Buying and selling shares

The process of buying and selling shares is relatively simple. Do some research to find out which shares you would like to buy, ascertain the buy/sell price. Then decide much you are willing to pay for each share and how many shares you wish to purchase , put in an offer and if your offer is accepted, you receive the shares and pay for them.

Selling shares works the same way: you offer your shares for sale at a price and if someone accepts your offer, you receive payment and transfer the shares.

There are a number of ways in which you can achieve the above process

How to buy and sell shares

There are several different ways of share dealing:

Use a stockbroker: you can ask the broker to advise you or just to buy and sell shares as you direct without their advice

Use a share-dealing service: most banks and building societies now offer this service
Use an on-line trading service.

Use solicitors and accountants

Use the stockbroking department of your bank

Buy direct from the company

Use a share shop

Stockbroking services

Stockbrokers can trade shares for you in one of three ways:

1. Execution only: you instruct the stockbroker to buy and sell your shares at a given time and at a given price.

2. Advisory: you ask the stockbroker for assistance in deciding when to buy and sell shares and at what price. If you are a major investor, the stockbroker may take the initiative and contact you to discuss potential transactions.

3. Discretionary: you give the stockbroker powers to buy and sell your shares when they think they can obtain the best deal for you.

Sharedealing charges

Charges for each type of service vary

Execution only is the cheapest and discretionary the most expensive.

A commission is charged on each transaction: the commission is a percentage of the transaction value but you should be aware that there may be a minimum fee.

In addition to any fees due there is also stamp duty on any purchase of shares.

Trading strategies

There are two main approaches to successful share trading; Technical Analysis and Fundamental Analysis.

The difference between technical and fundamental analysis is that technical analysis ignores fundamental factors and is applied only to the price action of the market.


Technical analysis strategy

Technical analysis has become the primary tool to successfully analyse and trade shorter-term price movements, as well as to set profit targets and stop loss.

Technical analysis primarily consists of a variety of technical studies, each of which can be interpreted to predict market direction or to generate buy and sell signals:

Trend Analysis attempts to find the prevailing trend i.e. whether prices are rising, falling or stable. This is an essential first step in analysing the overall market direction and provides you with a back ground to make a trading decision.

Charts
Charts plot the price of a share or share category (for example companies in mining or pharmaceuticals) over time. The aim is to buy at the bottom of the market, i.e. when prices are at their lowest, and selling as the market reaches its peak. (Note: there are other types of share/commodity dealing which are more closely related to betting, with spread betting you can bid on a share price going up or down, see the spread betting section).

Weekly and monthly charts are most ideally suited for identifying a longer-term trend.

Lines & Channels
Trend lines are helpful tools in confirming the direction of market trends.

Moving Averages
Moving averages tell the average price in a given point of time over a defined period of time and help to define the overall price trend.



Fundamental trading strategy

A fundamental trading strategy focuses on the economic, social and political forces that drive supply and demand. There is no single set of beliefs that guide fundamental analysis, yet most fundamental analysts look at various macroeconomic indicators such as economic growth rates, interest rates, monetary policy, inflation, and unemployment.

Fundamental analysis is most often used in assessing the general market trend as it does not provide specific entry and exit points that are essential to profitable short term trading.


Factors that affect share prices

1. Political change.
2. Company analysis, results.
3. Economic changes.
4. Natural disasters.
5. Behaviour of investors e.g. people buying shares drives the price up, people selling shares sends the price down. Company mergers and rumours.

Spread betting

Spread betting is a flexible and tax-efficient alternative to conventional dealing in futures markets, stock markets and currencies.

The spread betting company does not quote betting odds, they make a quote for the price of a market at some date in the future and you decide whether you think the share will be higher or lower by that time. If you think it will be higher, you 'buy' at their quote. If you think it will be lower, you 'sell' at their quote.

Futures markets

The main difference between a stock exchange and a futures exchange is as follows:

At a stock exchange, the stocks bought and sold represent partial ownership in the company, which originally issued the stock.

At a futures exchange, contracts are bought and sold. The contracts are standardized as to quality, quantity and delivery time and location. The only variable is price, which is "discovered" in trading on the exchange floor. The contracts represent the intent to accept or deliver a quantity of a commodity, for example, corn, soybeans, or Treasury bonds, at some future date.

An option on a futures contract gives the right to buy or sell a futures contract at a certain price for a limited time. Only the seller of the option is obligated to perform. There are two types of options: calls and puts.

A "call" is an option that gives the option buyer the right (without obligation) to purchase a futures contract at a certain price on or before the expiration date of the option for a price called the premium, determined in open outcry trading in pits on the trading floor. A "put" is an option the gives the option buyer the right (without obligation) to sell a futures contract at a certain price on or before the expiration date of the option.

Hedging is the practice of using the futures market for price protection involving the offsetting of price-change risk in any cash market position by taking an equal, but opposite position in the futures market. For example, a farmer may use futures or options to establish the price for his crop long before he harvests it. Various factors affect the supply and demand for that crop, causing prices to rise and fall over the growing season. The farmer can watch the prices discovered in trading at the CBOT and, when they reflect the price he wants, will sell futures contracts to assure him of a fixed price for his crop.

Speculating is the practice of buying and selling futures contracts and options to make a profit. A speculator will buy and sell in anticipation of future price movements, but has no desire to actually own the physical commodity. Speculators, thus, assume market price risk and add liquidity and capital to the futures markets.

(source: Chicago Board Of Trade (CBOT)

Share dealing using spread betting

An increasingly popular method of dealing in shares is to use spread betting.

I G Index introduced spreads on the shares of a few FT100 shares in 1995 and has since expanded rapidly to offer spreads on nearly all UK companies capitalised at over £10 million, every S & P 500 and Nasdaq 100 stock in the USA, together with many leading Asian and European shares.

While the concept of betting on a shares movement might seem strange at first the service that IG Index offer has very substantial advantages compared to conventional share dealing.

[b:57681fba36]Tax Free Profits [/b:57681fba36]
Because the transaction is a bet, your profits are free of capital gains tax and income tax.

[b:57681fba36]Gearing.[/b:57681fba36]
You can take up a position in stocks & shares without having to provide the full contract value, as would be the case when dealing with a stockbroker. Instead you make a margin deposit as collateral, usually about 10% of the contract value for shares in major companies. IG Index can agree to provide a credit account to approved customer’s, this allows you to deal without putting a deposit down, providing you keep trading within the agreed waived deposit limit.

[b:57681fba36]Low transaction costs[/b:57681fba36]
There is no commission charge or stamp duty to pay, only the dealing spread.

[b:57681fba36]Bulls & Bears are welcome[/b:57681fba36]
You can bet that a share will rise (go long) or that it will drop (go short). The majority of smaller investors can only profit if a conventionally purchased share rises in value, a drop in value means a loss. However with the flexibility of spread betting it is perfectly possible to short a company’s shares if you feel they are due for a downturn and make a tidy tax free profit.

[b:57681fba36]Small minimum deal sizes[/b:57681fba36]
You do not need to make large bets. The minimum deal size for some UK shares is only £1/point, equivalent to 100 shares.

[b:57681fba36]Immediate dealing[/b:57681fba36]
IG will quote you a price and you can make the deal immediately with no frustrating wait for execution.

[b:57681fba36]Controlled Risk facility[/b:57681fba36]
IG Index offers a guaranteed stop-loss facility on all UK stocks and the vast majority of other shares they deal in. This facility normally costs only 0.3%; paid only once no matter how many times the position is rolled over.

[b:57681fba36]Types of bet.[/b:57681fba36]
Three types of bet are available from IG Index on individual shares: Quarterly bets, Daily bets, and bets on share options.

There are wide ranges of share and index spread bets available from IG Markets. For further, more detailed information, they have produced an 88 page dealing handbook to guide you through the process. Visit their website at IG Markets.com

Buying and selling shares

About Us | Site Map | Privacy Policy | Contact Us | Advertise here | ©2005 Lost Sock Limited Updated:Fri, 10 Aug 2007 22:15:56Music - Artist | Music - Albums | Music - Tracks (Buying and selling shares)