What is share dealing?

Imagine you’re at a market where lots of companies each have a stall. But, instead of using your money to buy the products or services they offer, you buy a piece of the company itself. What you’re buying is called a ‘share’. And the collections of shares that can be bought and sold in different companies are called ‘stocks’. That’s where the term ‘stocks and shares’ comes from. The money raised by selling shares gives a company cash to expand its business, and owning them could help you invest for the future too. 

How does share dealing work?

Company shares are traded on ‘stock markets’ around the world, based on where the company is registered or ‘listed’. For example, UK shares are bought and sold on the London Stock Exchange. This is share dealing.

Each individual share in the company is given a price based on what the market thinks it’s worth - worked out from financial information like turnover and profit to its potential to grow as business. This share price will change throughout the trading day, based on new information and how many shares are being bought and sold. 

You may have heard the motto ‘buy low, sell high’. In practice, this means that you want to buy your shares at the lowest possible price to give you the biggest chance of making a profit when you sell. With online trading you’ll often be able to get a live price quote before you place an order, so you know exactly what you’re paying.

Some companies will only sell individual shares, but others will allow you to buy partial or ‘fractional’ shares. This can be useful if you have a set amount of money you’d like to spend. Certain shares also come with regular payments called dividends, which can give you extra income.

As a shareholder, you won’t be involved in the company’s day-to-day running, so don’t have any say in decisions made by management which could impact your investment. But you may be asked to vote on things like executive pay at annual general meetings, where the company presents its financial results. 

Over the long term, shares offer potentially bigger returns than cash savings. That’s why they’re a key part of investment plans like pensions. But the money you put in is also at risk. If things aren’t going great at the company you’ve invested in, your shares may end up worth less than you paid for them. 

Entire stock markets and the shares traded on them also experience ups and downs based on the economy and world events. This is called ‘market volatility’. That’s why shares should be looked at as investments for five years or more. By riding out short-term movements in the stock market, you can increase your chance of making a profit, although there are no guarantees.

The value of an investment can go down as well as up, and you may get back less than you've put in.

With Aviva, you can trade a wide range of UK shares online. Before you start, you should take a look at our Key Investor information too.

Share dealing costs and charges

As you can’t buy shares directly from a company or stock exchange, you’ll need to use a broker or ‘platform’. They will have a range of extra costs and charges. In the same way you should aim to get the lowest price for your shares, finding a platform with low fees can prevent your profits being nibbled away. You can learn more about platforms here. Your share dealing charges may include these: 

• Trading fees – when you buy and sell shares through a platform, you’ll pay a commission or trading fee. This is usually charged at a flat rate for each trade or as a percentage of the value of your trade. 
  
• Account Fee – some platforms will charge a fee to cover the cost of running your account. This is generally taken monthly as a percentage of the value of your investments. 
• Stamp Duty – when you buy most UK shares you have to pay a tax to HMRC called Stamp Duty Reserve Tax (SDRT). Currently it’s 0.5% of the value of your shares. Shares on the Alternative Investment Market (AIM) and in some investment funds are free from Stamp Duty. 
• Foreign Exchange Fees – when you buy non-UK shares, you have to do it in the local currency, for example US dollars. This means you’ll pay a fee to convert your money from pounds. 

You may have to pay other fees depending on the shares you buy and the platform you use. So, it's always best to check before you place your order. You can find a full list of share dealing charges with Aviva here.

What are stop loss and limit orders?

When it comes to buying and selling shares there are some tools you can use to boost your profits and cut any losses. They can help you be more hands-off with your investments rather than constantly tracking them for price changes. 

Stop loss order

Like a safety net for your shares, this helps prevent big losses by selling a stock if its price falls below a certain level – called the ‘stop price.’ 

You simply set a stop price at a level that suits you with the number of shares you’d like to sell. Then if the value of your shares falls to that price, they’ll be sold automatically. 

Limit order

A limit order allows you to have control over the price at which you buy or sell your shares. It lets you avoid paying more or receiving less than you're happy with.

When you buy, you can set a price you’d like to buy your shares at. If the shares hit that price, the limit order is triggered, and the shares are bought for you. In the same way you can set a minimum price you’re willing to accept to sell your shares, so you make the profit you want. 

You’re not guaranteed to buy or sell shares with a limit order. If the price you’ve set isn’t reached the limit order won’t be triggered. 

International share dealing

With Aviva you can only trade in UK stocks and shares, but share dealing is a global business. You can buy shares on many different stock exchanges around the world. 

One of the main benefits is getting access to huge companies which aren’t UK-based like Apple or Google, which trade out of the New York Stock Exchange. So, if you really like a brand, with international share dealing, you can own shares in them. 

Here are a few more benefits of owning shares in foreign companies:

• By not restricting your shares to UK companies you could get bigger returns. You’ll have the chance to tap into businesses that may have innovative new products or be in countries with faster growth. 
  
• You can ‘diversify’ your portfolio, this means that you can spread your risk across companies in different countries and industries, so you’re less affected if one hits tough times. 
• Exchange rates can work for you. You buy shares in the currency of the country where the business is based, for example dollars. If the exchange rate for the dollar improves against the pound while you own the shares, you’ll make more money when you sell. 

But it’s not all rosy when buying international shares, here are a few things you should watch out for:

• Exchange rates can work against you. If the pound gets stronger while you hold your foreign shares, you’ll take a hit on any profits when you sell. 
  
• Different countries will have their own regulations covering their financial markets, so you may have to do extra research before you take the plunge. For example, when buying US shares, you’ll need to fill out a W-8BEN form.
• Investing in developing countries, also called ‘emerging markets’ can offer high growth but that often comes with higher risk as you may be exposed to political and economic turmoil. So, you’ll need to keep on top of changes that could affect your investments. 

Share dealing certificates

Nearly all share trading today is done online. It’s quicker to complete trades and you’ll be given an electronic certificate to show how many shares you’ve bought and at what price – these details will also be held securely by the platform you use and the company’s registrar. 

In the past, companies issued actual paper certificates of share ownership. This caused problems as paper certificates are easy to damage or lose. With online trading you don’t have to worry about taking care of share certificates.

Investment funds

Buying and selling individual shares isn’t for everyone, as it requires research on the companies you’re investing in. With only a few eggs in your investment basket, the risk can also be high. An alternative is to choose investment funds. These are a wide selection of shares or other investments that are either handpicked by a fund manager or that track performance of a stock market index like the FTSE 100. This can help reduce your risk, as you’re invested in many companies rather than a few. At Aviva we offer a range of investment funds.