Share Trading for Beginners
In this share trading for beginners guide, we are going to set out an overview of what stocks and shares trading is, how it is done, where it is done, why it is done, and some of the risks and rewards that go hand in hand with share trading.
One of the outcomes of being in lockdown for 6 months during the pandemic was that many thousands upon thousands of bored people thought they would try their hand at share trading. Some of them may have had some luck, whilst others will have lost their shirts!
For those who prefer to do a little research before diving in, then this Share trading for beginners guide is just for you.
Why do investors and traders buy shares?
Share traders and Investors buy shares in order (or hope) of making a financial profit at some point in the future. Some share traders hope to make a profit within minutes, hours, or days, whereas others are happy to hold for many months or many years.
People who buy and sell shares within a matter of minutes or hours are often classed as day traders, whereas people who are prepared to buy and hold for longer periods are usually classed as long term investors. For the purposes of this share trading for beginners guide, we will discuss the benefits of being a long term share investor.
I'm a complete share trading beginner, where do I start?
The quickest and cheapest way to buy and sell stocks these days is to set up an online account. If you have a valid bank account, debit card and a few hundred pounds in your account, you can start trading almost immediately.
Online trades usually cost from about £7 up to about £12 per transaction, whereas telephone trades usually cost a bit more, perhaps from £15 to £20 pounds per transaction. Therefore, using the online service is cheaper. It should also be noted that there are several online apps where you can buy and sell stocks and shares free of charge, for example etoro or free trade are worth looking at.
But which account or platform is right for me?
There are quite a few online brokers and platforms here in the UK as well as abroad. They all charge slightly different fees with slightly different charging structures and have different levels of information and guidelines on their websites. You will have to do a bit of research yourself to see which platform or stockbroker gives you what you need when you first start share trading, as getting into the detail of platforms is beyond the scope of this share trading for beginners article.
Clearly if you are starting with quite small sums of money, it is probably worth looking at some of the free trade apps, although be aware these do not provide the depth or breadth of information you would find on some of the major platforms, such as Hargreaves Lansdown, Fidelity or Interactive Investor.
How easy is it to actually perform a trade?
Buying and selling a stock is very easy indeed, it takes much more time to research and choose which stock to buy than the actual transaction of buying it itself.
Once you have selected the stock you want to buy and the amount you wish to spend on them, it is simply a case of clicking the stock, choosing the unit numbers required or price and hitting quote or buy, thereafter the terms of the deal will usually show on the screen for 15 seconds or so, and it is up to you whether you accept the deal or decline the deal by letting it expire. If you accept the deal that's it, the shares are bought.
What are the risks involved in share trading?
There are significant risks in share trading which you need to understand before you begin. You must remember that you are investing real money, your money, in the stocks, and if they don't perform as hoped the losses made are real losses. Individual stocks can go down to zero, and so you can lose all your money if you invest in individual stocks.
How do I avoid the risks involved in share trading and investing?
It is usually a safer option for beginner share traders to invest in funds or unit trusts, where there is ready made diversification built into these investments by a professional fund manager. This doesn't mean the funds can't lose money, but they are unlikely to lose all your money.
What is the stock market?
The stock market is simply a marketplace like a supermarket where people come together to buy and sell stocks and shares. There are both buyers and sellers and also middlemen such as market makers and stockbrokers who all assist with the transactions involved.
What exactly are stocks and shares?
Stocks and shares, also called equities, are simply fractional parts of businesses. When you own a stock in a company, you own a very small part of that business, and are entitled to the rewards, such as capital growth, and dividend payments, but also you will suffer the capital losses if the company doesn't do very well and the share price falls.
What are the likely returns of stocks and shares?
Stock market returns are very unpredictable and can be either positive or negative. One thing to be aware of is the risk versus reward ratio which generally means in order to get a higher return, you have to take a higher risk and vice versa a lower risk asset will usually produce a lower return. This is a very important point for share trading for beginners students.
If you are thinking of investing in the UK then you should put as much of your investments in a stocks and shares isa as that will protect you from tax charges in the form of dividend tax and capital gains tax.
Are there any other fees to pay?
Yes, as well as the buy and sell cost of the trade there is a 0.5% stamp duty reserve tax on all share purchases. There may also be a fee to pay the platform provider for the administration and upkeep of the trading system and platform you use.
And don't forget if you do happen to make a profit on your share trading and they are greater than your capital gains allowance for the year, you will also have to pay tax on those profits above that allowance at 18%, if you don't invest inside a tax efficient wrapper such as an ISA or a SIPP.
Anything else I should know before I start my investing journey?
Yes, our share trading for beginners guide would be remis if we didn’t suggest that you do not invest more than you can afford to lose, especially in the early days when you are just getting to grips with the process, or it will put you off investing for life.
Also, research, research, research!
We hope you enjoyed this Share Trading for Beginners guide.
FACT: A rising stock market is known as a bull market, and a falling market is known as a bear market.