Share Dealing, What is it?
Share dealing is the process of buying and selling shares on a recognised stock exchange.
In theory, the actual process of buying and selling shares is quite simple. Looking on the Internet or in the financial pages of the press, you will find lists of shares and the prices between which they are being bought and sold. You decide how much you are willing to pay for the shares and put in an offer. If the offer is accepted, you receive the shares and pay for them. Selling shares works the same way: you offer your shares for sale at a price and if someone accepts your offer, you receive payment and hand over any share certificates you have.
In practice, there are a number of ways in which you can achieve the above process.
What are the different ways of dealing?
You buy and sell shares:
- Through a stockbroker: you can ask the broker to advise you or just to buy and sell shares as you direct without their advice
- Through a share-dealing service: most banks and building societies now offer this service
- Through an on-line trading service.
- Through the stock broking department of your bank
- Direct from the company: companies advertise upcoming share offers in the Press, on national television and on the Internet. You apply for a prospectus and application form, complete the form and send it with your cheque. You need to remember that if this is a very popular share issue, you may not get the amount of shares for which you applied.
- Through a share shop: these are shops set up in your local high street which may be independent, or have a connection to a bank or building society – or even be located within the bank or building society itself.
Note: you can buy shares from family, friends or colleagues direct, without going through the stock market at all. You will still need to complete the legal paperwork and pay stamp duty on the transaction.
Each stock exchange will have its own way of dealing with the mechanics of transferring payments for and from share deals and with the paperwork.
What should I think about when deciding how to deal?
You need to think about the following when selecting the way you will conduct your share dealing:
- What is most convenient for you? If you have the time and energy, you may prefer to deal with all your transactions in person
- If you find it easier to let a third party buy and sell for you, how much control over their actions do you want? You might want them to check every deal with you or leave it to their judgement entirely.
- How many shares do you intend to buy and sell? A few shares occasionally are better suited to a share shop: major investments are appropriate for a dedicated stockbroker
- Consider the costs of each type of service
- How quickly will a third party pay you your money from a transaction?
More information on stockbroking services
Stockbrokers can trade shares for you in one of three ways:
- Execution only: you instruct the stockbroker to buy and sell your shares at a given time and at a given price.
- Advisory: you ask the stockbroker for assistance in deciding when to buy and sell shares and at what price. If you are a major investor, the stockbroker may take the initiative and contact you to discuss potential transactions.
- Discretionary: you give the stockbroker powers to buy and sell your shares when they think they can obtain the best deal for you.
Charges for each type of service vary, with execution only being the cheapest and discretionary the highest. A commission is charged on each transaction: the commission is a percentage of the transaction value but you should be aware that there may be a minimum fee. The appropriate level of fees will be outlined to you by the share-dealing organisation before you buy or sell any shares.
In addition to any fees due you should also consider stamp duty on any purchase of shares. Please note that for large transfers of shares there is also a 25p levy due to the Panel of Traders & Mergers.
Although you can pay your stockbroker by cheque each time you complete a transaction, your stockbroker may prefer you to open a nominee account with them. This means that a given amount of money is held in an account ready to buy shares. You will not receive a share certificate but you will be registered as the holder of the shares and receive dividends.
Some companies offer shareholders special discounts or incentives on the products or services they provide. If your stockbroker provides a 'advisory' service then they will be able to advise you of any share holder incentives available.
The stockbroker's account should be held separately from the rest of the firm's accounts, so if the firm goes bankrupt your money is not affected.