How to Buy Shares in the UK: 7 Steps for Beginners in 2024

Investing in the stock market often has the stigma of being risky and overly complicated. And while that’s partially true, buying and selling shares is one of the best wealth-building strategies available, even for individuals without much-starting capital.

Each share represents a small piece of an underlying business. And that entitles shareholders to a slice of the profits. In other words, you can build long-term wealth by doing nothing more than owning some stocks. And in this guide, we’ll explain how to do exactly that.

Let’s start by looking at a brief overview of the seven steps to buying shares in the UK:

• 1. Open a share dealing account
• 2. Check the price
• 3. Decide how many shares you want to buy
• 4. Select the order type
• 5. Preview your order
• 6. Place your order
• 7. Congratulations, you’re an investor!

Now, let’s break it down.

How to buy shares online for beginners

Now we are getting to the nitty-gritty of how to buy shares in a company. Believe it or not, the whole process can take less than a minute once you’ve opened a share dealing account and have decided which company you want to invest in.

1. Open a share dealing account

To buy shares in a business, you need to open a brokerage account. Fortunately, there are plenty to choose from these days.

Finding the right account is ultimately a personal choice. Each broker offers services and charges different brokerage fees to suit different individuals. That means the cheapest broker for you might not be the same for someone else. The optimal choice depends on the size of your portfolio, the sort of investments you want to make, how often you plan on trading, and any additional services you might require. 

Generally, they will charge a flat rate fee when buying UK shares, typically between £8 and £12. And many offer discounts if you trade more each month. 

Investing overseas is also usually supported. However, it’s important to be aware this comes with the extra cost and risk of fluctuating currency exchange rates.

Generally speaking, fixed fee trading accounts often end up being the cheaper option for investors with larger portfolios, while percentage-based fees are more suitable for those with a smaller amount of capital.

An additional cost to consider is stamp duty. This is a 0.5% tax applied when buying shares, but not when selling them. As a side note, stamp duty does not apply when buying smaller AIM-listed UK shares.

There are a few different types of trading accounts available for investors.

It can seem like a bit of a minefield at first, but don’t panic. If you make a few basic assumptions about how much you have in your portfolio now (and that you might have in a few years) and how often you might want to buy stock, then coming up with a shortlist shouldn’t be too tricky.

You can find a list of our top-rated share-dealing accounts to help you get started.

2. Check the price

Now that you have a brokerage account all setup, it’s time to do some shopping. Picking which stocks to buy can be a bit daunting for first-time investors. Luckily for you, we’ve written a guide on how to find the best companies to invest in.

With a company selected, your broker will show you two prices:

• Bid – the higher price that will be paid when buying shares.
• Offer – the lower price that will be received when selling shares. This is also known as the ask price.

The difference between these two prices is called the bid-offer spread. And it’s an important concept to know about when leading how to buy and sell shares.

The bid-offer spread (also known as the bid-ask spread) enables firms called market makers to make a small profit for doing the legwork behind each transaction. They provide the shares when you want to buy. They also take shares when you want to sell. Your broker or investment platform acts as the middleman between you and a market maker.

For large companies – meaning those valued at a few billion pounds or more – bid-offer spreads tend to be very small, typically a small fraction of one percent.

However, for smaller companies valued, say, at £100m or less, bid-offer spreads can get very large, perhaps even 10% or more. In order to make a profit overall, the share price will need to rise by at least the amount of the bid-offer spread plus any trading charges you incur.

3. Decide how many shares you want to buy

If you’re happy with the quoted prices provided by your broker, the next step is to decide how many shares you want to buy. In most cases, brokers will allow you to enter a pound value and calculate how many shares you can afford. But if not, all you need to do is divide your available capital by the share price of the company you want to buy to find a share count number.

But how do you choose how much to invest in each business? This is quite a tricky question that even some professionals struggle with. The answer varies depending on the individual, both in terms of risk tolerance and financial goals.

Here at The Motley Fool, we recommend owning around 15-25 businesses in a portfolio to maximise the benefits of diversification. And keeping a decent chunk of cash on the side is also important to take advantage of buying opportunities when they appear. As such, investing around 2%-4% of your total portfolio value as a starting position in a new company is a common ballpark figure we like to use in our Premium services like Share Advisor and Hidden Winners.

4. Select the order type

With the number of shares selected, the next step in learning how to buy and sell UK shares is to specify the type of buy order to place.

There are a few to choose from:

5. Preview your order

After all the order details have been filled out, your broker will show you a breakdown of the transaction. This will usually include:

• The selected stock to invest in
• The amount to invest
• Commission expenses
• Stamp duty
• Currency exchange fees (if trading internationally)
• Additional trading expenses (if not executing an At Best transaction).

Review these details to ensure there are no nasty surprises and verify you have selected the right company and the correct number of shares to invest. The last thing you want is to make a ‘fat finger error’, where you fill out the wrong details.

6. Place your order

This is the last step in learning how to buy and sell shares. After verifying all your details, you can now place your order.

At this stage, your broker will show you a final quote that will only be valid for 15 seconds. This quote is the price per share that you will pay for this At Best trade. It’s worth noting that this might be slightly different from the preview since stock prices are constantly moving.

Having a clock counting down can be a bit nerve-racking when you first start investing. But there is no need to panic. If the timer runs out, the trade won’t be executed. So, take your time to make sure you are happy with the quoted price. 

If everything looks good, then just hit the accept button, and you’re done!

The cash is typically deducted immediately from your account. However, with international shares, it can sometimes take a bit of time. If you are ever uncertain about whether a trade has been placed, your broker will have a section of their platform dedicated to completed and pending transactions that you can check.

7. Congratulations, you’re an investor!

That’s it. You now know the basics of how to buy shares on the stock market. And you can begin putting together a robust wealth-generating portfolio following an investment strategy that works best for you.

Be sure to keep records of all your dealings. If you’re not using a tax-efficient account like an ISA or SIPP, you’ll need these when filing your annual tax return or self-assessment.

Can I buy stocks with just £100?

Thanks to technological innovation and competition, the cost of buying and selling shares has dramatically decreased over the last decade. Most brokers typically charge a commission fee of around £10, and there are even some platforms that allow investors to trade entirely commission-free.

Therefore, investors can start building their investment portfolio even with just £100. However, there are a few critical factors to consider.

A £10 brokerage fee means that 10% of capital is being gobbled up by fees. That means only £90 actually gets put into the stock market, and an investor would have to earn a minimum return of 11.1% just to break even. And don’t forget that commissions are charged on the sell side of a transaction as well.

This is where commission-free trading platforms have an advantage when investing small sums of capital. However, investors need to be aware of the fees which are hidden in the bid and offer prices mentioned earlier. Commission-free platforms tend to have a wider bid-offer spread, meaning that investors can subsequently end up paying more money per share than commission-based platforms.

All of this is to say that investors need to carefully examine the impact of trading fees before putting any money into working in the stock market.

How do beginners pick stocks?

Stock picking is a complicated process that even professionals struggle with. There are a lot of qualitative and quantitative factors to consider. But we’ve written a detailed guide to help beginners learn how to start picking winning stocks for the long run.

Which stocks are best for beginners?

Deciding which stocks are the best to buy is a tricky process, mainly because investing is an exceptionally personal journey. Everyone has different objectives, time horizons, and risk tolerances. As such, the best stock to buy often changes depending on the individual.

However, generally speaking, a terrific place for beginners to start investing is among large-cap companies. These businesses are more mature and established, often providing decent returns at lower risk and volatility.

No business is ever risk-free, and we’ve seen multiple large-cap enterprises ultimately fail. However, when building the foundations of a brand-new portfolio, a large, stable business can often be the most sensible choice.

What are the risks of investing?

Investing in the stock market has proven to be one of the best ways to build long-term wealth. However, that doesn’t mean it’s not without its risks.

There are thousands of stocks listed on the London Stock Exchange. However, not all of them are a good investment, and in some cases, even large public companies can go bankrupt. In these scenarios, the shareholders are often left with nothing.

Detailed research and analysis of a business can reveal and provide insight into the specific risk factors, quality, and long-term potential. And this side of the risk equation can also be minimised through tactics like diversification and pound-cost-averaging.

However, the stock market itself also introduces new risks in the form of volatility. During corrections and crashes, mass panic can cause stock prices to plummet, even if the underlying business isn’t impacted by any ongoing economic uncertainty.

Similarly, temporary disruptions to revenue and earnings can have an adverse impact on a firm’s valuation even if the long-term potential remains uncompromised.

This constant fluctuation means that the wealth-building process never occurs in a straight line. And a poorly constructed portfolio of low-quality stocks can quickly destroy wealth rather than create it. However, by taking a disciplined and prudent approach to the stock market, risks can be managed, and investors can improve their long-term financial prospects.