Shares are traditionally purchased in one of three ways, either by mail, over the telephone or via the Internet. Today, though, nearly everyone who purchases shares does so online. This is mostly because purchasing them this way is a much less expensive way to do so. It is also the fastest and most convenient way for people to buy shares.
When you use a stockbroker for this service, it is on an “execution only” basis. This means that you will give instructions on what your stockbroker should buy or sell and he or she will execute those instructions. You will receive no guidance or advice from them. When purchasing shares you will be required to pay a 0.5pc stamp duty along with the other costs associated with the transaction.
It is possible to find an Internet share dealing company that operates in real time. This will enable you to know exactly the cost you are paying for each share you choose. But, be careful because some companies bundle up different deals during the course of the day and they only buy at certain selected times, usually at the end of the business day, in order to minimize their costs. If you use a service like this, you may discover that you did not pay the price you thought you would pay.
In most cases, your shares will be retained in something called a “nominee account.” This means that the stockbroker will retain them on your behalf. Your name will not appear on the register. This means that you will not receive a report from the company you have the shares in. Nor will you receive any added benefits that might accrue from holding the shares. Dividends will still be paid into your account.
Because you are not holding the share certificates when you wish to sell the shares, you will need to sell them trough the broker that purchased them on your behalf. Also, if you decide to switch to a different firm, the brokerage will likely charge you a feed per stock to do this.
You should always carefully compare all the costs across the board before you purchase any shares. Be sure to ask the broker how much a basic trade costs as well as the frequent trader cost if you think there is any possibility that you will want to trade every day at some point. Ask how much all the extras will cost you as well such as a tax-free self-select ISA wrapper. This is where the shares sit in something called an Individual Savings Account. The basic cost for purchasing shares starts at less than £10 for each transaction. Purchasers should always be wary when they are quoted costs that are significantly lower than this. This might indicate that there will be hidden costs charged to the account down the line.
Someone who is thinking about getting in to the online shares market should always choose a broker whose website includes links to research tools so that they will be able to learn as much as possible about their potential transactions. They will want, for example, to learn if the shares they are considering buying have a dividend. If they do, they will want to know the current share price yield which is essentially the interest rate they will be paid because they own the share. They will also want to know the price they will be most happy to pay for the share and what price they will be happiest selling at. This will give them the means to gauge their best potential profit.