If you’re looking for information on how to buy shares online then you’ve landed on the right article! This guide will show you how easy it is to use an online brokerage account to purchase your first shares. This guide should explain each step necessary to follow in order to own you first piece of a company!
Before I talk about buying stocks and shares online, I want to quickly point out that you can purchase shares offline, albeit at a higher cost. Online share buying isn’t the only route – and if you aren’t comfortable with conducting financial transactions over the web, then you will still be able to purchase shares (although the process will take much longer).
How to Buy Shares Online
How to Buy Shares Online Step 1: Choose an Online Discount Broker
You will find that there are many online brokerage companies that offer competitive services online. If you’re looking to simply buy shares online, then you will want a discount broker, also known as an ‘execution-only’ broker. Discount brokers offer no advice and merely carry out the instruction to buy or sell that they you give them. Full-Service brokers provide advice to investors before buying.
Here is an in-exhaustive list that you may want to research further:
- TD Direct (UK)/TD Ameritrade (USA).
- Charles Schwab International Account – (Offers both execution-only and full-service trades)
- Halifax Share Dealing
- Barclays Stockbrokers
Here are the key features and fees you will want to compare when choosing the right account for you:
Fee per web trade (Lowest is usually £8.95 and highest £15). Brokers will offer discounts if you reach a minimum trading volume, but focus on the no-strings attached rate, as it will be unlikely that you will be trading like a City Trader!
Annual/Quarterly Account Charges – Be careful that you read into the small print for this one. Accounts often carry both an account management fee (unavoidable) and a separate inactivity fee (a penalty for not placing trades, or having a balance below a specified minimum amount). My personal broker – TD Direct Investing, has no annual fee and no inactivity fee provided the account has over £5,000 at any time, so do try to avoid brokers that impose fees if possible.
Telephone Support & Location – I believe it’s safer to choose a broker that operates heavily in your country and offers free telephone support. Whilst online trading accounts can be operated purely online, you may still want to contact your broker to solve password issues or trading problems.
How to Buy Shares Online Step 2: Open a ‘Nominee’ Brokerage Account
When you imagine buying shares, you may envisage receiving a share certificate through the post, which you must keep in a safe. This purchase method is possible, but a nominee account is a much safer, speedier and cheaper method for buying shares online. With a nominee account, your broker buys the shares and holds them for you on your behalf. In legal terms, you still own them, and still receive the same dividends – however your brokers name, rather than your name, will be the official name kept in the shareholder register. For the majority of shareholders, this amounts to a trivial difference. The main drawback for nominee accounts is that you may not qualify for ‘shareholder discounts’ because your name is not actually on the companies database.
All the brokers I have listed above offer nominee accounts as a default, however I felt I had to highlight the distinction between nominee accounts and other types to ensure you understand how your account works.
How to Buy Shares Online Step 3: Fund your Account
At the end of the account opening process, your broker will want you to fund your account. You will do this in the same way you would fund any online bank account – by direct bank transfer or debit card. You will just need your banking details to be able to do this. You can transfer in a lump sum to use in multiple trades in the future, or you can transfer in just enough cash to execute each trade you make. Online broker accounts do not usually pay interest on cash balances, therefore the first option is the most efficient.
How to Buy Shares Online Step 4: Place a Trade
I have written a detailed guide on how to place a trade with TD Direct Investing here. Whilst I cannot walk through every popular broker account, I can tell you that the information you will need to fill in an online trading screen will be almost identical across all platforms, so the guide above will demonstrate how easy that is. Once you have purchases the shares, they will show in your account balance at their market value.
The Next Steps in Investing
Now that you’ve seen how to buy shares online, this may have sparked your interest in investing in general. I wholeheartedly recommend you read my article ‘How to Invest in Shares & the Stock Market‘, which goes way beyond the practical methods of buying, but touches on which shares you should be buying, how many shares you should buy and how you can reduce risk. Perhaps you’re interested in other types of investments, in which case I would recommend my Beginners Guide to Investing, which deals with the 3 main types of investments: Property, Shares & Bonds. If you’re more adventurous, learn about investing in commodities.