Accounts for Buying and Selling Stocks
Your first port of call is to set up an account that allows you to buy and sell shares in publicly traded companies. UK investors have a few key options to choose from:
Stocks and Shares ISA
Individual savings accounts represent an ideal way for people in the UK to invest in the stock market. The key benefit is that you can put up to £20,000 per year into an ISA and any profits you make will be tax free. You can pay the £20,000 in one lump sum, or make several smaller payments over the course of the year. The allowance period begins again on 5th April each year, at which point you can add another £20,000. This money is not locked away. You can access it at any time and make withdrawals whenever you like.
General Investment Account
This might also be referred to as a dealing account or a standard trading account. It works just like an ISA, but you will be taxed on any income you make or gains you earn by selling shares. You can pay into a general investment account if you max out your ISA allowance for the year and still want to invest more money that you can access whenever you like.
A self-invested personal pension is essentially a DIY pension scheme. A SIPP earns you tax relief, just like any pension product. For every £80 you put in, the government will add £20. High earners can also claim an extra £20, essentially as a rebate for paying the highest tax band. The beauty of a SIPP is that you can control the funds within it, meaning you can invest in stocks, funds, ETFs and so on. The only catch is that you cannot take any money out of your SIPP until you turn 55, After that point, you can take out as much as you like.
Lifetime Stocks and Shares ISA
A LISA helps young investors save for their first home or retirement. You can put in up to £4,000 per year, and the government will add £1 for every £4 you invest, up to a maximum of £1,000. LISAs can be opened by anyone aged 18 to 39, and you can contribute up to £4,000 per year until you turn 50. However, the money within it can only be used as a deposit for your first home, or accessed when you turn 60. If you want to take it out early, you have to give up all the government bonuses.
How to Buy Stocks in UK: Leading Providers
Now that you are aware of the account options available, this how to buy stocks for beginners guide can move onto the leading providers at your disposal:
This Bristol-based firm sells funds, shares and related products to retail investors in the United Kingdom. It is a constituent of the FTSE 100. Hargreaves Lansdown is the largest direct to investor platform in the UK. It is slightly pricier than some rivals, but it is renowned for fantastic customer service. It is one of the best broker accounts for beginners due to its user-friendly platform.
AJ Bell YouInvest
AJ Bell’s YouInvest platform also allows you to buy and sell a huge range of shares and funds. It is smaller than Hargreaves Lansdown, but it has £62.5 billion in assets under administration and has slightly lower costs than the market leader.
This platform charges reasonable, flat fees and offers one free trade per month. It also boasts a wealth of education information, so you can read a how to buy stocks for beginners guide there.
Fidelity offers commission-free trading and investment accounts, and it is renowned for providing strong investment research and advisor access. It also has a robo-advisor and managed portfolios.
This is generally the cheapest option for anyone setting up a stocks and shares ISA, but you have to deal with limited functionality and a pretty basic user interface as a trade-off.
An ambitious relative newcomer to the market that has launched a high-profile marketing campaign fronted by Alec Baldwin. It offers commission-free trading on stocks, but it is best known for crypto CFDs and copy trading. Check out our crypto trading beginners guide for more information on this burgeoning asset class.
This firm is also mainly known for CFDs and spread betting, but it also allows you to buy and sell shares. Our what is CFD in trading guide helps you make sense of this pursuit.
A major US investment platform that accepts UK customers. It offers a wide range of investment products, a lot of educational material, strong analytical tools, commission-free trading and a polished interface.
This London-based stockbroker allows you to buy thousands of stocks from the London Stock Exchange, AIM, NYSE and NASDAQ. It is known for allowing fractional shares investment, and for its award-winning app.
We have not included Vanguard in that list, because you can only use it to buy Vanguard’s own funds as opposed to stocks. We also left out Nutmeg, Wealthify and OpenMoney, as they manage buying and selling stocks on your behalf and do not require you to trade. You can also check out CFD trading sites like Plus 500 and IG.
How to Buy Stocks Online
You now know which accounts are on offer and the providers you choose from, so this how to buy stocks online guide can now turn to the actual buying process. You can follow these simple steps to buy stocks at the leading platforms in the UK:
Register for an account and complete the KYC process. This will require you to provide personal details, answer questions about your situation and upload scans showing photo ID and proof of address.
Next you must fund your account. The most common method is to enter your debit card details, but you can send direct bank transfer, set up direct debits or standing orders or perhaps opt for more niche payment options.
When your account is funded, you can search for a stock that you would like to buy. You can click on “Investment Search” or something similar to search for a particular company, either by its name or its ticker (a unique series of letters assigned to a security (stock or fund) for trading purposes). Alternatively you can use a “Share Rank” function to find shares that might appeal to you. The platform should allow you to search by stock exchange, sector and industry, and you can add in filters and arrange by metrics like market cap, dividend yield and last close price.
Once you have found a stock you like the look of, click on it and you will be provided with a raft of information about the company. You should see the price, day change, last close, day range, market cap, 52-week range, yield percentage, volume, price to earnings per share, price to sales, a company profile, a price chart, number of employees, operating margin, net margin, debt/equity, and so on, plus a written profile of the company.
If you are happy with what you see, click on the “Buy” button.
You can then choose the account that you wish to use for the purchase, such as your ISA or your SIPP. Make sure it is set to “Buy” and “At Best” in the order type box. Enter the value of the trade (the amount you wish to spend in GBP) and click if you want the dealing charge (if applicable) to be included in that amount or added on top of it.
Click “Get Quote”.
This will trigger a new box whereby you will be told the amount of shares you will be able to purchase for the amount you have chosen, plus any dealing charges. A timer will count down, generally from 15 seconds, and you have to click to confirm the deal within that time. If you do not complete within that time frame, the quote will expire, as the price can change quickly. However, you can then simply click “Get Quote” again, and you will be presented with the same box once more. Click to confirm.
If you are buying a stock, it should rapidly appear in your online portfolio. Funds take longer to appear. Your cash balance will go down and your stock will be added to your portfolio in its place, and you can monitor its performance going forward. You should receive a contract note for the purchase, which will be found in the “Documents” section of your portfolio. That’s it – you now know how to buy stocks.
How to Buy Stocks for Beginners: How to Value a Stock
Anyone can learn how to buy stocks, but the real skill lies in buying the right stocks at the right time. Of course, you can never know with certainty how a stock will perform, but you can perform a thorough analysis of a stock before you purchase it. This will help you figure out if it is undervalued or overvalued.
You want to find undervalued stocks with strong potential for growth, or to identify appealing stocks that offer a healthy dividend yield while hopefully increasing at least in line with inflation. These are the four classic ways to test a stock’s value:
Price to Book Ratio (P/B)
The book value of a company is essentially the sum total of all its current assets, which includes equipment, buildings, land and anything else that can be sold, including stock holdings and bonds. You calculate the P/B by dividing the price of the share by the book value. A good P/B ratio for one industry might be a poor ratio for another, so it can help to perform a competitor analysis.
Price to Earnings Ratio (P/E)
This is calculated by dividing the price by the earnings per share. It helps you determine the value of the stock by comparing it to the company’s earnings. A high P/E ratio can mean that the stock is overvalued, or that investors are expecting significant growth going forward.
Price-to-Earnings Growth Ratio (PEG)
This builds upon the P/E ratio by incorporating the historical growth rate of the company’s earnings. It is also useful for valuing one stock against a competitor.
Dividend paying stocks are attractive to many investors. If you buy enough of them, you can live off the dividends, and it is also nice to have a fallback if a stock’s growth falters. The dividend yield tells you how much of a payback you will earn for your investment. It can be worked out by dividing the annual dividend by the price of the stock. Many investors look for steady, consistent dividend growth. Some of the top dividend stocks UK are popular right now.
Each of these methods has its flaws, but by combining them you can glean a solid overview of how attractive a potential stock is.
How to Buy Stocks: Invest for at Least Five Years
The prevailing wisdom is that you ought to invest for at least five years in order to achieve a strong return on your money. The stock market ebbs and flows, and some years bearish conditions take hold for one reason or another.
There was the dot-com bubble at the turn of the century, and the subprime mortgage crisis in 2008 and 2009, while there have been various crashes in history, but the stock market has always recovered, and the overall trajectory has been positive, so many would advise you to commit to investing for at least five years in order to give yourself the best chance of success.
How to Buy Stocks: Beware Scams
It is worth noting that there are certain illegal, unscrupulous operators that will try to scam you out of your hard-earned cash. Stick to the safe, reputable, legal stockbroker platforms listed on this page, and avoid random offers that sound too good to be true.
This how to buy stocks for beginners article has highlighted the key strengths of some well-known platforms, but do not simply assume that all professional-looking websites are real. UK consumers are increasingly targeted by investment scams carried out via online trading where fraudsters offer trades in foreign exchange, contracts for difference and crypto.
Be wary of online ads offering high returns, never allow yourself to be pressured to invest if contacted out of the blue, and conduct thorough research on the firm you are considering.
How To Buy Stocks For Beginners: Our Final Tips
This how to buy stocks guide arms you with all the basic information you need to get into the wonderful world of investing. However, this is just the start of your exciting journey, and you will accumulate a wealth of information in future. Make sure you check out our broad range of reviews, guides and educational pieces to bolster your knowledge.
How To Buy Stocks For Beginners FAQ
👩💻 How do beginners buy stocks?
The easiest way for beginners to buy stocks is to go through an online stockbroker. The leading online brokers will allow you to buy and sell a large range of stocks and funds. You can search for companies or funds that appeal to you, read the prospectus and buy them by following simple instructions at your online broker. Be sure to read our how to buy stocks for beginners trading guides to see how to get started.
💰 How do I start investing with little money?
You can invest as little as £25 per month at some of the best online brokers in the UK. When it comes to investing in a particular fund, the minimum investment is often just £1. You can then slowly and steadily build up your wealth over a prolonged period of time, without having to worry about finding a large up-front sum when setting up an account. To find out the minimum investments on major UK brokers, be sure to consult our guides here at Tradersbest.com.
📈 What should a beginner invest in?
First you need to think about the sort of account you will use for investing. It is generally advisable to start with a stocks and shares ISA, as any profits are tax free, and then think about a SIPP or a general investment account. You should then conduct thorough research into a company before buying shares in it, or consider investing in a broad tracker fund or an ETF that gives you diversification.