Buying Shares

What is an ordinary share?

An ordinary share is the way that a company raises money by issuing to the general public. It is also the way that an individual can own a percentage of a publicly quoted company, and is the way that you benefit, by way of dividends, from the growth profitability of that company. Each shareholder would effectively be a percentage shareholder in that company.

What is a preference share?

A preference share is a share that has a fixed rate of interest with a limited life span and is normally used by companies to raise moneys at a fixed rate.

What are penny shares?

A penny share is a small, emerging, speculative company with a very low share price.

Should I invest my money into penny shares?

You can invest your money into penny shares, but before doing so you should always seek professional advice, as it is a very high-risk area. There can be very violent moves in penny shares for obvious reasons. If you have a share trading at 5p that goes to 7p, that is a 40% rise. And if they fell 2p, thats a 40% fall. So professional advice must be taken.

Are some companies less risky than others?

All shares are risky. But, if you decide to invest in a blue chip area, that would be regarded as a less risky area. Having said that, you may remember that in the 70s Rolls Royce, in fact, went bankrupt. And that was regarded as a blue chip in the same time.

When should I buy shares?

Obviously, you should buy a share when you consider it cheap. To do this you will either take professional advice or you do a number of things such as monitor the share price, research the company, look at the sector it's in and take account of market trends.

When should I sell my shares?

You should consider selling your shares when they reach the level at which you feel they no longer offer good value. When you originally purchased them, you had a figure in mind at which you would sell: if that has been reached, then sell. If you're in doubt, contact a professional advisor and see if circumstances have changed, or if he feels the shares will go higher, because he will advise you.

Should I follow tips?

Tips from newspapers and professional people can be very rewarding. But remember, if you're following a newspaper tip, that thousands of people have read that newspaper, and the share price may have moved up or down, depending on the tip. It may be better to monitor that share price for a few days when it drifts back to your level, and then buy or sell. Whatever you do, take advice.

What is a broker?

A broker is a person that buys and sells shares on behalf of you, his client. He can act in an advisory position when he will charge you a fee, or on an execution-only basis when he will just take his commission.

What is an advisory broker?

An advisory broker is a person that monitors your portfolio, advises you to buy and when to sell shares. He will charge a fee for that particular service, and fees vary from broker to broker, so it is worth shopping around to see who is the cheapest.

What is an execution only broker?

An execution only broker is a broker that would only take your instructions for the purchase and sale of shares. He will offer no formal advice, he will charge you a commission for buying and selling your shares.

Are brokers regulated?

Yes, brokers are regulated by the Financial Services Authority, or FSA for short. They also have to meet certain requirements from the Stock Exchange themselves.

Why would I use a broker?

You would use a broker because they are fully regulated, because they are the people that can contact market makers and act on your behalf, and because they offer a good investment advisory service.

Is the broker allowed to advise me on which shares to buy?

Your broker can advise you on which shares to buy and sell, providing he is acting in an advisory position.

What are the advantages of using a broker?

The advantages of using a stock broker are that you know he will be fully regulated and authorized by the stock exchange and the Financial Services Authority. He will also have access to a vast amount of research and direct lines to the market makers.

How much are brokers fees?

Brokers fees vary from broker to broker and it will depend upon what type of service your broker is going to give you, whether it is a fool-proof folio service or just an advisory service. The best thing to do is to shop around.

What do I do if I unhappy with my broker's services?

If you are unhappy with your brokers service, in the first instance you should contact that brokers compliance department and complain. Failing that, you should contact the Financial Services Authority and your broker will have to give you the address of the authority.