Have you always wanted to buy shares in UK companies but don’t know how to go about it? Well, you’re in luck, as today’s guide will bring you up to speed on how you can buy and trade shares in UK companies.
We will also use the opportunity to highlight some brokers that allow you to buy and trade UK companies’ stock. But before we get into the nitty-gritty of today’s guide, let’s give you some background about investing.
Even though investing in the stock market is risky and complicated, buying and selling shares is one of the most viable wealth-building strategies. Each share represents a small percentage of an underlying business. Investing in a company can build long-term wealth by owning some stocks. Today’s guide will show you how you can do that.
Buying and trading shares in UK companies
There are a lot of profitable companies in the UK that you can invest in today. Buying shares and stocks of these companies is a surefire way to build long-term generational wealth. But before you can buy or trade shares of UK companies, there are some steps you need to take. Read on as we break everything down.
Open a brokerage account
Before buying shares in UK companies, you’ll need to open a brokerage account. Thankfully, you can choose many reliable brokerage companies, including the likes of Plus500, eToro, AvaTrade, Fidelity, and more.
That said, finding the right broker is key to your success. Each broker offers unique services and charges different brokerage fees to suit different individuals. For instance, a broker that may be cheap for you might be different for someone else.
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Overall, your choice of broker to do business with should depend on the investment you want to make, your portfolio size, how often you plan to trade, and additional services you might be interested in.
While there are many brokers out there, we love eToro because of its unique proposition. Besides offering mouthwatering discounts, eToro charges special fees when investing in UK shares.
While investing in UK companies’ shares is a brilliant idea, keep in mind that investing overseas comes with extra cost, not to mention the risk of fluctuating currency exchange rates.
As a rule of thumb, we always encourage users to opt for brokers that offer fixed trading accounts. This is because these accounts are cheaper, especially for investors with large portfolios. On the flip side, you can opt for a percentage-based fees account, especially if you have a smaller amount of capital to trade with.
Another thing you want to consider when choosing a broker is stamp duty. This is usually a 0.5% tax applied to your fees when buying shares. Thankfully, when buying AIM-listed UK shares, you are exempted from paying stamp duty.
Check the price
With your brokerage account fully set up, it’s time to start buying and trading shares in UK companies. Picking which stocks to invest in can be pretty daunting, especially when starting your investment journey. But with patience, due diligence, and research, you should find a company that ticks all the boxes.
Since brokers like eToro, Admiral Markets, and Fortrade feature plenty of UK stocks, finding a UK company to invest in is a stroll in the park.
Once you have chosen a UK stock to invest in, your broker will present you with two prices:
Bid: This is typically the higher price you pay when buying shares
Offer: This is the lower price your broker pays when selling shares. This is also often called the ask price.
The difference between these two prices is referred to as the bid-offer spread. It is an important concept to know when learning how to buy and sell shares.
The bid-offer spread, also popularly known as the bid-ask spread, is designed to allow market makers to make some profit. This is their reward for the legwork they put in for each transaction. Market makers provide the share when you want to buy. Similarly, they take claims when you sell. Your broker typically acts as the middleman between you and the market maker.
Investing in large companies worth billions of pounds attracts minimal bid-offer spreads, typically a minute fraction of one percent.
On the flip side, smaller companies, especially those valued at 100 million pounds or less, have higher bid-offer spreads that can sometimes be over 10%. To make profits investing in these companies, the share price will need to rise above the bid-offer spread, along with other charges that may occur.
Make up your mind on the number of shares to buy
If you’re satisfied with the quoted prices of your preferred UK shares provided by your broker, the next thing you need to do is decide the number of shares you want to buy. In most cases, your broker will allow you to enter a pound value. This will give you the details of how many shares that amount can get you. Alternatively, you can divide the amount you would like to invest by the share price of the company you want to invest in.
But how do you decide how much to invest in each business? This is a super tricky question that even professionals with years of experience struggle with. The truth is it all depends on the individual. As an investor, you must factor in your risk tolerance and financial goals when making such decisions.
From our experience, investing in 15 to 20 companies at a time is always best. What this helps to do is diversify your portfolio. Also, it’s always a brilliant idea to have some spare cash on the side, as it will help you take advantage of buying opportunities when they appear.
If you’re starting out, it will be a smart move to invest 2% to 4% of your total portfolio in a new company.
Select the order type
After deciding the number of shares you’d like to buy, the next step of learning how to buy and trade UK shares is to choose your preferred order type. Since there are few to choose from, we will use this opportunity to give you an overview of each order type.
At best: With this order type selected, your broker will execute the trade at the best price it finds. While transactions are fast, you can’t tell the exact price at which your trade will be executed.
Buy limit: With this order in place, your broker will only execute the trade if the share price reaches your preset price. Thanks to this type of order, you know the price at which your trade was executed. The caveat with this order type is that it attracts higher trading fees and has an expiration time. More so, if the price doesn’t reach your specified price, the trade will not be executed.
Sell limit: With a sell limit set, your broker will execute a sell trade if the price reaches the predefined limit. A sell limit works precisely as a buy limit and has the same advantages and disadvantages.
Stop loss: Your broker will typically activate a sell order if the price falls below your predefined limit. Stop loss order is designed to manage losses. Nonetheless, it can also create a significant opportunity cost. Assuming your preferred UK share falls below the specified price due to stock market volatility, the stop loss order will be executed, even if the market later recovers.
Preview your order
With your order details now filled out, your broker should give you a transaction summary. Depending on the broker, your transaction summary should look something like this:
- The stock you bought
- The amount you want to invest
- Commission breakdown
- Stamp duty
- Currency exchange fees (For those trading internationally)
- Trading expenses, especially if you’re not buying at market price.
Take some time to review these details to forestall any nasty surprises. Also, double-check the number of shares and ensure you have invested in the right UK company. The last thing any investor wants is to make a fat finger error, where you enter the wrong information.
Place your order
This is the final step in buying and selling UK shares. After verifying all the crucial details, you can go ahead to place your order.
At this stage, your broker should typically provide you with a final quote, valid for 15 seconds. The quote is usually the price per share you pay At Best trade. Let us quickly add that this is slightly different from the preview, as stock prices aren’t stagnant.
Having a clock count down can be a little dramatic and nerve-wracking, especially if you’re new to investing. But you don’t have to panic. If for any reason, the timer runs out, your trade won’t be executed. So always take your time and ensure you’re happy with the quoted price.
If you’re satisfied with everything, you can click on the accept button, and you’re done.
The amount should be deducted from your account immediately. If you’re not sure whether your trade was executed, you should find a section on your broker’s website dedicated to showcasing completed and pending transactions. This should help you know exactly what you have invested in.
How to buy UK stock on eToro
Now that you know how to invest in stocks, we want to show you how you can buy UK shares on an exchange like eToro. And the process is pretty straightforward and only takes a couple of minutes. Here, check out how anyone can buy GameStop stock on eToro.
Create an eToro account
If you don’t already have an account with eToro, you’d have to open one to be able to buy UK companies’ stock. As we reiterated earlier, the process is simple. If you already have an account with eToro, you can simply log in.
During the signup process, you’ll be required to provide basic information like name, email address, and phone number. Nonetheless, to fund your eToro trading account, you’ll need to provide additional info so the broker can verify your identity.
Complete your eToro profile
If you’re opening your account for the first time on eToro, you’d be required to complete your profile. For customers who have an existing account, you can skip this process. Completing your profile only takes a couple of minutes and is a requirement by most brokers as per AML and CTF regulations. With your profile now complete, you can proceed to other aspects.
Fund your trading account
After completing your eToro profile, you’ll need to fund your trading account to be able to buy some UK stocks. We love eToro because they have a low minimum deposit requirement. To start trading on the eToro platform, you’ll need to make a minimum deposit of $200 or its equivalent in other currencies.
And just to add, eToro supports up to 8 popular deposit methods, including PayPal, wire transfer, UnionPay, credit or debit cards, Neteller, Skrill, and WebMoney. So, funding your account is super easy.
Tip: If you’re not fully convinced or you don’t feel ready to invest real money, you can test the waters with eToro’s virtual portfolio feature. This option lets you trade your favorite stocks without putting in real money. And as you gain experience and feel more comfortable, you can switch to a real portfolio.
Buy and trade shares in UK companies
With your eToro account now funded, you can proceed to buy UK-based stocks. While eToro lets you buy UK shares seamlessly, you can also decide to short it. Keep in mind that the direction you decide to take is based on current market sentiments or direction. Here is how you can buy UK stocks on eToro.
Navigate to eToro’s unique search bar, which sits at the top of the screen. Enter the ticker name associated with the stocks you’d like to buy. Hit the trade now button to place your order. A new window should pop up, allowing you to make changes to different parameters. It’s that easy.
