Today, our beginners' series looks at how to actually buy shares.
We've looked at what a stockbroker does, so today it's time to look at actually getting an account with a stockbroker and finding out how to buy some shares.
We'll use the TMF ShareDealing service as our example. If you click that link, and select "Share Dealing Account", you can register for an account online, one step at a time.
You can start your account with an initial cash deposit if you wish (but you don't need to -- you can transfer cash later). And you need to tell the service what to do with dividends you receive -- you can have them automatically reinvested, left in your account to add to your share-buying pot, or paid out to your nominated bank account.
Then it's just your personal details, your bank account and debit card details, and then wait for a temporary password to be sent to you via the post. Once you've got that, you're away -- you can transfer money in and out online and, of course, buy and sell shares.
Buying and selling
When you look up share quotes on websites, they're usually delayed 15 or 20 minutes. But that's no good for buying and selling shares, obviously. So when you wish to make a trade, you tell the broker what you want, and you'll get a live quote that's valid for a short time -- typically 15 seconds. You'll see a countdown, and if you click to confirm, that's the price you'll get.
For example, the following screen shows what it looks like to request a price for Vodafone (LSE: VOD). Choose whether you want to buy or sell, enter the company name (it's easiest to enter the ticker and click "Verify"), and you'll see a delayed quote of the spread -- see the difference prices for buying and selling?
Next, enter the number of shares you wish to trade, click the "Dealing Quote" button, and you'll see something like the following:
We've chosen to buy just one share there, as an example, and what you see is the live price, a breakdown of the costs, a countdown (three seconds left) and a "Deal now" button.
Click that, and the deal is done, with the money being taken from your broker account.
Settlement
Selling is similar, with the proceeds being added to your account. But there is one restriction you need to know about. Share transactions actually take three days to settle (known as T+3), though most brokers will allow you to sell and then buy something right away with the proceeds -- they can do that easily enough, as in effect they're pooling everyone's buy and sell orders.
But if you want to withdraw cash from your broker's account into your nominated bank account, and at least some of the total is from a share sale that has not yet settled, you will need to wait up to three working days to take your money out.
So that's a quick look at the mechanics of getting as far as buying and selling shares. Next time, we'll take a look at the taxes that affect your investments, and how to minimise them using an online ISA account.
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