How to buy shares

What you’ll learn:

• How to buy and sell shares online.
• How to invest in funds.
• Why holding your shares in ISAs and SIPPS is tax-efficient.

If you want to buy and sell shares, you'll need to open a trading account with a stockbroker or through a platform such as Smart Investor.

This type of account is usually known as a ‘nominee’ account, which means shares are held on your behalf, although you still own them. To open an account, you need to provide personal details such as your name, address and National Insurance number and pass a check on your identity – usually an electronic check against the electoral roll, though documentary evidence of your identity can also be requested. You also need to choose a password.

Paper share certificates are rarely held now because nominee accounts are so much faster, cheaper and more convenient to use, so if you still have paper shares, you may want to consider converting these to nominee held shares.

You can only buy shares once you’ve put money into your account.

How self-directed services work

Some services, such as ours, don't provide advice, so you make your own investment decisions. These are often called self-directed or execution-only services and they tend to offer the simplest and cheapest way to buy shares.

If you're not comfortable going it alone, you may want to choose an advisory service, so that an adviser can recommend which shares to buy. You'll pay extra for this advice.

When you place a trade online or over the phone, you’ll give us an ‘Order’ – it’s an instruction to buy or sell the investment you’ve chosen. There are different types of orders you can place depending on the type of asset you’re trading, whether you’re placing a one-off trade or a regular investment, and what you’re looking to achieve.

If you're planning on choosing shares yourself, always do plenty of research before buying.

Remember that past performance isn’t a guide to the future. Just because a company might have performed well historically, there are no guarantees it'll continue to do so in future, so you could get back less than you put in.

Learn in 10 - Placing an order

Short on time? Watch this quick 10 second video on placing an order.

More about the different types of orders

When you buy and sell investments, you give us an ‘Order’ – it’s an instruction to buy or sell the investment you’ve chosen.

There are different order types for different asset classes and it’s important to understand how they work. We’ve set them out below, with the types of investment they apply to.

Single fund investment or sale

This is a one-off fund purchase or sale. You place one instruction for each fund whenever you want to buy or sell. Your instruction will receive the next available fund manager valuation point after our next internal cut-off time.

Regular investment – funds/shares/ETFs/investment trusts

You can give a single instruction to make repeated purchases of a specific fund, share, ETF or investment trust on a monthly, quarterly, half-yearly or annual basis.

At best – shares/ETFs/investment trusts/gilts and bonds

Get the best price available to us at the time for the investment and quantity you want to buy or sell. You can place at best orders at any time and if the market is closed, your order will be processed when it reopens again. Because you can’t set a price, the actual price at which you buy or sell may be higher or lower than you expected.

Quote and deal – shares/ETFs/investment trusts

Buy or sell an investment almost instantly whenever the relevant market is open. You’ll get a real-time quote, held for 15 seconds, so you know the exact price.

Limit order – shares/ETFs/investment trusts

Buy or sell at a price set by you, which can either be higher or lower than the current market price. Your order will be placed automatically once the set price is reached or exceeded. We monitor your limit orders automatically until the order expires. If your set price isn’t reached, your order will expire without an order being placed. You can place limit orders for up to 30 business days.

Limit order – gilts and bonds

Set a limit for the price you’re willing to pay to buy or sell your chosen investment. This can either be higher or lower than the indicated current price, however, if the price can’t be achieved at the time you place your order, no deal will be executed. Your order won’t be kept or watched for any period of time but will be placed or rejected as soon as appropriate.

Investing in funds

You may decide that you want to invest in a combination of shares and funds. One of the benefits of using an online investment service to do this is that you'll be able to see all your investments in the same place.

Funds, such as unit trusts, open-ended investment companies (OEICs), investment trusts and exchange-traded funds (ETFs), enable you to invest in a wide range of shares, bonds and other assets, which are carefully picked and monitored by professional fund managers.

Find out more about funds, ETFs and investment trusts

Although they can provide an effective way to diversify your portfolio, this doesn't mean that they're without risk and the value of your investments can fall as well as rise.

If you're investing in a managed fund, using an online investment service it's usually a much cheaper option than going direct to the fund company, as many services will discount the fund managers' initial charge. You'll also have access to thousands of funds from lots of different providers.

Once you've opened an account, you can pick which funds you want to hold in your portfolio and how much you want to invest. You can usually opt to make regular investments if you want to. For example, you can set up a regular investment with us from as little as £50 per month.

If you're in any doubt about which funds you want to invest in, you may want to seek financial advice to help you choose. You'll have to pay a fee for this advice. You should also remember that the value of investments can fall as well as rise and you may get back less than you invested.

Hold funds or shares in an ISA

One of the most tax-efficient ways to invest in funds or shares is through an individual savings account (ISA). Just remember that these tax rules can change in future and their effects on you will depend on your individual circumstances.

This tax year you can put up to £20,000 tax-free into your ISAs. You can split your allowance between a cash, investment, innovative finance and a lifetime ISA if you want to and all gains will be free from income and capital gains tax. However, with a lifetime ISA,¹ you can only pay in up to £4,000. Remember, you can only pay into one of each type of ISA in each tax year.

There’s no income tax, tax on dividends or capital gains tax to pay on any gains from investments held in an ISA. Bear in mind that tax rules can and do change and their effect on you will depend on your individual circumstances.

If you want to invest in shares or funds through an ISA, then you can buy them through Smart Investor. You can choose your investments and how you want to buy them, either with a lump sum, regular monthly investments, or a combination of both.

Find out more about investment ISAs

Remember that if you want to use existing investments to fund your ISA allowance you can’t transfer shares directly into a stocks and shares ISA. You must sell them and then re-buy them within the ISA and SIPP. This process is known as ‘bed and ISA’.