Investors are attracted to the stock market for various reasons. Of all, making quick money or making smart investments to get long-term gains top the list. Most investors look for ways to take their investments to skyrocket levels. So, while choosing the stocks, investors must calculate what they will gain from putting the money and what exactly they are looking at. There are around 1,986 companies listed on the London Stock Exchanges, as of 30 April 2021. So how should one start buying stocks here. Let us take you through the process.
Know the Basics!
Let us understand what we are going to buy, shares!
We can describe stock or share or company’s equity as a financial instrument that shows the unit of ownership in a firm. Anyone who wants to buy or sell shares can do it for publicly listed companies. The process of buying and selling shares leads to demand creation, and the price of the share will be derived from it. If an individual or company decides to purchase shares in bulk, demand will shoot up instantly; thus, the share price will go up.
Once you decide to go ahead with your first purchase, next thing you need to know how to invest?
When you invest in any company, you are investing in its business. There are two options, either you can purchase shares for yourself based on your risk appetite, or you can invest through Mutual Funds or ETFs.
Mutual funds are the trust which invests on your behalf. It is primarily for beginners who are new to the stock markets as they are not aware about the market fluctuations and may not have time to learn the same.
Through mutual funds, you will get exposure to various sectors, which ultimately will lead to wealth creation as every sector may not do well at the same time. Like for instance, oil & gas sector have done well during the pandemic months, but some sectors like retail sector have done well in comparison. Also, the MFs are managed by experts who know exactly where they are investing and how to respond to market fluctuations.
ETFs or exchange-traded funds mainly track an index or the asset which can be traded on the stock exchange. For the UK, one of the trackers available is FTSE 100, which consists of 100 stocks across different sectors and acts as a barometer of the economy.
Now comes how to invest.
As you have made up your mind to invest in the stocks and make a portfolio on your own. For this, the first step is to register yourself online with the stockbroker giving you the platform for buying and selling share of publicly listed companies on the London Stock Exchange.
The brokers or traders charge a fee for providing you the advice and service required to buy stocks. Once you are registered with any broker and your trading account is set up, you can transfer the funds and get started.
While choosing your broker, check the various charges they levy on your trading account like account fee, per transaction charges etc. Apart from these charges, stamp duty is levied on your transaction, which is charged @0.5% on each purchase + an extra £1 on transactions exceeding £10,000. However, there is no stamp duty on the sell side.
Now you can either directly purchase company’s share from your trading account or initially go for some dummy trading. Dummy trading is done without the involvement of actual money. The main motive of dummy trading is to build confidence.
Following this, you can proceed with actual trading. Since you have already deposited the money while setting up your account, you can now buy shares.
For buying, look for stock’s symbol or ticker. Each company is assigned a code or symbol that could vary from two to four letters and give you basic information about a share, like its trading price.
That is all!
Once you know the price of the chosen stock, you can buy the number of shares based on your risk appetite or the money available in your trading account.
After the completion of purchase, your actual portfolio will be ready. If the chosen stock gives you the dividend in future, you can select to reinvest or withdraw the same in your bank account.
With the ease of technology, this process has become simpler. Later, if you are not happy with your broker or decide not to trade in future, you can withdraw your funds.
You can also transfer your shares into the individual savings account (ISA) if you want to hold on and choose a nominee accordingly. Finally, monitor your portfolio regularly to know how it is performing.