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.

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Trading Terms

Essential Trading Terms 

It is vital that you understand the basic terms of Forex & CFD trading. This will enhance your trading experience when investing on our leading trading platforms. Make sure to read the basic trading terms below before you begin trading with us.

Buy/Sell Spread

When an investor buys or sells units in a fund, the investment manager trades the underlying assets of that fund to either invest the money or provide cash for the withdrawal. This trading generates transaction costs, such as brokerage, which are paid for by the fund.

The buy-sell spread is the difference between a fund's entry price and exit price and is a cost incurred by investors each time they invest or withdraw funds. The buy-sell spread is retained by the fund (it is not a fee paid to us) and contributes towards the transaction costs associated with the fund buying or selling assets.

The spread ensures that those investors joining or leaving the fund contribute towards these transaction costs and other investors who are not joining or leaving at that particular time are not disadvantaged.

A buy-sell spread is expressed as a percentage of the net value of the Fund's assets. The buy-sell spreads for our funds are reviewed annually and can change from time to time. Any changes are updated on this website.

Currency Quotes

To put the term simply, a quote is known as the current price which is asked or offered for an asset. A quote will always be in the form of two figures. The first will be the Sell (Bid) price and the second figure will be the Buy (Ask) price. For example, as is the case with the following EUR/USD pair: 1.3550/1.3553. When trading on the Forex market, currency pairs are quoted according to the rate at which the online broker wishes to either buy or sell the currency pair in question.

Forex Rollover

Rollover is when the settlement date of a trade is rolled forward to the next value date. The process of rollover includes the positions being charged swap or credited based on the difference in interest rates between the two traded currencies.

FX Pips

Pip is one ten-thousandth of a point (1/10,000) or the typical unit to measure price changes for a currency pair. There are also mini pips that are present on the GoForex platform, enabling traders to get tighter spreads. The majority of currency pairs are quoted in decimal places. For example, this is the case with the EUR/USD where a movement from 1.3000 to 1.3001 is 1 pip (0.0001). The USD/JPY pair is quoted with 3 decimal places. For example 85.00, so 1 pip equals 0.01 JPY. Please note that the GoForex platform quotes in 3 decimal places.

Lot Measurements

Many Forex brokers trade their assets in lot measurements. Lots are traded in various units, such as 100,000 (100K) units. A lot is a representation of the trade size of a position in an underlying asset. GoForex uses lots, but it is important to note that not all brokers use lots. The measurement helps you understand how to optimize your trading. Opening up many lot positions increases your exposure to sudden market changes.

Margin Requirements

The margin represents the equity which is required to open or maintain a trade, as percentage of the current rate. You need to only deposit a small percent of the current value of the asset when trading on margin. For example, if you trade an index which requires a margin of 1%, you can use a leverage of 100 times your deposit. Therefore, a deposit of $1,000 can uphold a trade worth $100,000.

Trading Leverage

Leverage is commonly used in Forex & CFD trading nowadays. It involves investing in a position that is larger than your equity. While using leverage, you are depositing a small percentage of the market value of the asset. For example, if the stock you intend to trade requires a margin of 1%, this allows you to leverage your investment 100 times the required deposit. To put it simply, if you deposit $1,000, you can control an investment of $100,000.

Trading Spread

The spread is the difference between the Ask price which a position is bought and the Bid price at which a trading instrument is sold. In the case that the EUR/USD pair is trading at 1.30001/30003, the spread is 0.2 pips.

You will be able to know the spread by simply reading the quote of a currency pair or other instrument. The spread is wider if there is a lack of buyers and sellers in the market. On the other hand, the spread will be tighter if there are many market participants trading the currency pair in question.

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