process of buying shares

What is the actual process to buy shares?

1. First of all you need to deposit some funds in a brokerage account.

2. You then use your brokerage account to obtain a quote for the stock that you are interested in (you can do this online or over the phone), they then send a request of to the market maker.

3. The market maker (firms that quote the buy an sell price of a stock) then issues you with a buy (ask) price and sell (bid) price for your chosen share.

Note: The difference between the bid and ask price quotes is where they make their money.

4. You then send an order to the market, from your brokerage account, detailing the stock you want to buy, how many shares you want of that stock and what price you are willing to pay for the stock.

5. If the price you set meets the quote the market maker has set then you will enter the trade!

Note: You will be charged a fee of around £8-12 UK and $2-8 US depending on which broker you use, this fee covers the purchase and sale of a share. Also, whether you buy 1, 100, or 100,000 shares, you will get charged the same fee. Brokers charge you per transaction and not by how many shares you buy.

Why buy shares?

1. Financial returns

Investors can realistically make a 50%+ return a year on their capital, this compared to the interest rate offered in banks (often around 1-5%), is a massive difference.

Example

Obviously a 50%+ return would require a good education in trading stocks, but providing you had this, here is a financial example.

- You have $20,000
- 3% interest from a regular bank savings account would give you $600 a year.
- A 50% return from the stock market would give you $10,000 a year.

Investing in the stock market is often a major reason why the rich are rich, they can grow their money faster than other people.

2. Beating recession

You can make money when the market is going down! This is achieved by a marvelous concept called shorting. You certainly can’t make money with property when the market is in recession.

3.The lifestyle

You can work for yourself at home! No pressure from the boss, no orders around and you don’t have to deal with anyone else’s problems! That’s 4 reasons right there…

4. Tax advantages

When trading shares (UK) you are given a £9,600 capital gain tax allowance so you can make up to £9,600 without paying tax. This allowance, compared with the £6,035 income tax allowance, means you can earn an extra £3,565 tax free.

Still cant decide whether trading shares is a good idea? Here are a few extra reasons to help you decide…

1. Take the risk out of trading with stop losses
2. Earn a salary from stocks with dividend payments

To learn the steps needed to be taken to trade shares successfully, view the step by step guide to trading shares.

How old to buy shares?

There is an age limit of 18 to trade on the stock market, at least you need to be 18 to open your own brokerage account. There are ways to get a parent to open an account and you then trade with their account, this is where the parent is the custodian of the account (they get to see how well their child is doing and get monitor their trades!) and to do this the child must be at least 13.

Other options

If you are under 18 and really want to find out what trading shares is about then I recommended you open a fantasy trading account, these accounts are free to open and you use virtual money to trade with meaning there is no financial risk involved.