How Do You Make Money From Stocks And Shares

The good news is that buying and selling shares is not complicated. Provided a company is listed on a stock exchange, you can buy and sell its shares.

The London Stock Exchange (LSE) is the primary one in the UK, where you get a whole host of companies including the really big players such as Marks & Spencer. Then there's the Alternative Investment Market (AIM), which lists smaller developing companies that you may not have heard of.

How to buy shares

The easiest and cheapest way to buy shares is online from a 'share dealing platform' (see platforms to try). These platforms allow you to buy shares from listed companies.

Once you have an account, you simply search for the share you want to buy and choose a quantity or value – whichever you choose, you need to have enough money in your dealing account to cover both this and any dealing charges. Accept the quote it generates and the shares will then show in your account with your chosen platform (your account and the shares in it are often known as your portfolio).

However prices change all the time, sometimes even between you submitting the order and the confirmation – so be prepared for slight variations. The price is determined by supply and demand from prospective buyers and sellers at any particular time – high demand will drive up the cost (while low demand will do the opposite).

What charges do I need to pay?

One of the biggest things to take into consideration when buying, holding and selling shares is how much it'll cost you in charges. The main ones to look out for are:

Platform charge: You may be charged a monthly, quarterly or annual account fee – either as a flat-fee or as a percentage of your investments. However in some cases this is waived if you make a minimum number of trades, or your account is of a certain size.
Trading fees: The fee you pay each time you buy or sell shares. You'll often find discounts for frequent traders.
Transfer out/exit fee: Some platforms will charge if you want to transfer your investments to a different provider, usually per company you hold, or sometimes even just to close your account.
Stamp duty: When purchasing UK shares, expect to pay 0.5% stamp duty and an extra £1 on transactions above £10,000.

How to sell shares

Selling shares is just as easy as buying them. Each platform's website will work slightly differently, but the principle is the same for each.

When selling, you can choose either number (for example, sell 500 or all shares) or value (sell £500 worth of shares). Once you place the deal, you will be shown a quoted price for the sale of the shares, though again this can vary between getting the quote and the sell order being carried out. Any money you have made from the sale will show in your shares account.

When should I sell my shares?

Well, if we knew this, we'd already be millionaires!

It usually doesn't pay to try and 'time the market' – this is where you try and buy shares at their lowest and sell them at their peak. It's hard to do and usually doesn't work.

Instead, take a dispassionate look at the share you're thinking of selling and ask yourself – do I think this company will continue to grow? Do I think it'll continue to pay dividends? Or would I be better cashing it in at its current value and using that to invest in a different company (or companies) that I think will do better. This question (and our answer to it) may help you with your thinking...

Q. I bought shares in Company X a few years ago. The value of this investment has now plummeted. Should I sell it or hold on?

A. Don't consider it as an amount lost. For the sake of illustration let's imagine it was worth £4,000 and is now worth £2,000. The big problem is that many people then think: 'How do I recoup my losses?' Yet it just doesn't work this way. There is no 'what goes down must come up' rule. You have to let go of the past value and clinically think – I have a £2,000 investment in company X.

Forget whatever it was worth and make the decision on this alone. This means the real question to ask yourself is – would I be willing to invest that £2,000 in the stock market right now, and if I did, is this the investment I would choose? There is no difference in the risk profile between buying a share new or having a share that you've held for a long time, it doesn't change the chances of what will happen. So considering it to be a fresh investment is the only way to go.