stocks and shares

Share dealing need-to-knows

The cheapest way to buy, sell and hold

Trading in shares can be a good way to make a return on your money, but is less rewarding if dealing costs are through the roof – these alone can take a sizeable chunk of your money. Here's everything you need to know about buying, holding and selling shares, including the cheapest way to do so and tips for new investors.

Top-pick trading platforms

There are no guarantees when you're investing

Investing is a long way from putting your cash in a bank account where it sits to earn interest. An investment is a gamble – instead of the security of guaranteed returns, you're taking a risk with your money. This means your money can go up as well as down in value.

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What is a share?

A share is simply a divided up unit of the value of a company. For example, if a company is worth £100 million, and there are 50 million shares, then each share is worth £2 (usually listed as 200p). Those shares can and do go up and down in value for various reasons.

Companies issue shares to raise money and investors (that's you) buy shares in businesses because they believe the company will do well and they want to 'share' in its success.

How can investing in shares make (or lose) me money?

There are two ways you could make money from investing. One is if the shares increase in value, meaning you reap a profit when you sell them. The other is if they pay dividends.

Dividends are a bit like interest on a savings account. If a company makes a profit, it can choose to give some of it back to you – it could be on a regular basis or as a one-off. The first £2,000/year paid in dividends is tax-free, though above this it's taxed at 7.5% for basic-rate taxpayers, 32.5% for higher-rate taxpayers and 38.1% for additional-rate taxpayers.

However, shares could also decrease in value and/or the company may decide not to pay a dividend, so there are no guarantees.

Should I invest in shares?

This really is a personal call, as only you will know how much you're willing to risk – we can't tell you whether investing is right for you. But if you're going to do it, and are sure you could afford to potentially lose the amount you invest, here are some key points to consider.

Though if this is the first time you've looked into any type of investing, it's worth reading our beginners' guide to investing to get a broader idea of what's involved.

  • Investing is generally a long-term option – you should invest for at least five years. As a rule of thumb, five years allows enough time to ride out any bumps in the market that might see you make a loss on your money. If you know you're going to need access to your money in this time, then perhaps investing isn't the right route for you.
  • Don't put all your eggs in one basket – holding shares in one company is high risk. If that company gets into difficulty then you could lose some or all of your money. Instead, spread your risk by buying shares in a variety of companies.

    You can choose the individual shares to buy yourself or you can pool your money with other people in a collective investment known as a fund. For first-time investors, pooling your money is a slightly safer option as you're not putting all your eggs in one basket (as you're not just investing in one company) and it means you can ride out any bumps in the market. For more information on funds, see our Fund need-to-knows.
  • The market is unpredictable – invest on a regular basis to smooth out ups and downs. It's tempting to try to time the market, but it's almost impossible and even the most experienced investors get it wrong. By pulling out of the market as soon as a share dips or trying to second-guess when a share will reach its peak, you could lose out on sharp recoveries or see the price go down again.

    Instead, you should invest on a regular basis – in investment lingo this is called 'drip-feeding' . This will give you an added benefit of something called 'pound cost averaging'. For example, invest £10,000 to buy shares valued at £10 each and you have 1,000 shares. Yet it you invest the same amount over two months, you'd get 500 shares in the first month, but if the share price went down to £9.50 in the second month, you'd get 526 shares.
  • Watch out for share scams – never buy shares from a cold caller. If you're contacted out of the blue by someone inviting you to invest in shares, say 'no'. It is almost certainly a share scam, often referred to as a 'boiler room' scam. Here fraudsters will cold-call investors offering them worthless, overpriced or even non-existent shares.

    While they promise high returns, those who invest usually end up losing their money. And remember, if it sounds too good to be true, it probably is.

How to buy and sell shares

The good news is that buying and selling shares is not complicated. Provided a company is listed on a stock exchange, you can buy and sell its shares.

The London Stock Exchange (LSE) is the primary one in the UK, where you get a whole host of companies including the really big players such as Marks & Spencer. Then there's the Alternative Investment Market (AIM), which lists smaller developing companies that you may not have heard of.

How to buy shares

The easiest and cheapest way to buy shares is online from a 'share dealing platform' (see our top picks below). These platforms allow you to buy shares from any listed company.

Once you have an account, you simply search for the share you want to buy and choose a quantity or value – whichever you choose, you need to have enough money in your dealing account to cover both this and any dealing charges. Accept the quote it generates and the shares will then show in your account with your chosen platform (your account and the shares in it are often known as your portfolio).

However prices change all the time, sometimes even between you submitting the order and the confirmation – so be prepared for slight variations. The price is determined by supply and demand from prospective buyers and sellers at any particular time – high demand will drive up the cost (while low demand will do the opposite).

What charges do I need to pay?

One of the biggest things to take into consideration when buying, holding and selling shares is how much it'll cost you in charges. The main ones to look out for are:

  • Platform charge: You may be charged a monthly, quarterly or annual account fee – either as a flat-fee or as a percentage of your investments. However in some cases this is waived if you make a minimum number of trades, or your account is of a certain size.
  • Buying/selling shares: The fee you pay each time you buy or sell shares. You'll often find discounts for frequent traders.
  • Transfer out/exit fee: Some platforms will charge if you want to transfer your investments to a different provider, usually per company you hold, or sometimes even just to close your account.
  • Stamp duty: When purchasing UK shares, expect to pay 0.5% stamp duty and an extra £1 on transactions above £10,000.

Investing in an ISA should ALWAYS be your first port of call

If you're new to investing, an ISA should be your preferred route for the first £20,000 (the current ISA limit). Most platforms will let you do this and it's a great way to reap tax benefits at the same time as investing your money.

If you have more than £20,000 to invest, you can put the first £20,000 into an ISA and then use a standalone dealing account for the rest. For full details on investing in stocks & shares, read the Stocks & Shares ISA guide.

How to sell shares

Selling shares is just as easy as buying them. Each platform's website will work slightly differently, but the principle is the same for each. If you have set up a nominee account (as explained above), as you don't hold the share certificates, you have to sell the shares through the platform you bought them from.

When selling, you can choose either number (for example, sell 500 or all shares) or value (sell £500 worth of shares). Once you place the deal, you will be shown a quoted price for the sale of the shares. You normally have a limited time period to decide (for example, 15 seconds), and the price quoted will not necessarily be as high as the price you bought them for. If you accept, then any money you have made from the sale will show in the account.

When should I sell my shares?

Well, if we knew this, we'd already be millionaires!

It usually doesn't pay to try and 'time the market' – this is where you try and buy shares at their lowest and sell them at their peak. It's hard to do and usually doesn't work.

Instead, take a dispassionate look at the share you're thinking of selling and ask yourself – do I think this company will continue to grow? Do I think it'll continue to pay dividends? Or would I be better cashing it in at its current value and using that to invest in a different company (or companies) that I think will do better. This question (and our answer to it) may help you with your thinking...

Q. I bought shares in Company X a few years ago. The value of this investment has now plummeted. Should I sell it or hold on?

A. Don't consider it as an amount lost. For the sake of illustration let's imagine it was worth £4,000 and is now worth £2,000. The big problem is that many people then think: 'How do I recoup my losses?' Yet it just doesn't work this way. There is no 'what goes down must come up' rule. You have to let go of the past value and clinically think – I have a £2,000 investment in company X.

Forget whatever it was worth and make the decision on this alone. This means the real question to ask yourself is – would I be willing to invest that £2,000 in the stock market right now, and if I did, is this the investment I would choose? There is no difference in the risk profile between buying a share new or having a share that you've held for a long time, it doesn't change the chances of what will happen. So considering it to be a fresh investment is the only way to go.

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Top-pick trading platforms

When it comes to investing in shares, which platform you choose for your share dealing will depend on a number of different factors, such as how experienced you are and how often you want to trade. The different associated costs in relation to these factors is a big consideration too.

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Top trading platforms – our review

For a basic share dealing account, Freetrade – as its name suggests – lets you trade without charging you. There's no fee to set up the account, or buy or hold shares (unless you're buying shares listed on a US stock exchange, in which case you'll pay a currency conversion fee). You'll also get a free share worth between £3 and £200 if you sign up using our link below.

However, Freetrade's offer is more limited than some of the others here – you can only access it on an app, you can only trade UK and US shares, and not all shares that it lists are available with the free account. To trade in some shares you'll need to sign up to Freetrade Plus, costing £9.99/month.

If you want to trade online, trade shares listed in Europe or in Asia, or you just want access to a broader range without a monthly fee, have a look at the other top picks. Which you go for will depend whether you are (or plan to be) an active investor.

If you plan to trade regularly, well-established player AJ Bell has the lowest buying/selling fees for 10+ trades each month, though this is based on the number of trades in the previous month, so the first month will be more costly. Its monthly charge is also a percentage, so will grow as your portfolio does – though it has a relatively low cap.

If you need hand-holding, Hargreaves Lansdown provides a wealth of knowledge and the website is easy to use for those who are new to investing, but it can be expensive, especially if you're only making a few trades a month.

We've also included execution-only broker X-O, which has no monthly platform fee and a relatively low flat-rate dealing charge, so it can work for you if you won't trade much. The site's fairly basic, and doesn't have recommendations or information on how to invest, so it's better suited if you know what you're doing. It's worth noting you can only buy UK-listed stocks with X-O.

Provider Monthly
charge
Online buying/selling fees (per trade) (i) Transfer out fee (ii)
Freetrade* £0 (iii) - £0 £0
AJ Bell* 0.25% (max £3.50/mth) - £9.95 (if 0-9 trades in prev mth)
- £4.95 (if 10+ made)
£9.95
X-O £0 - £5.95 £18
Hargreaves Lansdown* £0 - £11.95 (if 0-9 trades in prev mth) 
- £8.95 (if 10-19 trades)
- £5.95 (if 20+ trades)
£0

(i) If you buy shares listed on a non-UK stock exchange, you'll also pay a currency conversion fee. With the providers above, it ranges from 0.45% to 1%. (ii) You'd pay this if you later transferred your shares to a different platform, charged per holding/company you hold shares in. (iii) Freetrade has a premium version costing £9.99/mth, which gives you access to a wider selection of shares. 

Where to get more info for research

See our beginners' guide to investing for more information on how to get started. However, we don't cover what to invest in because we never want to have told you to put your money in something, only for you to lose money on it – though these sites do:

  • ADVFN – Live news, lists of gaining and losing companies, company-by-company performance charts, news and discussion forums.
  • Hargreaves Lansdown* – Offers news, guides and tools – and you can download a free guide on how to select shares. You can also sign up to a free weekly share insight email.
  • Interactive Investor* – Offers information, news and a discussion forum.
  • Motley Fool – A wealth of company-by-company information, including news, commentary and comparisons of fund performance.
  • Citywire – Features financial information on companies, and is also a news source. You can watch shares in a virtual portfolio if you sign up for an account.

If you're not sure about how to invest and what to invest in, seek independent financial advice. Read the Financial Advice guide for more information.

Share dealing FAQs

  • If you're worried about diving straight in at the deep end with investing, but you're serious about doing it, then dummy portfolios let you build up your confidence first.

    A lot of the platforms these days have 'dummy' or 'virtual' portfolios you can practise with. You trade exactly as you would if it were real, except you're not actually exchanging any money or buying any real shares, so if you do make a mistake, there's no harm done.

    You have to be an existing investing customer with some companies first before they allow you to set up virtual portfolios alongside your real ones.

    Have a look at our research section, which has a lot of good info for beginners, including a few companies that'll let you set up a virtual account.

  • If you decide to buy shares online, then the easiest thing to do is open what's called a 'nominee account'. This allows you to own shares without becoming involved in any of the paperwork.

    Any of the platforms we mention above in our top picks will set up a nominee account for you as standard and hold the shares on your behalf. Often, this account's known as a general investment account (GIA). You are still the legal owner of the shares, but your name will not appear on the company's share register.

    You can also hold your shares in a Stocks & Shares ISA or a Self-Invested Personal Pension (SIPP).

    While you're holding your shares, it's important that you don't forget about them. When you're new to investing, the excitement of it all may mean that you keep an avid eye on how your shares are performing.

    However, as you build your portfolio up and invest in more shares, it's easy to let things slide, so make sure you keep a track of everything you've got by reviewing your portfolio regularly.

  • This is possible, but be aware that you will pay for the privilege and not all platforms offer this service. For your name to be on the share register, you'll need to become a personal member of CREST, the electronic settlement service. You can be sponsored for CREST membership by a platform.

    Once a special nominee account has been set up within CREST, you'll then receive information directly from the company and you can attend and vote at company meetings and receive shareholder perks, such as discounts on products sold by the company.

    This is usually something that few first-time small investors embark on and is reserved for fairly active investors with a large number of shares.

  • While investments should be chosen for their potential to hopefully make you some money, shareholder perks can be a welcome bonus. These are no longer automatically given as they were when people held paper certificates, but some platforms still pass them on through the accounts.

    For example, a simple search will show that if you buy Marks & Spencer shares through a platform such as Hargreaves Lansdown, you'll be sent vouchers offering discounts across the Marks & Spencer product ranges. In order to get these, you'd need to get in contact with the broker – the same applies if you want to attend shareholder meetings.

  • A direct transfer of your shares into a stocks & shares ISA or pension is not allowed. Instead you have to sell them and repurchase them within the ISA or SIPP.

    This is called 'bed & ISA' or 'bed & SIPP'. The sale and repurchase are done immediately after each other to limit any exposure to the market.

  • Before things moved online, all shares were traded through paper certificates. Trading in paper shares is a more expensive and cumbersome option. Online trading is quicker and easier for not only you but also the stockbroker.

    As time is money, if you still want to trade in paper share certificates you'll be penalised for this by the broker who'll have to spend more of his time and therefore your money on the trade. So if you still have paper shares, your best option is to convert these to online shares.

    Most platforms will allow you to do this at no cost, you'll just have to fill in a form and it will take a few days to convert them to online shares.

  • If the shares are held in a nominee account, you'll need to contact the platform on which the shares are held. The shares are valued from the date of death of the person who held them.

    Executors of the estate (the person/people dealing with the deceased person's estate) have the choice of selling these investments and receiving cash, or transferring the ownership to one or more of the beneficiaries, but only once probate has been granted (for example, when the administration of the deceased person's estate has been sorted).

    Paper share certificates are slightly more difficult to sort out and will probably cost more, but if you approach a platform it will probably be able to help you value them and help with the administration.

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