How to buy and sell shares

Buying shares means buying a small piece of a company. The Financial Ombudsman Service, which deals with complaints about investments, defines a share simply: it is "a single unit of ownership in a company"¹. In practice, most people buy and sell shares through an investment platform or a share dealing service, paying a dealing charge each time, and a typical amount is around £10 per deal². You might be charged each time you buy and sell a share, an investment trust or an exchange-traded fund, so the costs of dealing are worth understanding before you start³.

This page walks through the whole process: what owning a share actually gives you, how shares make money, where you can hold them, what dealing costs, how a trade is placed, how dividends work, what happens with overseas shares, and what the risks are, including what can happen if a company fails.

What owning a share means

A share is a single unit of ownership in a company¹. Buy one share in a company and you own a slice of that business, alongside everyone else who holds its shares. What that slice is worth at any moment depends on the price at which shares in that company are changing hands, and for companies quoted on the London Stock Exchange you can find that price in the financial pages of a newspaper, on the newspaper's website, or on a commercial website⁸.

To work out the total value of a holding of listed shares, you multiply the number of shares by the price⁸. So a holding of 100 shares in a company whose shares trade at £2 is worth £200 at that moment. That value moves whenever the share price moves, which is why share holdings are described in terms of what they are worth on a given day rather than a fixed amount.

Most shares today are not held as paper certificates. The Ombudsman Service notes that most shares are held electronically, usually in the name of the share dealing business, which means the shares are recorded as belonging to you even though the dealing firm's name is on the register¹. This is normal and does not change your ownership, but it is worth knowing when you check statements or deal with the company itself.

Some companies you can buy shares in are themselves collections of other companies. Investment trusts, for example, issue a fixed number of shares when they are set up, which investors can buy and sell on the stock market⁹. Buying an investment trust share gives you ownership of a slice of the trust's portfolio rather than of a single operating business, a distinction that matters for risk, covered later on this page. For more on the basics, see what are shares and how do they work.

How shares make money: price growth and dividends

There are two ways a share holding can make money: the share price can rise, and the company can pay you a share of its profits, called a dividend.

Price growth is the simpler half. If you buy shares at one price and the price later rises, your holding is worth more: the value is the number of shares multiplied by the current price⁸. Nothing is locked in until you sell, though. The price can fall again, and the value of your investments can fall as well as rise, meaning you may get back less than you put in⁵.

Dividends are payments a company makes to its shareholders out of its profits. When a dividend is due, its value is worked out by multiplying the number of shares you hold by the amount of dividend per share⁸. A company decides whether and how much to pay, so dividends are never guaranteed. If you hold shares inside a stocks and shares ISA, any dividends and returns on shares and bonds held in the ISA are tax-free⁴.

Selling is where tax can come in, if the shares are held outside a tax wrapper. HMRC publishes a helpsheet on Capital Gains Tax when you sell or dispose of a shareholding, because a sale at a profit can create a taxable gain¹⁰. Company events can also affect your holding without you choosing to sell: in a takeover where you receive both cash and new shares, HMRC's rules split the original cost of your shares proportionally between the cash you get and the new shares¹¹. The pages on how dividends work and how investments are taxed cover both areas in more detail.

Your rights as a shareholder

Owning shares gives you a say in how the company is run, in proportion to what you own. As a shareholder in a company, you can vote on issues at its annual general meeting (AGM), table motions, call extraordinary general meetings and vote in new directors¹². In large companies an individual's votes are a small fraction of the total, but the rights exist, and big decisions such as takeovers are put to shareholders.

When you hold shares through a platform, exercising those rights usually works through the platform rather than directly, since the shares are typically held in the dealing business's name¹. Platforms pass on company notices, votes and corporate actions, and the page on dividends, corporate actions and voting when you invest through a platform explains how this works in practice.

You also have rights if something goes wrong with the service you received. The Financial Ombudsman Service handles complaints about stocks and shares, including how a dealing service carried out your instructions¹. If a trade was executed wrongly, or you were given misleading information when buying, a complaint can be raised with the business first and then with the Ombudsman if it is not resolved. The page on mis-sold investments and bad investment advice sets out the process.

Where to hold shares: ISA, SIPP, Junior ISA or investment account

Shares can be held in several kinds of account, and the choice changes the tax treatment more than anything else. Many platforms offer the ability to hold investments inside an ISA, a SIPP (self-invested personal pension) or a Junior ISA¹³. All platforms will also offer an ordinary trading account with no special tax benefits, sometimes called a general investment account¹⁴.

The tax difference is significant. Buying investments within a stocks and shares ISA, junior ISA, lifetime ISA or SIPP means you will not pay dividend tax or capital gains tax on them¹⁵. Inside a stocks and shares ISA specifically, you can invest up to £20,000 each tax year, and any dividends and returns on shares and bonds held in the ISA are tax-free⁴. Outside those wrappers, gains on selling shares can fall within Capital Gains Tax¹⁰.

There are rules about what can go in each wrapper. Under current law, only authorised or recognised funds may be held in a stocks and shares ISA¹⁶, and legislation states that shares, including those in an investment trust, must be acquired via a public offer and cannot, other than in prescribed circumstances, be acquired prior to listing or admission to trading¹⁷. Shares listed on a foreign stock exchange can also be held in an ISA⁸. A SIPP is a pension, so money in it is tied up until retirement age, but self-invested personal pensions usually offer the widest choice of investment options, including company shares¹⁸.

The page on where investments can be held compares the options side by side, and general investment accounts explains the unwrapped alternative.

Dealing fees: a charge every time you buy or sell

Every time you buy or sell a share through a platform or broker, a dealing commission is usually charged. This varies considerably, but a typical amount is approximately £10 per deal². You might be charged each time you buy and sell a share, investment trust or exchange-traded fund; fees for buying and selling traditional funds are less common³.

The structure matters as much as the headline figure. A £10 charge on a £10,000 purchase is a small fraction of one per cent; the same £10 on a £100 purchase is a tenth of the money before the share price has moved at all. That arithmetic is why frequent small deals can be expensive relative to their size, and why some people build a holding with larger or less frequent deals, or use regular investment services where available.

Dealing charges are only one part of the cost of investing through a platform. Platforms may also charge for holding investments, and there are taxes on some share purchases, such as stamp duty. The pages on dealing charges for buying and selling investments, investment platform fees and charges and stamp duty on shares break these down, and is commission-free trading really free? looks at what "free" dealing usually means for the rest of the bill.

How to place a trade

Placing a trade follows a short sequence: open an account, add money, find the share, check the costs, and place the order. The shares are then held for you, usually in the dealing business's name¹.

When you place the order, you can deal at the market price or attach price conditions, so the trade only happens on terms you have set. The different order types, including limit orders and stop losses, how they work and when they may not fill, are explained on the order types page.

Dealing happens when the market is open. Exchange-traded investments illustrate this clearly: exchange-traded funds are listed on a stock exchange, so you can buy and sell them at any time that the exchange is open¹⁵. Outside those hours, a platform may accept your instruction but the deal itself is done when trading resumes, which means the price you finally get can differ from the last price you saw. The page on how funds are priced and when your deal goes through covers the timing of deals across different investment types.

Selling works the same way in reverse: you place a sell order, the dealing charge applies², and the proceeds land in your account as cash, where they may sit until you withdraw them. How long withdrawals take is covered on the platform withdrawal times page.

Dividends: take them as income or reinvest

When a company pays a dividend, you can take it as cash income or use it to buy more shares, known as reinvesting. The value of a dividend is the number of shares you hold multiplied by the dividend per share⁸. Inside an ISA, dividends and returns are tax-free⁴, and the choice between income and reinvestment is purely about what you want the money to do. The page on how to set up dividend reinvestment explains the mechanics.

One tax rule catches people selling and rebuying shares outside a wrapper: you must wait 30 days before buying back the same shares, with the exception of Bed and ISA transactions, where you sell shares and buy them back inside an ISA²⁰. Couples sometimes work around the 30-day rule by having one partner sell and the other buy the shares straight back, minimising time out of the market, though the share price could rise during this period, making it a riskier tactic²⁰.

Buying shares listed overseas

Shares listed on a foreign stock exchange can also be held in an ISA⁸. That is the key rule for anyone considering overseas companies: foreign shares are not barred from the tax wrappers, though for valuation purposes foreign shares, other than those listed on the London Stock Exchange, form part of the holding's value⁸.

The practical differences when dealing overseas are about access and cost. A platform or broker has to offer dealing in the market where the shares are listed, and overseas dealing often costs more than UK dealing, though the typical figure in the sources for UK dealing is around £10 per deal² and overseas charges vary considerably between services. Currency is the other difference: a foreign share is priced in its home currency, so the value of your holding in pounds moves with the exchange rate as well as the share price.

For US shares there is a form, the W-8BEN, that affects how the shares are taxed, covered on the W-8BEN forms page. The dedicated guide to buying US and overseas shares goes through the whole process, including which platforms offer which markets.

Shares are higher risk: volatility and company failure

The plain statement first: investing in the stock market is risky, and when you invest you could lose money²¹. The value of your investments can fall as well as rise, and you may get back less than you put in⁵. This is not a footnote to share ownership; it is the reason shares are expected to return more than cash over long periods, and it is the trade-off every shareholder accepts.

How much risk depends on what you buy. Investment trusts, because of the combined effect of gearing and the discount, are likely to be more volatile than equivalent funds²², so a trust share moves further in both directions. At the far end of the risk scale are shares in start-up and early-stage businesses. The Financial Conduct Authority requires firms arranging these investments to give a risk summary stating that if the business you invest in fails, you are likely to lose 100% of the money you invested, and that most start-up businesses fail⁶.

Company failure is the extreme case, but volatility alone can do damage. Independent guidance on common investor mistakes advises being prepared to keep money invested for five to ten years, or longer, and trying to ignore the inevitable ups and downs⁷. Selling after a fall turns a paper loss into a real one, and the risk summary rules exist because the regulator wants that possibility stated before anyone commits money⁶. The pages on investment risk and your attitude to risk and FCA rules on high-risk investments set out the protections and their limits, and investment scams covers the fraudsters who exploit the same appetite.

Where diversification comes in

Because a single company can perform badly or fail, the main defence is not picking better companies but owning more of them. Investing in a collective investment fund such as an investment trust gives you access to a broad portfolio of shares, which spreads risk and minimises the impact of any one company going bust or performing badly²¹.

Diversification does not remove the risk of losing money; the warning that stock market investing is risky and you could lose money applies to funds as well as single shares²³. What it changes is the shape of the risk: one company failing no longer means the whole holding is wiped out, because it is one line among many. The trade-off is that no single company's success will transform the holding either.

Funds come in several forms, each buying and holding shares on your behalf in a different structure. Investment funds, investment trusts and ETFs are each explained on their own pages, and diversification and asset allocation covers how spreading money across different types of investment, not just different companies, works.

How much money it takes to start

There is no fixed minimum in the rules for buying shares; what determines the sensible starting amount is the cost of dealing and the time the money can stay put. A typical dealing commission is approximately £10 per deal, though it varies considerably², and you might be charged each time you buy and sell a share, investment trust or exchange-traded fund³. On small sums, that charge is a large proportion of the trade, so the amount you start with affects how much of your money actually reaches the investment.

Time matters as much as money. Independent guidance suggests being prepared to keep money invested for five to ten years, or longer, and to ignore the inevitable ups and downs⁷, and for very high risk investments the suggested timeframe is five, ten or even twenty years²¹. Money needed soon is generally not money for shares, because a fall close to the moment you need to sell becomes a loss you cannot wait out.

Platforms differ in minimum deposits and in how regular investing is handled, and the pages on what is the minimum amount I can invest, how to set up monthly savings into an investment account and investing a lump sum vs investing monthly cover the practical choices for starting with whatever amount you have.