An Introduction to Stock Trading Part 6 - Buying Shares

Ok so you have read all of the guides so far and now want to buy shares, so how do you go about it?

Firstly use the Metrics, Terms and Dividends information to select your target. Check for any impending Corporate Actions and work out which Types of Accounts are suitable for your circumstances. When you have identified the security (company) you want to invest in go to your brokers website to make your deal.

For this demonstration I will be using my iWeb ISA account as it has a simplified web interface - I am in no way endorsing iWeb and I myself actually hold accounts with several companies so be sure to look around and make sure you get the account that is best for your personal circumstances.

Access your account and make sure you have sufficient money deposited to cover your deal, it is important to also work out how much Stamp Duty and Commission you will be liable as this will reduce the amount you can purchase.

Step 1: Go to the Trade screen, Most trade screens will have the fields below available although they will be laid out differently.

 

Enter either the Ticker symbol or the company name, Below I have used LLOY for the Lloyds Banking Group. Make sure that you are getting the correct shares. Normally you will be looking for Ordinary Shares (ORD) but some companies (Such as Shell) have two different types of Share A&B and they behave differently so make sure you put in the correct Ticker.

 

 After you have the correct Share listed decide if you want to purchase an amount of Shares or a certain value of shares, Remember if you are buying a number of shares then the amount you pay may be different to what you expect. if You choose Value of shares then you will need to enter the amount you want to spend, including commission and stamp duty.

When you have the amount selected click on dealing quote (Or similar) and you will be moved to a confirmation screen - It is very important to know that the confirmation screen is Time Sensitive, You will be given an amount of time (Normally 15 seconds) to confirm or reject the deal this is because the deal is being held open on the exchange. The screen should show the amount you are spending on shares (Here called the consideration), the amount you are paying in Commission, the amount of Stamp Duty and if applicable (On deals of over £10,000) the PTM Levy.

After this screen you will get a receipt showing all of these details which you should keep as this will be used for calculating if you are liable for any Capital Gains Tax.

I am not showing this screen here as, whilst I am happy to try and write up as much as I know about share trading I'm not going to buy shares just to show you what it looks like :-) So at this point I pressed Cancel.

The other option that was available on the trading screen was Set trade Plan, this may be written differently on different accounts but normally consists of Limit Orders and Range Orders.

A Limit Order can be either a Buy or a Sell and simply consists of your limit that can be set in advance. For example if I set up a Buy Limit for Lloyds above at 80p then the deal wouldn't have gone through unless the price of Lloyds dropped below the 80p mark at which point the deal would have gone through. It is important to note that this is the price that the deal is triggered, if you set a buy order at 80p but the shares drop to 70p then you will get the shares at a lower amount, if the shares drop to 80p but are immediately increased to 81p then you will not get the deal as the system is still tied to it's ability to action the deal which is sometimes just not long enough. This is especially important on a sell when you can set a Sell order if the shares drop below 80p but if they drop straight from 80p to 40p then your sell will be at the 40p mark.

A Range order is where you can add multiple Limit Orders on one account, so for Lloyds for example I could set a Buy Limit at 80p with a Sell Target of 100p this means I can then (In theory) leave it alone and as long as the share price drops below 80p before surging to over 100p I will return at a later date to find myself 20% (Less fees and taxes) better off.

An Introduction to Stock Trading Part 1

As I have previously stated I am very interested in the Stock Market at the moment so I have decided to compile an introduction to the Stock Market in the hopes that it may help someone who is in the position I was in last year.

I hope someone may find it useful, if there is anything you think I should include then please let me know so I can research it.

Thanks.

The first part is just a few definitions of terms, phrases and ratios

Stock/Share

I guess the first thing to define is what is a Stock? There are a few different types of stocks but for the basis of this guide I will only look at Ordinary Shares, which are the most regularly traded. A stock is basically a part of a company, how much of the company depends on how many Stocks are in circulation. A Limited Company owned by an individual still has a Stock but there is only 1 which covers 100% of the company if there were two directors then each share would cover 50% and so on. With the larger PLC (Publicly Limited Company) the volumes of shares is massive. Lloyds Banking Group as an example have 71,368,000,000 shares in circulation so a single share gives control of 0.0000000014% of the company. When the company holds meetings and decisions need to be made then every shareholder is entitled to a vote equal to the percentage of the company owned.

Ticker (EPIC) Symbol   

The ticker symbol of a stock is the abbreviation code by which it is traded, It is called a ticker symbol as a historical throw back to when the prices were released on a giant ticker tape. The symbol comprises two elements the first one being the name of the company and the second being the exchange that it is registered on. The first part of the symbol can include letters and numbers and is usually up to 4 characters. The market identifier is added to the end of the Ticker after a "." a company can (But doesn't have to) use the same code on different exchanges.

i.e. BP PLC has the following ticker symbols.
BP.L                 London Stock Exchange
BP                    NYSE
BPE.F              Frankfurt Stock Exchange
Obviously in this situation using BP alone would not be a unique identifier. It is good to know the ticker symbol of Stocks that you are interested in as it will remove the need to search through lists (It is also useful to always add the ".L" onto the share when looking for UK shares as otherwise many websites will assume you are after US securities.


Market Capitalization

The Market Cap of a company is taken by taking the share price and multiplying it by the number of shares, in essence this is the cost to purchase the company (Assuming everyone was willing to sell) so for Lloyds Banking Group with a share price today of  83.16p the Market Cap would be 83.16p X 71.368M shares which means that Lloyds as a company are currently worth £59,349,000,000. The market Cap is the default measure of a companies worth (At least its worth according to the stock market) and is a key metric of listed companies and it is market capitalization that is used to work out the constituents of share indexes such as the FTSE 100 (The 100 largest companies on the London Stock Exchange)

Is Idea to Break Up Banks Milibands worst yet?

So Miliband has now come up with his latest anti-business idea and it really is the worst yet.

Firstly, you can't Ignore the fact that if Miliband did look at breaking up the banks it will lead to many years of legal battles as the people whose investments are affected will no doubt sue the government - and before you think "oh well it's just the rich" don't forget that the non-government parts of the banks are about 70% owned by pension funds, so the people affected are anyone with a pension.

There is also the issue that I am with my bank as I like my bank. I had an account I wasn't happy with so I changed my bank, now Miliband wants to decide for me that I should change again. I don't understand how he thinks it will help me as a consumer to remove my personal choice? He wants more competition but surely this is about helping people identify the best account for them, not forcing them to join a different bank regardless of what they want. Additionally if a bank excels themselves by being better than the rest then in a free market they will get more customers but under this system you surely no bank would try and give a better product than their peers as they will be broken up - Labour punishing success again?

Finally, Miliband thinks that this will increase competition but the simple fact is that the government don't increase competition, customers do, there are alternatives to the big banks and if people want to use them, they can. If people don't want to use them again that is up to them. If Labour want to increase competition they need to make it easier to run a bank not try and disable the banks that are already there. But then at the end of the day challenger banks will only come from customers who want to change. If my account is moved to a different bank I will simply close my account and move back again which may cause the bank to hit the government's cap again, I can only forsee a never ending cycle of bank changes for no other reason that Miliband decided that if he weakened the banks (and lost the country millions) then the coalition wouldn't be able to off load the shares labour bought. Once again making the people of the UK suffer for political greed, it's just the Labour way.

Stocks and Shares

I am a big fan of the stock market - to be honest I am a fan of anything that creates such a wide variety of statistics but having read Rich Dad, Poor Dad I have started to realize that I have not been paying enough attention to money producing assets.With that in mind I am going to create a HYP (High Yield Portfolio) which I am going to update on here in case anyone else is interested in my portfolio and wants to start a discussion about it.

My current portfolio contains the following shares.

Barclays
BP
Lloyds Banking Group
Royal Bank of Scotland
Tesco
Vodafone
National Grid

Now those of you that know about dividends will guess that this portfolio wasn't constructed to be a high yield portfolio as I bought all of the Banks during 2009 as I sensed a bargain, experienced investors will also notice that this portfolio is very badly balanced with 3 out of 7 banks over the next few months I am aiming to get this balanced as well as pick up some more High Dividend Payers. I will update when something is interesting but this is where I find myself at the end of the calender year. (Although the divs are calculated as a financial year so divs paid between now and March will be added and final Yield will not be finished until March.) Also I bought National Grid only a few months ago hence have not yet received a Dividend.

*For full disclosure I should say that I do indeed own all of these shares however the volumes are worked out on investing £1,000 in each share (The Purchase price is the price I paid but I didn't buy £1,000 of each - I just don't want to tell the world too much about my finances.)*

Anyway this is the state of my real/modified portfolio that I will be updating around the time I make any real trades.