Okay, so hopefully you now have a good idea of what a share is, why you might want to own them and when you might buy and sell them.
But, how do you actually trade them?
Publicly traded shares are traded on stock exchanges. In London we have the London Stock Exchange (LSE) and in the US they have the New York Stock Exchange (NYSE), the American Stock Exchange (AMEX), the NASDAQ and many others.
I’m sure you have all seen the images of men in brightly coloured jackets shouting at each other across trading floors. Well, they are the guys that are buying and selling millions of shares every day on behalf of clients.
Or, more accurately, they were a few years ago. Nowadays, that type of open outcry trading is pretty rare, and the vast majority of trading is done electronically at the exchanges.
In order, to access an exchange you need to use a stock broker. In fact, the actual stock exchange used is largely irrelevant to you the customer. The stock broker will deal directly with them and simply quote you a price to buy and sell the shares you are interested in.
Stock brokers come in several different guises and charge accordingly. You can pay hefty fees for a man in a suit to manage your entire portfolio and make all the buying and selling decisions on your behalf.
Or, at the opposite end of the spectrum are the array of execution-only online stock brokers. With these companies, you simply open an account, fund it and then buy and sell at the click of a mouse.
It’s quick, cheap and convenient. But of course, you are making the decisions yourself.
Shares are quoted with two prices; the bid and the offer. You buy at the higher price — the offer — and sell at the lower price — the bid.
Or, you can set a limit price. That’s a fixed price that you are prepared to buy or sell your shares at. There is no guarantee that your order will be filled, but if it is, you do know the price you will achieve.
There will also be an additional commission charged by the broker for making the trade. This is usually fixed and so has a smaller impact on your overall costs the more shares you buy or sell. For online brokers, it can easily be less than £10.
And — surprise, surprise — for UK share trades, the tax man wants a cut. You will be charged half a percent stamp duty when you buy your shares.