The difference between the buying and selling price of shares is known as 'the spread'. The bigger the company and the more often the company has it's shares traded, the smaller the spread. Smaller companies or those companies in which shares are traded less regularly generally have a bigger spread. You can conclude from the spread that the bigger the spread, the less liquid, or easily sold the shares will be.
Buying Shares
You can choose to buy either a certain number of shares, or up to a certain value of shares. In either case you can state the maximum price you are willing to pay for each share. This is known as a 'limit order' although this isn't universally accepted by all share trading companies, and even if it is then they are usually limited to a time period, for example 24 hours or 48 hours depending on the company. If you are not sure what shares you want to buy, ask your personal financial advisor for information and advice.
Selling Shares
Your Stockbroker is obliged to sell at the best price they can get for your shares. This is known as the 'best execution', however you can also state the minimum amount you are prepared to accept for your shares. Like 'limit orders' when buying, not all firms will accept this. If a firm does, it may again be limited to a specific time period.
When buying and selling shares it is important to be informed either by doing your own research or by taking advice from your personal financial advisor or other independent advisor.
How Do You Buy And Sell Shares?
Buying and selling of shares is usually done through a stock broker, although there are other ways of buying and selling shares, but they too will have to eventually go through a stock broker.
There are three different types of service offered by stockbrokers:
- Advisory, where you are given advice on which shares to buy and sell.
- Discretionary, where the stock broker is authorised to make decisions on buying and selling shares on your behalf. This really only applies to those people who have large share portfolios exceeding �20,000 in value.
- Dealing-only (also called execution-only), this is where you make the decision on which shares you wish to buy and sell, without advice, and tell the stockbroker what action to take on your behalf.
You can do business with stockbrokers face to face or by phone, as well as by post, through branches of high street banks and building societies as well as over the Internet.
Benefits Of Online Trading
By logging on to the Internet you will be able to check your shareholdings in UK companies; track recent share movements; find information on dividend payments and see a daily valuation of investments in your portfolio. All this can be done online without involving a stockbroker. You can even elect to receive shareholder communications electronically via the Internet rather than in paper form through the post.
There are now many sites on the Internet dedicated to this purpose, and once you are set up this can give you flexible and quick access to your share information, as well as a quick means of buying and selling shares, in many cases reducing the costs of transactions.
For more detailed information on buying and selling shares, visit our Shares Resource Centre.
