose money when trading spread bets and CFDs with this provider. You should consider whether you understand how spread bets and CFDs work, and whether you can afford to take the high risk of losing your money.
Best trading platform for low-cost trading – eToro
eToro offer an unlimited number of trades on a massive range of financial products. They are also a good option for traders who are taking their first steps into the world of share trading, offering tools such as Copy Trading which allows you to mirror the trading activities of successful traders. At eToro you can also take advantage of their free demo account where you can practice your trading skills with $100,000 of virtual cash.
For more information on eToro, please read my eToro Review page.
68% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you can afford to take the high risk of losing your money. Your capital is at risk. Other fees apply. For more information, visit etoro.com/trading/fees
Best trading platform for beginners – Hargreaves Lansdown
Hargreaves Lansdown offer a great level of support for traders including pre-select portfolios, help with investment suggestions, and a robust education section. At Hargreaves Lansdown, you are also able to access financial advice which is unusual in the online space.
For more information on Hargreaves Lansdown please read our Hargreaves Lansdown Review page.
Best trading platform for investing in funds – Interactive Investor
Interactive Investor offer traders ‘Quick Start Funds’ which are an excellent way to get started in a fund. They have one flat monthly fee which covers all their accounts and one of the biggest range of investment options available online.
For more information on Interactive Investor, please read my Interactive Investor Review page.
Should I sell my shares if they go down in value?
As soon as shares start to lose value the temptation can be to immediately sell those shares. However, this is often a decision that is led by emotions and it is rarely the right course of action. Once you sell shares online that have fallen in value, you have locked in the loss.
Conversely, if you sit tight, you are giving those shares the opportunity to recover and increase in value again, recouping any potential losses for you. Shares will always fluctuate in value, which is the reason professionals will advise investors to invest for a minimum of five years.
What do I need to open an account on a share dealing platform?
An account can be opened in moments and is usually fully digitalised. You will be asked to provide some personal details as well as your national insurance number. Then you simply need to fund your account and you are ready to buy shares.
Do all the share dealing platforms offer the shares I want to buy?
No, the choice of investment options will vary from share dealing platform to share dealing platform and it is totally up to you to ascertain whether the platform you have in mind is offering the range of investments you want to buy.
What are the tax rules surrounding share dealing?
Any gains that you make on your own investments are subject to capital gains tax. This is worked out at a rate of 10% or 20%, depending on which tax band you fall into.
For further clarification about your unique circumstances, please seek independent advice.
Where can I find more information on how to buy shares?
Each platform has an education and information centre which will help you make informed decisions when you buy shares. This can come in the form of articles, videos, graphs, news and blogs. Some share dealing platforms will have a more robust education section than others to help you with your investment decisions when it comes to buying and selling shares.
If you are still unsure whether share dealing is right for you, then you should seek independent financial advice.
What is the minimum amount of cash I need to start buying shares?
Many platforms will allow you to open an account and start investing with as little as £1. There are however considerations that should be taken into account, such as the platform fees, which with small investment amounts can start to erode away at your gains and the original investment amount.
Can I buy just 1 share?
Yes, it is entirely possible to buy just one share – or even part of a share with fractional shares. However, this isn’t always the best way to invest and will rarely offer you a diversified portfolio.
Can I sell my shares at any time?
Generally, you can sell your shares whenever you want. Simply log onto your share dealing account and instruct them to sell the shares you no longer wish to hold on to.