Buying Stocks and Shares

Stocks and shares are synonymous with the idea of investments and long gone are the days when share trading was the exclusive domain of the rich and the well-informed.

Investing in stocks and shares has gone mainstream largely due to the wealth of information, on and offline, that has expelled the myths and made the whole process far more accessible. Also the emergence of online brokers and other online investment facilitators has fuelled a new generation of hobbyists who see buying and selling shares as part of normal daily life.

When you buy shares in a company you effectively own a piece of that company and you are in principle entitled to a portion of the company’s profits. These profits come in the form of annual or bi-annual dividends, however dividends are only distributed if the company is performing well and this is of course never guaranteed.

The choice of which broking account to use largely depends on how frequently and how much you intend to trade. In general there isn’t much difference between accounts in terms of price but some accounts offer additional services such as stop-losses and limit orders and these services can be very useful for specific types of investor.

Why do shares prices fluctuate?

The main cause for shares prices fluctuating is market sentiment. The demand for a company’s shares increases when expectations about the company’s future performance are strong, and this in turn bumps up the share value. When the actual performance results are released demand may go down, especially if the results are disappointing. Confidence has a hefty impact on share prices but they are also affected by other factors such as economic conditions. In general shares should be viewed as a medium to long-term investment if you plan to make good returns.

Shares can be sold at any time but it is naturally better to sell them when their value is greater than that at which you bought them. This profit is known as ‘Capital Growth’ and it is subject to capital gains tax if is exceeds a particular threshold.

There is no secret formula for stock market success but again not ‘putting all your eggs in one basket’ applies here. Depending on how much time and free capital you have you may wish to be a casual hobbyist or an avid investor, but remember that success does entail a considerable amount of time and effort and there are rarely any quick wins.