FOOL SCHOOL
How To Buy Your First Share

July 1, 2002

Once you've appropriately researched your discount broker alternatives and decided on which one is right for you, you'll probably want to go ahead and open the account (rather than simply resting on your laurels for having done your homework).

Getting started

Opening an account doesn't require much more than filling out an application form. You can usually fill this in online, print it, sign it and send it off with a cheque to fund your account. Some brokers will let you sign up instantly and just debit or credit your bank account whenever you trade, if you want certificated shares, for example. Others may require funds to be held in your nominee account before they'll let you trade.

You may already have an account that you'd like to transfer from a full-service broker or an offline bank. This is simple enough, and your new online broker will probably be able to arrange to make that transfer on your behalf.

You'll be issued with a user ID and a password to ensure security, and bingo!, you're away! When you want to buy a share, simply access your broker's website, key in your secret details and follow the online instructions. Many brokers have a demonstration facility, so you can go through all the motions before you actually commit any of your hard-earned loot. If your chosen broker doesn't have a demo for you to have a trial run, then it might be an idea to have a go at following the instructions but clicking "Cancel Order" at the end.

Doing the deal

Usually you'll be asked to key in the EPIC code, a unique three or four letter code for each listed company. Don't worry if you don't know the EPIC for the company you want to deal in. There's a Lookup facility here on the Fool that can help, and the broker's website will usually have something similar. You will then be asked if you want to buy either a particular number of shares, or a particular monetary value of shares. You'll get a price quote, at which point you'll have 15-30 seconds (the most exciting bit of online trading!) to make up your mind whether to buy or sell. If you go for it, then you will receive confirmation of your order seconds later -- at which point you press PRINT! Always make sure you get yourself a hard copy of your transaction in case of a later dispute. You will be sent a contract note confirming the details of the transaction. If you've opted for certificates they should arrive in the post a couple of weeks after settlement.

Some sites offer limit prices. This means you can specify a set price above which you will not pay, if you're buying shares, or below which you will not accept, if you're selling. Whether you specify this option or not, the broker is obliged to find you the best price they can for your transaction.

It is also worth considering the time of day at which you deal. In the first and last hours of trading, before 9am and after 4pm, the volume of trading going on can be rather low. This means that the spread between the price at which you can buy and sell will tend to be wider than during the day. Prices can also be volatile around this time. This is especially true with smaller companies. If you are still getting used to the way the stock market works then it may be best to stick to trading between 9am and 4pm.

Finally, it is obviously extremely important to key in the correct information -- particularly the number or value of the shares you're trading. We don't want you to experience that "Ooops!" sinking feeling, do we? And above all -- don't get carried away with the excitement of it all and find you're turning into a bit of a day trader!

More: The Fool's Broker Centre