Share dealing is the process of buying and selling shares with the hopes of benefiting from market price movements. When a trader buys a share, they buy a small part of ownership in a company. They can then benefit in two ways: through capital growth or dividends.
Capital growth is when the value of a company increases. This naturally leads to its share price increasing. When a trader buys a stock at £40 a share, they may find that six months later, a share is worth £80. Of course, the value of a company can decrease. In this case, its share price decreases.
Dividends are the sum paid out by a company to shareholders. The money comes from the profits made by a company, and they are paid out regularly. Depending on the business’s performance and the economic outlook, companies can increase or decrease their dividends.
What people call ‘share dealing’ is essentially the trading of shares. This is the same as buying and selling shares or a basket of shares – an ETF. You can also buy investment trusts.
To start share dealing, you must first have a live account with a broker. When selecting a broker, make sure they offer the products you want to trade. Some brokers offer a large variety of international stocks, and others offer local stocks that cannot be found outside the country. Choose carefully.
Once you have created and verified your account, you can add funds. Some accounts have minimum deposits that vary depending on your account tier. However, most accounts out there have low minimum deposits of as little as £50.
You can then go on to your trading platform and look for opportunities. Search for the shares you want to buy and get a price quote. You can also buy shares directly from another party in an exchange. When you have bought your shares, you can monitor your open position and see whether your predictions on price movements are correct. Remember to always keep an eye on your investments.
If the company you have invested in pays dividends, you may see cash payouts in your account. When the time comes, you can sell your shares anytime you are comfortable. All you do is to close your position. Your funds will appear in your live account once the sell order has been executed.
Market and limit orders
Now that you have an idea of how to buy and sell shares, we dive deeper into decoding some of the terms you will meet. The first thing you will see when you try to buy or sell a share is a panel of market and limit orders.
A market order is essentially an instruction to buy or sell a share. Under normal circumstances, market orders are executed immediately. Nevertheless, their execution is not guaranteed. It depends on the price at which you want to buy or sell a share, and whether that price is reasonable.
In fast-moving markets, traders may have a harder time executing market orders due to rapidly fluctuating market prices. This may lead to deviations from real-time quotes. It may also cause a market order to be executed at different prices.
For example, a trader decides to purchase 500 shares of a fast-moving stock. He submits a market order to buy these 500 shares. In a volatile market, he may end up having 250 of their shares executed at one price, and the other 250 at a slightly higher or lower price.
A limit order is an instruction to buy or sell a stock at a specific price or a better price than the one specified. Limit orders are combined with buy and sell market orders. This results in ‘buy limit’ and ‘sell limit’ orders.
A buy limit order means that a trader’s buy order can only be executed at a certain price or lower. A sell limit order means that a trader’s sell order can only be executed at a certain price or higher.
Limit orders are important as they can act as ‘insurance’ for traders who do not want to take big risks. However, they do not guarantee execution. Nevertheless, they are a good way to ensure traders do not exceed their budgets and pay more than they want to.
More trading instructions
Beyond the basic market and limit orders, traders may use special orders.
A stop order is also referred to as a stop-loss order. It is an instruction to buy or sell a stock when its value has reached a certain, pre-specified price, automatically. These can often be tacked on when a trader opens a position, so that they will not have to monitor the markets too closely. In volatile markets, a stop order is necessary and can prevent disastrous losses.
There are two types of stop orders – buy stop and sell stop.
A buy stop order is entered at a price above the buy price. For example, a trader buys a stock at £40 a share. The market is bullish, but he does not know for how long. He therefore sets up a stop order at £60, so that when the share price reaches £60, he can automatically close out his position.
A sell stop order does the exact opposite, and it is entered at a lower price. It can act as insurance for the trader. The same trader who sets the buy stop order may set a sell stop order at £35. If the markets take a turn for the worse and the share price lowers to £35 or beyond, the trade will be closed automatically.
A stop-limit order is another type of instruction that insures the trader. It combines the feature of a stop and limit order, and it triggers the signal when a certain price is reached to be executed.
The best thing about a stop-limit order is that the stop and limit prices do not have to be the same. For example, a trader can set a stop price at £40 and the limit price at £35. This ensures that the order will be executed in the range between £35 and £40.
Just like a stop order, a stop-limit order may not be executed right away, when the share price reaches the limit price. This is especially true in volatile and fast-moving markets.
The act of exchanging shares is essentially what is meant by the term “share dealing.” This is equivalent to buying and selling shares or an ETF, which is a collection of shares. Also available are investment trusts. Share dealing is the practice of purchasing and disposing of shares in an effort to profit from changes in market value. A trader purchases a minor stake in a firm when they purchase a share. Then, they can gain from either capital growth or dividends.
With the knowledge of the most common trading instructions, you can send out a variety of instructions in your trades.
Regardless of the asset being traded, investors should always be wary of fast-moving or volatile markets. They should also be aware that their brokers may have separate order execution policies. These may include having specific trading hours for different assets. Before trading, it is the trader’s responsibility to know when their trading hours are and be familiar with local regulations.