How to start your share dealing journey

Share dealing can be one of the most exciting and empowering financial choices that you can make – allowing you to grow your money quickly by making good financial decisions.

But it is also an intimidating world filled with complicated graphs and obscure insider language. This can make it difficult for newbies to get started. But we’re here to demystify your share dealing journey so that you can take control of your finances today.

What is share dealing?

In essence, share dealing is the act of buying and selling company shares.

Buying a share in a company makes you a part-owner. This ownership can be sold at a strategically important moment in the hope of making a profit. Ownership can also be sold if the value of the stock tanks and there is no additional value to be made from the investment. Alternatively, you may choose to maintain your share ownership in the hope of earning dividends.

How expensive is share dealing?

You can buy and sell shares as many times as you like, but you may be charged for each transaction by your investment platform. Any costs should be factored into your projections, so that you don’t end up spending more money than you earn.

How to start share dealing

The first step is to choose an investment platform, or platforms. This should be a straightforward process involving identity verification and enabling bank transfers or card deposits.

Decide how much money you want to invest and add this to your account. Initially you may want to keep this amount quite low while you find your feet, to avoid making any expensive errors.

Next, choose your shares. There is a wide range of stock available to choose from, including common and preferred stocks. Common stocks give a part ownership over a company and access to the company’s assets if it is ever dissolved, potentially allowing you to recoup expenses. Preferred stocks allow investors to recoup some of their money if the company goes under and secure dividend payments before other investors.

Your share choices may be driven by your personal ethics, your own market research, or the desire to simply make a quick return.

Large cap stocks are well established and reliable investments. The “cap” is a reference to market capitalisation, which is simply the number of shares that company has in the market multiplied by the share price. It’s essentially a way to compare how big companies are. Large cap companies are usually well-established companies that are efficiently run.

Mid- to small-cap stocks carry potential for future growth and come with reduced levels of cost, but can take time to mature and carry proportional levels of risk as a result. Smaller stocks or alternative investments may be cheaper to buy but the prices can change a lot, making them better suited to experienced or well-informed investors.

You can also use exchange-traded funds (ETFs) to buy and sell lots of shares in one trade. ETFs are designed to match a chosen index such as the S&P 500 or the FTSE 100, or they may mirror a sector’s performance by investing only in mining stocks, for example.

Many investors like ETFs for the instant diversification on offer, and the ability to save on fees. You may not have enough money to buy ten Apple stocks at $135 each , but for $100 you could invest in an ETF which offers exposure to Apple stock, such as the Vanguard Information Technology ETF, which has a 22.8% weighting towards Apple.

It is important to remember that often ETFs offer exposure to, but not ownership over, an asset. For example, choosing a commodities ETF with exposure to gold does not always mean that you own the gold that you are invested in, but it does mean that the value of your investment will rise whenever the price of gold goes up.

When do you buy and when do you sell?

This is the golden question of share dealing. Knowing when to buy shares and when to sell them requires a mixture of insight, knowledge, availability, and luck.

Ideally you want to buy shares cheaply and sell them after their value rises. Some share dealers spend an enormous amount of time and money to help them make these decisions, but this is not always necessary.

Remember, at the heart of every share investment sits a real company. Your share is a representation of a place where real people do real work. You don’t have to be a market boffin to understand which companies seem to be better placed to make money. Think about the profits of the company over time, the amount money the company owes to suppliers and other creditors, or the future of the firm. All this information is publicly available for listed companies. If you know that the firm is eyeing a major acquisition or expansion, there is a good chance that this will have an impact on its stock price in the future. If it works, the share price will go up. If it fails, the share price will fall.

Plan, if possible, so that you are not caught off guard by a sudden market movement that shaves value off your investment. Read the financial pages and check in with your investments as often as possible to get a good feel for the company’s strength and staying power.

Finally, take a long-term approach. The wonder of share dealing lies in compounding, and compounding’s best friend is time.

Ultimately, share dealing is a very personal process which is best approached with some degree of flexibility. As you become more confident, you may start making quicker decisions, buying and selling stocks within a shorter period. Equally, you may choose to curate a longer-term portfolio of growth stocks which you can buy at your leisure and sell in the distant future.

Do your research, stay informed and keep tabs on your portfolio performance, and enjoy your share dealing journey.