You have decided you are comfortable with the risks involved in investing in shares and are ready to begin constructing your portfolio. So what are the actual mechanics of buying a share?

First you will need to open an investment account, a stocks and shares ISA or a SIPP (self-invested personal pension) with an online investment platform or a traditional stockbroker that still works face-to-face or over the phone.

Before the world went digital, you would receive a paper share certificate to prove part-ownership of a particular company, but these days most shares are held on what is known as a ‘nominee’ basis.

This means the investment service you have an account with will hold them digitally on your behalf, although you still own them; it just makes the process of investing in shares simpler and means you can trade almost instantly.

OPENING AN ACCOUNT

To open an investment account, you will need to provide your name, address and National Insurance (NI) number and then pass an identity check.

A lot of brokers don’t provide advice, leaving the novice to make their own investment decisions. These are often called self-directed or execution-only services and tend to offer the simplest, cheapest way to buy shares.

Typically, you will pay a one-off charge for buying and selling shares. If this is a fixed amount (say £10), it becomes more economical on larger share purchases. Alternatively, some brokers charge a percentage of the assets that you hold on their particular platform.

To buy a share, you either enter the number of shares you want or the monetary amount you would like to spend. The latter option will figure out how many shares you can buy at the current price. You should be able to specify whether you want dealing charges included or excluded as part of this figure.

There is no recommended amount of shares you should buy in a company, although you should bear in mind the dealing costs you can incur. It would not make sense to buy one share costing 500p, for example, as you could pay twice that amount as a transaction fee.

BID OFFER SPREAD & BUYING WITH A DELAY

Novice investors should also familiarise themselves with the distinction between the bid and offer price. The former is the price you’ll achieve if you sell (i.e. what you will be bid for your shares), the latter represents the purchase price (i.e. the price that you will be offered).

If you are unsure about the price you are paying for a share, you can set a limit order, which is essentially a price point at which you would be happy to buy stock. For example, if Company Y is currently priced at 100p and you wanted to buy at a cheaper price, you can specify 90p as your limit. Should the shares hit this price, an instruction is automatically sent to buy the stock at the best available price.

There is a catch as limit orders are often only valid for a short period, such as up to 90 days, so you may need to put through another order if it does not go through during this period. Once you have entered all the information on a normal trade, you will be presented with a countdown. This is a quote for a price that is only guaranteed for 15 seconds due to the fast-moving nature of the market.

If the quote expires, you need to request another, which could be higher or lower than the previous price offered. After you have entered your order, the money and shares need to be exchanged in the marketplace through a process known as ‘settlement’, which takes two working days for standard shares.

The date you enter your order is known as the ‘trade date’, and the date that the money and shares change hands is known as ‘settlement date’; the difference between these dates is often known as the ‘settlement cycle’.

You will often see abbreviations such as ‘T+1’ and ‘T+2’ used – this refers to the days between trade and settlement date (for example, T+1 means the trade will settle on the first working day after trade date). On settlement date, you will become the beneficial owner of the shares. This is also the day that you become a shareholder of record and therefore entitled to any dividends.

PAMELA PLACES AN ORDER

Pamela is a 29 year old graphic designer who has followed the markets from afar, but never felt confident enough to take the plunge, until now. She has finally opened a stocks and shares ISA with an investment platform, which will levy an annual shares custody charge of 0.25% of the value of the shares in her account and charge Pamela £9.95 per share deal.

She has carried out thorough research on a few companies she would like to invest in by using information provided by the platform, including the companies’ financial and dividend histories. She also cross-referenced key bits of information on financial websites including Morningstar and Shares’ own website.

Dealing online, she gives her broker an ‘Order’, an instruction to buy the share she had selected. Pamela was offered a price she felt comfortable with and could afford, clicked a button to ‘deal now’ and shortly afterwards, receive a contract note.

Before dealing, Pamela had double checked there were sufficient funds in her online account to cover the cost of the transaction, including the applicable brokerage fees.

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