What Is Share Dealing and How Does It Work?

Share dealing involves the buying and selling of company shares, also known as stocks. This activity allows individuals to participate directly in financial markets. Investors aim to benefit from potential increases in share prices over time or by receiving dividend payments from the companies they invest in.

Understanding Shares

A share represents a unit of ownership in a company. When a company issues shares, it is essentially selling small portions of its ownership to the public in exchange for capital. This process allows companies to raise money for various purposes, such as funding growth, expanding operations, or reducing existing debt without incurring new loans.

Owning shares provides investors with a proportional stake in the company’s assets and earnings. This ownership also grants shareholders rights, including receiving a share of the company’s profits through dividends and voting rights on company matters. While shares offer the potential for returns, their value can fluctuate, meaning an investment could decrease as well as increase.

The Mechanics of Trading

The actual buying and selling of shares occurs through a stock exchange, which serves as a regulated marketplace where buyers and sellers meet. Major exchanges, such as the New York Stock Exchange (NYSE) and Nasdaq, provide the platforms where publicly traded company shares are listed and exchanged. These exchanges facilitate price discovery, where the interplay of supply and demand determines the current market value for each security.

Individual investors cannot directly trade on these exchanges; instead, they utilize the services of a stockbroker. A stockbroker acts as an intermediary, executing buy and sell orders on behalf of their clients. Brokers earn fees, often called commissions, for facilitating these transactions.

When placing an order, investors specify how they want the trade to be executed. A “market order” instructs the broker to buy or sell shares immediately at the best available price currently on the market. Conversely, a “limit order” allows an investor to set a specific price at which they are willing to buy or sell, and the order will only be executed if that price or a better one is met. A “stop order” becomes a market order once a stock reaches a predetermined “stop price.” A “stop-limit order” combines these, triggering a limit order once the stop price is reached.

The prices displayed for shares involve a “bid” price and an “ask” price. The bid price is the highest price a buyer is currently willing to pay for a share, while the ask price is the lowest price a seller is willing to accept. The difference between these two prices is known as the “spread,” which represents a cost in the transaction. Trades occur when a buyer’s bid matches a seller’s ask, or when an investor accepts the prevailing bid or ask price.

Choosing a Dealing Platform

To begin share dealing, select an appropriate platform. These platforms are online brokerage accounts, prevalent due to their accessibility and often lower costs than traditional full-service brokers. Considerations when choosing a platform include the fees and commissions charged, which can vary significantly. Many platforms now offer commission-free trading for stocks and exchange-traded funds (ETFs), though other charges like account maintenance fees, inactivity fees, or fees for specialized services may still apply.

Tools and research resources are important factors. This includes access to market data, charting capabilities, and analytical reports that can aid in making informed investment decisions. Effective customer support and a user-friendly interface contribute to a positive trading experience. Security measures, such as two-factor authentication and data encryption, are also important for protecting personal and financial information.

Opening a share dealing account involves an online application process. You will need to provide personal identification details, including your legal name, current address, and Social Security Number (SSN) or other tax identification number. Government-issued identification, such as a driver’s license or passport, along with proof of address like a utility bill, are required for identity verification. Brokerage firms request information about your employment, annual income, and investment objectives to assess your risk tolerance and recommend suitable account features. Once approved, you can fund your account through various methods, including electronic transfers from a bank account, wire transfers, or checks.