It always baffled me that if I wanted to buy shares in a particular company they were readily available. How is that possible? What if there weren’t any for sale at the time I wanted to buy. Let’s face it if you want to buy apples from the apple seller and he’s run out you can’t buy any so how is it possible to be able to buy shares at any given time? In this blog ‘How to buy shares? Stock market investing for beginners’, I’m going to explain how the stock market works and why it’s always possible to buy and sell shares whenever you want.

The Stock Market and the people who work in it

The stock Market works exactly the same as any other market with one exception. In a normal market the seller takes the goods to the market to sell. When those goods have sold out you can’t buy anymore. In the Stock Market there are specialised firms (or departments within firms) that are obliged, under license by the exchange, to ensure that shares are made available at all times for anyone who wants to buy and are obliged, again under licence, to accept shares at any time if you want to sell. This is called LIQUIDITY and the people that do this are called MARKET MAKERS. Liquidity is the key difference between the Stock market and all other markets. The market makers must continually quote prices to buy and to sell. The difference between the buy ( BID ) price and the sell ( ASK) price is called the BID ASK SPREAD and this is their profit. Let’s go through an example.

How to buy shares in the stock market – Rolls Royce Example

So you have 1000 Rolls Royce shares you want to sell. The market maker says I’m willing to take your 1000 shares and this is the price I want to pay for them (BID). On the opposite side of the coin you want to buy 1000 shares of Rolls Royce. The market maker then says OK I will sell you 1000 Rolls Royce shares and I’m asking this price for them (ASK).

Now, the market maker is taking a risk having these shares on his books because as we know share prices fluctuate constantly. Certain companies share prices fluctuate less than others due to things like stability, size and age of the company and this is reflected in the BID ASK SPREAD. We can see from these pictures that the bid and ask prices for Rolls Royce is 0.10 of a penny spread. Fonix mobile, however, is not so well known and therefore the BID ASK SPREAD is much wider at 5 pence. As investors it doesn’t make any difference to us because we either accept the prices offered, whether we are buying or selling, or we don’t.

The Broker’s role in the stock market

The broker is the intermediary between us, the investor and the market maker. We cannot directly interact with the market maker so we have to use a broker. There are two types of account we can open up with a broker; Execution only or Full Service. I use an execution only account because all I want the broker to do is buy and sell shares from the Market Maker. A full service account gives you all the resources the brokerage house has to offer; Analyst reports, advice, portfolio management, access to cash loans and share borrowing services etc.

How to buy shares? – Your online broker does it all

Let’s take a look at how my online broker account helps me to buy shares. Here are a few screenshots of my online account.

This is how to buy shares in the Stock Market.

In a nutshell, that’s it. Nothing complicated about it. Behind the scenes there are people that offer shares to buy or sell at any given point in time (when the market is open of course). All you have to do is open an account, put some money in it and start investing. You do not have to engage with a human being, there’s no sales pitch and you don’t have to collect paper shares and store them. It’s all done for you. Each time you place an investment you leave a paper trail (now a digital trail).

Conclusion – How to buy Shares and the bad news

To get access to the dealing side of the stock market and to have this portfolio administration platform at your fingertips on all devices wherever you are in the world you are, I’m afraid, going to have to pay an administration fee ( as well as your dealing charges). Well, you didn’t think it would be free, did you? Brace yourself because for all this the annual administration charge is £36.00, I know, that is a deal breaker right? I hope it isn’t because if you’re patient and can learn the techniques for making good quality investments, the stock market can provide a life changing path to financial freedom. In the next blog I’m going to explain some very simple strategies that produce good returns in the stock market whether you are interested in capital growth or need to boost your income. Don’t go away.