How to Buy Shares for Beginners

Guidelines on How to Buy Shares for Beginners

If you have not bought shares before, you may assume that the process of buying stocks and shares is a herculean task.

But stock investment is fairly easy once you have an understanding of how to buy shares for beginners.

If you lack this knowledge, you may fall victim to a few very avoidable mistakes that will affect the success of your investment.

So, here you'll find exactly how to buy shares for beginners.

Here are five steps on how to buy shares as a beginner:

#1. Select an Online Stockbroker

When it comes to buying shares, you have three main options;

buying through an online broker,
a full-service stockbroker,
or directly from the company.

However, buying shares through an online broker is the easiest of the three options.

An online broker, also sometimes known as a platform, acts as a middle man between tradable securities and investors. They perform this function over the internet, usually at high speed, and at very good value for money. Especially when compared to either going directly to the company or using a full service stockbroker.

Online brokers and platforms, such as eToro, fidelity, Interactive Investor, or Hargreaves Lansdown also provide very helpful resources on how to buy shares for beginners to their customers regarding DIY investment trading, probably one of the reasons it may be best for beginners to start their journey.

Once you've selected a broker, open a brokerage account that you will use for your stock trading and fund it with the minimum amount required in order to operate it and see all of its functionality.

Some platforms, will allow you to use a dummy account for practicing buying and selling stocks and share and trading. This can be a really great way to start out if you are a new share trader, as you can practice buying and selling as many times as you like without losing a single penny or cent of your own money.

Only when you become fairly comfortable with the platform, and how to buy shares for beginners, do you have to consider actually spending your own money on your investments.

As always, when you are starting something new we would recommend you start with small sums of real money just to get used to it before you invest more significant amounts of your own money.

#2. Analyze Different Stocks and Choose the Ones to Buy

Once you have learned the very basics of how to buy shares for beginners, it's time to pick your stocks, and this will require some due diligence and research either via yourself, or perhaps reading literature and recommendations.

Research different companies and find stocks that have maintained a record of good performance if possible, or at least have some compelling positives for the future. You should start from companies you are familiar with and may have observed their consistent growth over the years, probably as a consumer.

And, once you’ve picked these companies, find out all you need to know about them, and basically thoroughly examine their financial reports. You'll also find information about these companies on your broker's website.

#3. Decide the Number of Shares to Buy

At this juncture, many newbies in to stock investment fall into the pressure of wanting to buy multiple shares at once. However, one of the best pieces of advice on how to buy shares for beginners is to start small.

You can start with a single share to wet your appetite, so long as it exceeds the platforms minimum purchase price, and then decide whether or not you want to go ahead with it. There is nothing more off putting for a beginner investor than watching their initial investment plummet by 50% or more the day after they make their first investment.

You can also consider fractional shares which allow you to buy a portion of a share. Also, in deciding on the number of shares to buy, many online brokers use tools to convert your pound/dollars to shares. This enables you to know how many shares your money can buy.

The trading platform eToro allows you to buy fractional shares and also convert currencies to show you how much you have invested in any of the major currencies around the world.

#4. Choose Your Order Type

Order type is a vital instrument in trading, it facilitates effective stock trading and is a key learning point for understanding how to buy shares for beginners. There are 3 major types of order.

A market order is a request to buy or sell a stock immediately at the best available price.

A limit order is a request to buy or sell a stock only at a specific or a better price.

A stop (or stop-loss) order is a request to buy or sell a stock once the price of the stock reaches the specified price, after which the stop order becomes a market order.

Depending on which broker, or platform you choose to use, sometimes these orders can be set out in a more plain English style such as simply buy, sell, or stop loss etc.

#5. Optimize Your Stock Portfolio

Almost every stock investor hopes for success, however, you should be proactive, investments are risky after all. Optimizing your stock portfolio means adding other investments to your stock portfolio to hedge risks.

Portfolio optimization is usually done through diversification of both geographical region, and stock types. This means that once you have started your investors journey, you will then seek to diversify your portfolio by choosing stocks from rights around the world including the UK the USA, Europe and Asia, and also diversifying the type of stocks you buy such as dividend paying stocks, fast paced growth stocks such as technology companies, and other types of stocks as you may see fit to include in your portfolio, such as very small companies that have the opportunity to grow very fast, but also have the potential to fail completely.

How to Buy Shares for Beginners - Bottom Line

Sound knowledge always precipitates success, you are very unlikely to be successful over the long term when investing unless you have a basic understanding of the principles.

Mastering how to buy shares for beginners is very important for profitable investment in stocks and shares over the long term. You may wish to try a dummy account for free using the eToro platform which is easy for beginners.

You also need to consider what tax implications there might be when it comes to buying shares and advancing your portfolio. This is when it is a good idea to get some tax advice as well so that you aren't caught out at the end of a tax year.

If you do decide that picking individual stocks and shares is not for you, then all is not lost as you could still use the platform you have chosen to buy collections of stocks and shares, known as mutual funds or investment trusts.

This gives you a ready-made and diversified portfolio of companies, that have been arranged and are managed by a professional fund manager. There is of course a fee for this, but many people consider the fee worthwhile in exchange for them not having to pick and choose stocks over the long term.