Shares can be bought and sold by post, telephone or online. Most people, however, now trade shares on the internet because it is the cheapest way of dealing. The other major advantages are speed and convenience. The other big plus is that online brokers often have charts, information and educational tools.
Placing buy/sell shares online
Let’s say you’re still interested in buying 1,000 shares in Tesco but this time you want to do it online:
You log on to the broker’s internet site and go to the trading section. After keying in Tesco, the screen will display the current bid and offer prices and, in some cases, the ‘online market size’.
The screen will also display an ‘order form’ into which you key the number of shares you are buying or selling.
If you are buying or selling within the online size, you can be fairly confident when you place your order that you will get the price displayed. There is no guarantee of this if you place a market order (‘at best’) but some online brokers will allow you to place a limit order ensuring that you don’t pay more than you want.
Some online brokers operate a system in which you have 15 seconds after a price is displayed to decide whether or not to proceed with an order. If you do, you will get the price displayed, but after 15 seconds the quote expires and you have to start again.
Once you have placed your order, you will usually get online confirmation that it has gone through, the price at which it was executed, and the commission and stamp duty charged.
Placing buy/sell shares by telephone
Suppose you want to buy 1000 shares in Tesco:
You phone the broker and give your name, account number and security details. You ask what the current market price is for Tesco.
The broker looks at the real-time price on his screen and says ‘Bid 370p – Offer 371p’. This means the market maker for Tesco will buy your shares at 370p and sell you shares at 371p. The difference is known as the ‘spread’ and is the market maker’s profit.
If you don’t want to pay 371p, just tell your broker that and ring off.
If you are happy to pay 371p you have two choices. Either place the order ‘at best’ which means the broker will attempt to fill the order at 371p but may end up filling it slightly higher, or, for certainty, place a ‘limit’ order at 371p which means you will pay no more than that amount.
Once you have rung off, you cannot change your mind.
The broker then has to effect ‘timely execution’. He will ring one of the market makers and execute the order as quickly as possible.
If the broker concludes the deal with the market maker, they enter the details into their computer systems.
At that point you own the shares. You can sell them again, even though you haven’t received the contract note from your broker.
Note that some online brokers operate a fully automated system in which all the trades are done by computer, while others take your online order and process it in the old-fashioned way, possibly even getting on the phone to a market maker. One method is not necessarily better than the other, but it’s worth checking how automated your online broker really is. The vast majority of SimplyStockbroking’s business is completed automatically without any manual intervention.
If the broker offers online portfolio management and account viewing, you will be able to see the results of your recent transaction on your account. It may reflect the addition/removal of the company from your portfolio and the change to your cash balances.