How to Buy Shares Online

The thought of investing in the stock market and purchasing shares has most likely crossed your mind many times. And for good reason – this is one of the best ways to achieve financial independence and many other goals, such as homeownership.

Afterall, we go to work every day to build a secure future and pursue the life we actually want to live, right? 💸

But investing is a daunting prospect. Most of us enter adult life without any significant degree of financial literacy, and without any knowledge of how investing works. And, as if we could ever forget, we’re in the midst of a pandemic.

But not all of the news is so grim. COVID-19 might have brought about risk and volatility – but this also equates to opportunity. Millions of people, quarantined inside their homes and wary of the future have turned to the stock market. Against all odds, the stock market has been experiencing a recovery – and investors are showing confidence again.

If you want to secure your financial independence for the future, you are going to have to start investing. Thankfully, it’s never been easier – and in this guide, we’ll explain how you can buy shares online — with crucial criteria to keep in mind.

Here’s a brief overview of the main sections we’ll cover:

How to Buy Shares Online: 7 Steps

First, let’s tackle the topic head-on. We’ll go through the steps of purchasing shares online one by one – from finding a broker to investing money and monitoring your investments.

Once we’re finished with the basic outline of the process, we’ll dive a bit deeper into how things work – and what you should look out for when purchasing shares.

1. Select an Online Broker 🎯

The first thing that you have to do is to select a reputable online broker. In the investing world, there’s a lot to consider when choosing your first broker. There are quite a few to choose from – so you’ll have to narrow down the search by using certain criteria. 

First of all, figure out which type of broker suits you the best. As the distinctions between the premier online brokers and the top discount brokers have almost completely vanished, the choice boils down to full-service brokers and zero-commission brokers.

You’ll want to minimize transaction costs, so look for a top commission-free stock broker with no fees and commission-free trading. Ideally, you should give brokers that have inactivity fees, withdrawal fees, account transfer fees, and 401k fees a wide berth. The same principle applies to management fees and account minimums – smaller fees are always better.

Although you’ll primarily be focusing on stocks, a broker’s investment offerings are also an important factor to consider. This might not seem crucial right now, but you might want to branch out into different asset classes down the line.

Also, take into account the quality of customer service, as well as the educational materials and research tools that a broker provides. All of these features will help your trading – and better trades mean bigger returns.

If possible, try to open a trial account with multiple brokers before committing to your final decision. This will also allow you to get familiarized with one of the most important features of any broker – the trading platform.

2. Open a Brokerage Account 🤝

Next up, you’ll need to open an account. This is a rather simple, straightforward process – you’ll have to complete a short online application and provide proof of identification – usually in the form of an ID, passport, or driver’s license.

The process of opening a brokerage account is quite quick. Most applications can be filled out in about 20 minutes, and the entire process doesn’t take more than a couple of days – in some cases, it can even be completed within a day.

3. Transfer Money to Your Account 📱

Now that you’ve opened your account, you will need to fund it to purchase shares. The first thing to consider is whether or not your brokerage has a minimum deposit – if it does, you can’t start trading until you transfer the required amount to your account. 

Thankfully, quite a lot of brokerages have done away with minimum deposits. And, where they still do exist, they rarely exceed $200 – and that’s the worst-case scenario.

Depending on your broker your choice, you will have a couple of ways to fund your account. 

These can include:

• Wire transfers
• Checks
• Asset transfers
• Deposits via credit/debit card
• ACH transfers

4. Research the Stocks You Want to Buy 📚

Before you go on and purchase the shares of a company, you should research the business in question. A good way to ease into this necessary process is to start with stocks in a sector that you’re familiar with.

Knowing your way around a financial statement, stock charts, and being acquainted with technical and fundamental analysis will allow you to have a much better idea of how good a company’s long-term prospects are.

Pay close attention to trends with the company’s sector – and when choosing between companies, always carefully consider their annual reports, revenues, net cash flow, profit margins, and return on equity.

Brokerages also provide research tools of their own, which can be a huge benefit when starting out. If you like a particular broker that is lacking in tools, you can always integrate top-tier stock analysis software, such as a stock screener, which can serve as a great tool in your arsenal. 

Being informed about a particular sector pays off – and while it requires effort, time, and commitment, getting used to reading SEC filings and quarterly earnings is a must – so you should start as soon possible.

Ease into researching stocks until it becomes a habit. In the beginning, following the strategies and advice of renowned investors is perfectly fine, as it will allow you to understand the rationale behind their investment decisions. And once you have a solid grasp of the fundamentals, you can start plotting your own course.

If you’re just starting focus on learning how to pick out quality businesses – ones that you’d like to own shares in. As your knowledge broadens, you’ll learn about different investment strategies and asset classes, and how they can be leveraged to help you meet your goals – but it all begins with knowing how to tell the difference between a bad stock and a good one.

5. Decide How Many Shares to Buy – and Buy Them ✅

Once you’ve decided to buy a company’s shares, log in to your broker’s platform and place an order. There are many order types to choose from – and you should eventually be acquainted with all of them, but for now, choose either a market or a limit order.

But how many shares should you buy? There are no hard and fast rules here – you should invest as much as you can, so long as it doesn’t impact your savings, and so long as you’re prepared to potentially lose the money you’re investing. 

Make sure that investing a certain sum will not cause you to struggle with expenses – a car payment, college tuition, or mortgage payment, for example. Start small in the beginning – this will help you avoid feeling overwhelmed.

We recommend coming up with an investing budget and setting aside a certain sum to invest each month. You need to buy enough shares to make the returns on your investments worth it – but not so much as to take on an unnecessary amount of risk.

There’s no reason to rush in – start small instead. Investing can be nerve-wracking, and even seasoned veterans can’t help but feel the pressure when share prices fluctuate. Being aware of market psychology and avoiding impulsive, knee-jerk decisions is crucial – and the latter is much easier to do when you haven’t invested a large sum at once.

The best way to approach this topic is to focus on the amount of money that you will be investing, rather than the number of shares that you will purchase. Essentially, the amount of money you set out every month will determine what you will invest in.

6. Diversify Your Stock Portfolio 📊

Diversification is a term that gets thrown about a lot – you’ve probably heard the word a thousand times by now, even if you have no experience in investing. Diversification is the backbone of any risk management strategy – the age-old wisdom of “don’t keep all of your eggs in one basket” applied to investing.

Having all of your investments tied to a few companies or a single sector is unwise. In case things go south, you will incur losses – and you might not have a safety net to fall back on. 

There’s no one-size-fits-all approach to diversification. You’ll have to decide what your preferred balance of risk and reward is.

And while diversification is no doubt crucial, there’s no need to feel pressure right away. Get a feel for purchasing shares and focusing on research – once that becomes second nature, properly diversifying your investments will come much easier.

7. Review Your Investments 👨‍💻

Once you’ve purchased a company’s shares, you will want to keep track of how your investments are performing. Staying up to date on news, market trends, and movements within the sector is crucial – but you’ll also have to dive in a bit deeper. 

Attending annual meetings, paying attention to changes in management, and reading quarterly and annual reports will allow you to get a sense of how healthy a business is both in the long-term and the short term. Both of these factors can have implications for your investments.

Investors that focus on short-term gains will have to take a much more proactive approach. However, as a beginner, you should focus on long-term buy-and-hold investing, which requires periodically reviewing your investments.

What is a Share? 🧾

Now that we’ve covered the practical side of buying shares online, let’s clear up some of the terminology regarding shares. Investing can often seem like a hermetic, inaccessible topic – but it doesn’t have to be.

Knowing the basic terminology of the matter, as well as how stocks and shares work will help you become a more well-rounded investor – these are important fundamentals that, once mastered, allow you to broach more difficult topics.

What Does it Mean to Own a Share? 💡

When you purchase a share, you become the owner of a (usually very small) part of a company. As a shareholder, you can sell off that which you own at any time to achieve a profit, but that’s not all. Being a shareholder comes with certain rights – the most important of which are voting and receiving dividends.

When you own a company’s shares, you receive the right to vote in the company’s annual meeting. The strength that you vote carries will depend on your ownership percentage – but you’ll still be able to make your voice heard regarding various important topics, such as the composition of the board of directors, and dividend policy.

And speaking of dividends, as a shareholder, you’re also entitled to receive dividends – these are small, regular payments that a company pays out to its shareholders. Dividends can be reinvested, allowing you to buy more shares, but they can also be a nice source of passive income. In fact, some investing strategies rely on dividends to help you achieve financial security.

Stocks and Shares – Are They the Same? ⚖️

For the most part, the terms stocks and shares are used interchangeably. A small difference does exist between the two, but in practice, it’s more a matter of linguistics than finances.

For one, the term share is much more commonly used outside the US, while the term stock is preferred stateside. As for the actual difference, it’s easiest to think of it this way – a company’s stock consists of shares. A share is the single smallest unit of ownership in a specific company – and all of a company’s outstanding shares form its stock.

The word share is used to signify an investment into a specific company – while stock covers a wider area. So you might say, for example, that you own stock in several US companies – by owning 50 shares of Google, 35 shares of HP, and 40 shares of Walmart.

How to Buy Shares Directly 🔎

There are two ways to buy shares directly – through a direct stock purchase plan (DSPP) or a dividend reinvestment plan (DRIP).

DSPPs have incredibly low commission fees and account minimums and make it easy to invest in the shares of a particular company. DSPPs often work by purchasing shares on a monthly basis – and offer an easy way to get into the market without accruing large fees. However, DSPPs also have their flaws.

You have to set up separate accounts for each stock you intend on purchasing – meaning that diversifying properly becomes a time-consuming nightmare. You have no control over the trade date – meaning that there’s no accurate way to tell how many shares you will end up owning. 

On top of that, you will need a broker to sell those shares eventually. With more and more brokers dropping commissions, there’s no good reason not to open an account – it’s free anyway.

DRIPs, on the other hand, allow you to automatically reinvest the dividend that you receive from owning shares into purchasing more of those shares. The shares are purchased directly from the company, and you pay no brokerage fees or commissions. As an added bonus, quite a lot of companies offer discount prices for their shares when purchased through a DRIP.

DSPPs are a bit antiquated, but DRIPs function as a cornerstone of dividend investing. When used properly, DRIPs can be a powerful tool in your arsenal, and allow you to build a healthy amount of passive income.

What to Look out for When Buying Shares 🚨

We’ve covered the process of buying shares, and we’ve gone over some basic terms. But nothing is ever that simple – investing in the stock market comes with risks – and you should be well aware of them.

Some of these risks can be completely avoided with due diligence and research, while others simply come with the territory. We’ll cover both types of risk here, along with certain steps that you can take to mitigate any potential hazards.

Bad Stocks ⚠️

Not all stocks are created equal. The share price of a particular stock is a reflection of what people are currently prepared to pay to own it. This isn’t always a true reflection of an investment’s worth.

A stock with an expensive share price isn’t automatically good – and a stock with a low share price isn’t always bad. What you’re after is value – and that depends on the fundamentals of how a business is run. Shares are routinely overvalued and undervalued – cutting through the noise and separating the wheat from the chaff is the goal.

Share price alone isn’t a good metric by which to separate good stocks from bad stocks. Fluctuations in price are normal – so you should focus on finding healthy companies that have good long-term prospects.

Educating yourself about investing and becoming more adept at research is the only way to avoid bad stocks. These are areas in which you should always be improving. 

The basics will allow you to avoid stocks that will fail or see their share prices plummet. But as you improve, you will also be in a much better position to compare two stocks – and pick the one that has better prospects.

Lack of Diversification ❌

Diversification means spreading your investments in a way that minimizes risk. No amount of diversification will completely insulate you from risk – but it will help you balance the risks that you’ve made.

Properly diversifying your investments is a careful balancing act. Too little, and you’re exposing yourself to a huge risk, too much, and you’ve spread your investments too thin – meaning that your returns will be sub-par.

You should own a diverse array of shares – but the same also holds true in a wider sense. We’re focusing on shares today – but your investments should also include other asset classes. 

There’s no need to burden yourself too much with this in the beginning – but if you want to make sure that your investments are successful, you’re certainly going to have to eventually branch out into other types of investments, such as bonds, ETFs, mutual funds, options, and perhaps even cryptocurrency.

There’s also another matter to consider – geographic diversification. If your investments are highly concentrated within a single country, economic crises that affect that nation’s economy can tank your investments. Once you’ve already established yourself a bit as an investor, you should consider buying shares of international stocks.

Scams and Fraud ☠️

The digital age is rife with scams. This unfortunate fact isn’t likely to change soon – so you should always be on your guard.

You can easily avoid 95% of this problem by choosing a reputable broker. Legitimate brokers have to comply with strict rules enforced by regulatory bodies, such as FINRA and the SEC in the US, and the FCA in the UK.

Another important factor to consider is whether or not a broker in question carrier insurance. All legitimate brokers do. In the case of US-based brokers, look for SIPC and excess of SIPC insurance, and for UK-based brokers, look for FSCS insurance.

Research brokers thoroughly, read customer reviews, look for any disclosures or fines, and always carefully read the terms and conditions you’re signing on to so that you can ascertain whether a broker is legitimate or not. Scams do happen – but if you follow these steps, you will be able to avoid them.

Get Rich Quick Schemes 🏎

When you choose a good, legitimate broker, you’ve done most of the work – but not all of it. The investment space is full of hopeful individuals who share a common goal – improving their livelihoods. There’s no real way to get rich quick – but there are a lot of people who would exploit that impulse.

If something sounds too good to be true, it probably is. On top of that, a lot of investors, particularly beginners, don’t have a realistic assessment of their risk tolerance. Forex trading, penny stocks, day trading, and cryptocurrency are commonly touted as easy ways to make a lot of money fast. They aren’t.

Let’s be clear – forex trading, cryptocurrency, day trading, and even penny stocks are perfectly legal and legitimate ways to make money – but they’re very risky, and require a lot of experience.

You shouldn’t rule them out – but don’t venture down those paths until you’ve become very experienced with investing. If you don’t have a firm mastery of long-term buy-and-hold investing, you have no business trying to apply rapid, high-risk investment strategies.

COVID-19 and Shares

COVID-19 has brought about a recession that has seen many leading economies experience record-breaking contractions. On top of that, low interest rates mean that traditional savings accounts won’t protect you from inflation.

It might seem counterintuitive, but if you have the liquidity, now is actually a fantastic time to start investing. How so?

It’s simple – the current state of the market allows you to buy shares in various companies for prices that would have been unimaginable before the pandemic. The market has seen an uptick in activity, meaning that volatility is even higher than it normally would be – and volatility is what allows you to profit.

The question is how to tell apart businesses that will weather the storm and whose share prices will increase or recover as the world slowly returns back to normal. But that is not just a shot in the dark – looking at a business’s fundamentals and performance over the last couple of months can shine a lot of light on a company’s future prospects.

Beyond that, the pandemic has changed the world in a very tangible, real way. The work from home revolution, the slump in energy prices, and the continued rise of the tech sector and the expansion of cryptocurrency all have implications on the stock market.

Trading Shares

Which Online Broker Has the Lowest Fees? 💰

The race towards commission-free trading has also had an effect on the fees brokers charge. Most discount brokers are rapidly doing away with fees – but the amount of money that you’ll be paying can still vary quite a bit on a case-by-case basis.

As for which broker has the lowest fees, we’d recommend taking a look at eToro. It boasts a low account minimum of just $50, has a wide span of investment offerings, and incredibly low fees. The brokerage recently expanded its business to the US and offers an interesting copy-trading network, which allows you to see the strategies of other traders, study them, and try them out.

Which App is Best for the Share Market? 📈

eToro, IG, Pepperstone, and Interactive Brokers all offer user-friendly, accessible apps that make it easy to start investing.  All of these apps are secure, user-friendly, and well-designed – but the choice boils down to your concrete needs. If you want a closer look at how they stack up against each other, we’ve done a thorough review of the top stock trading apps in the UK.

US-based investors will want to have a look at Robinhood, E*Trade, Stash, TD Ameritrade, and Acorns. As in the previous case, we’ve done an in-depth review of US-based trading apps – focusing on usability, features, and fees to help you make your decision.

How Long Should I Hold onto a Share? ⏱

This will depend on your preferred investment strategy. For example, dividend investors will want to hold shares for a long time – possibly never selling them at all, while day traders and swing traders rely on short-term price fluctuations that necessitate selling quickly.

But in general, holding onto high-quality shares over a long period pays off. For example, the S&P 500 has displayed an average annual return rate of 10% since its inception. If the underlying business is healthy, it will weather market fluctuations and the price of its stock will correct itself in time.

As a rule of thumb, the stock market is best-suited to long-term investments. Warren Buffet once famously said that if you’re not comfortable with owning a stock for 10 years, you shouldn’t own it for 10 minutes. 

This might be a bit too long-term for some – but you should still be prepared to own a company’s shares for at least 5 years if you’re serious about investing. Timing the market is hard – and it should be left to the experts that can weather those particular storms.

How to Hold Shares 🤲

When it comes to holding shares, UK-based investors should look into stocks and shares ISAs, as well as self-invested personal pension (SIPP) wrappers, both of which provide tax benefits in the long run. 

Another option to consider is opening a nominee account, which allows you to more easily purchase and sell shares while sparing you from any potential paperwork.

US-based investors should look into tax-exempt accounts – particularly several popular Roth IRAs, which are a fantastic method of holding shares in the long run, as they allow for tax-free growth, as well as tax-free withdrawals in retirement.