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Buying Shares

Buying shares seems like a straight forward process but can be quite confusing (and expensive) if you aren't aware of the procedures and protocols. In almost all cases you will have to engage a stock broker (or your financial adviser will have to do this for you) before you can undertake any such transactions. You will also need to be prepared to pay stamp duties, charges and sometimes even commissions, and be willing to provide specific personal information to the company you are purchasing from when you register your purchase.

Stock Brokers

Stock brokers are a vital part of the share-trading process as they are the legal agents that govern the purchases and sales. Whilst some direct public offerings (Initial Public Offerings or IPOs) allow the interested public to buy new issues of shares direct from the company listing itself on the stock-market without having to go through a broker, in all other instances a stock broker must be engaged before any sort of trade can take place. Before you hire a stock broker it is necessary to decide whether you want a full-service or discount broker, that is, a stock broker who will provide advice and portfolio management as well as the standard transactions or one that will simply act as an officiator. There can be big differences in the fees charged, though many new investors prefer the level of reliability provided by hiring a full-service broker (sometimes known as an 'advisory' or 'discretionary' dealer).

Reputable Brokers

In order to avoid scams or unreliable brokers it is also important that you engage a broker from a reliable source or firm. The Association of Private Client Investment Managers and Stockbrokers keeps a register of all eligible brokers, as does the London Stock Exchange. By using these resources for finding a stock broker you can generally prevent yourself from being caught up in any share scams. Under no circumstances should you invest in shares offered to you by a broker calling you up out of the blue - these are known as boiler room scams and should be reported immediately.

Fees

Once you have contracted a stock broker and begun investing you will quickly realize that there are some additional costs involved in the process. In the United Kingdom a stamp duty of 0.5% per purchase is charged. Stock brokers will also have fees that need to be paid - depending on the broker and the arrangement you have with them, they may charge a flat fee or percentage commission. Some companies will also charge annual fees for registration of ownership, either as a certain fee per share or as a flat fee per account. Stock exchanges may also choose to charge investors levies.

Buying Shares 'On Margin'

Whilst considering your finances it is also important to note that if you have a large portfolio with your stock broker they may agree to allow you to continue to invest 'on margin', that is you can take out a loan on the shares that you already have in your portfolio in order to keep investing, with the broker being able to sell your existing shares to raise capital if the loan is not repaid. This can be a risky enterprise and should only be undertaken with caution.

Documentation

When a purchase of shares has been agreed to there are several forms and certificates that will change hands. A contract note is an important legal document that should detail the shares bought (how many and for what price) plus any stamp duties, commissions or fees that have been charged. Contract notes need to be retained as financial documents for a minimum of seven years should the Inland Revenue conduct a taxation examination. Once the transaction has been completed a stock transfer form, - filled out by the seller - and the share certificate (an absolutely vital document) will be given to the buyer on completion, at which point the buyer will need to send both to the company in which the investment has been made. This allows the company secretary to update the shareholders register with the new shareholder's details and then issue a new certificate. Failure to register may result in a loss of any dividend payments made.