What you need to know about getting started with share dealing.
Many companies raise capital by making a fixed number of shares in the company available for sale on the stock market and issue share certificates in return for their purchase.
Each share offered will be of equal value and attract certain privileges, including voting rights and a share of the company's net profit (often paid in twice yearly dividend instalments, the proportion of which will be relative to the amount of shares you hold in the company).
However, the actual monetary value of a share at a given point in time depends on the demand for the company's product or services and it is this variable which makes share dealing shares a volatile investment.
In general, investing in share is, over time, likely to produce higher returns than simply leaving funds in a savings account where they are unlikely to grow above inflation.
It is however important to remember that with the potential for increased profits from share dealing there is an associated risk of loss. Consequently, in order to counteract inevitable fluctuations in the stock market, share dealing investments should be seen as a medium to long term venture.
Additionally, as your capital is at risk when you purchase shares, you should only invest money that you can afford to lose and ensure that you have other financial arrangements in place.
A stockbroker acts as an intermediary between you and the stock market and carries out your instructions to buy and sell shares with the aim to deal at the best price possible.
Execution only brokers simply follow your instructions to buy and sell shares without giving any financial advice. The majority of stockbrokers that allow you to share deal shares online and share dealing companies that offer online share dealing accounts work on this basis. Although this tends to be a cheaper way to invest as trading online is often the key to cheap share dealing, it may not be suitable for someone who is completely new to share dealing.
Advisory brokers advise on the purchase and sale of shares but leave the final decision up to you (this can be a good share dealing shares option for beginners).
Discretionary brokers take complete control and deal on your behalf - this tends to be the most expensive option this type of share dealing account tends to be best for those with larger portfolios.
There are a variety of different share dealing accounts available from different share dealing companies online. The way you plan to trade and the type of investments you're interested in making will guide you to find the best share dealing account possible.
Your options as to the type of investments you can make via share dealing accounts are almost endless. They range from investment in a spread of higher risk shares chosen to maximise capital growth, to investment in lower risk shares in more established companies suitable for provide regular income.
Collective investments can be a good option for novice investors as they pool your money with that of other investors to enable you access to a range of markets, companies and sectors you would have been unable invest in alone (examples include OEICs, investment and unit trusts).
Before you look to purchase shares it is important to research the type of investment that is likely to be best for you as well as the market and type of company you want to invest in.
It is advisable to invest in a spread of at least 6 companies so as to help reduce risk to your capital.
Additionally, it is important to be aware that capital gains tax is imposed on any profits you make from your investments and you also must pay 0.5% stamp duty on all share transactions.
As long as you research your investments thoroughly, are aware of the risks involved, choose a low cost share dealing account and plan accordingly; share dealing can be an exciting way to enhance the profitability of your savings.
Take a look at our Action Plan: How to Start Investing in Shares to find out more about getting started.