All You Need To Know About Investing In Stocks In The UK

29 Jun All You Need To Know About Investing In Stocks In The UK

A stock is a type of security that signifies proportionate ownership in the issuing corporation. This entitles the stockholder to that proportion of the corporation’s assets and earnings.

Shares, provide one with ownership of a company partly. Companies issue shares to raise money. Investors buy shares in a business because they believe the company will do well and they want to share its success.

Investing In Shares in the UK

It is paramount to know that if a company states that it is a Public Limited Company it does not necessarily mean it is listed on a Stock Exchange. This is just a legal status for the company.

When a company wants to raise money more widely, it can apply to become publicly listed or quoted on an exchange, such as the London Stock Exchange in the UK.

Once it has gone through the approval process the company then has its shares admitted to trading on an exchange and its shares can be bought by individual investors and large investing institutions.

Companies have to satisfy certain legal and financial criteria before their shares can be listed on a stock market.

Owning shares in a company means that you are entitled to a say in its affairs.

Companies also hold meetings for shareholders when they are about to make enormous changes to their business, such as buying or selling parts of the company or raising fresh capital.

Trading in shares is done by stockbrokers, who buy and sell shares on behalf of investors. Increasingly, investors buy shares using online broking services.

Why Invest In Shares

Studies have proved, time and again, that shares (or equities) are one of the best long-term investments in the financial market place. They tend to outperform government bonds, corporate bonds, property and many other types of asset.

Share prices can go down or up so buying shares is not without risk, but over the long term, they can generate good returns. If you want to double your money in a year, for example, buying shares is not the best way to do it.

Shares are designed to present investors with two types of return, annual income, and long-term capital growth.

Most shares offer income in the form of dividends, which are typically paid twice a year. Dividends can be seen as a reward for shareholders. They are paid when a company is profitable and has cash in the bank after it has satisfied all its obligations.

Investors may buy shares specifically for income. Many companies generate substantial amounts of cash every year. They may use some of that money for general corporate purposes, such as paying rent and wage bills, and they may use some of the money to invest in equipment, research, and development. But a proportion of that money may be paid to investors as a dividend. As dividends are usually paid out twice a year, they can provide investors with a regular income

Share Analysis

Owning shares should provide investors with capital gains and income. Both of these are subject to tax beyond a certain point. There are various types of taxes that investors should consider including:

• capital gains tax
• income tax
• stamp duty.

The first measurement that many investors use is earnings per share( EPS). This is calculated by dividing a company’s net profits by the number of shares in issue.

Investors will look at current earnings and prospective earnings. These are the earnings that the market expects a company to deliver in the future.

Shares are bought and sold throughout the working day on the London Stock Exchange and share prices are updated accordingly from the moment the market opens, at 8 am.

Up-to-date share prices can be found on the London Stock Exchange website. Companies inform investors about share price performance on their own websites as well.

Once the stock market closes at 16.30, closing prices are produced.

CREST is a system where almost every transaction can be done electronically and is akin to a large messaging system, which conveys information about share trades and shares ownership. Nowadays, most transactions have to be settled within three working days.

While it would be virtually impossible to settle paper transactions in three days, it is commonplace using nominee accounts. Most trades executed on the London Stock Exchange are carried out on the London Stock Exchange’s own electronic system, SETS.

The system can be used to trade every share in the FTSE All Share index as well as the most frequently traded stocks on AIM and certain other securities. Orders to buy and sell these shares are displayed on computer screens and SETS matches buyers and sellers constantly and electronically throughout the day.

The standard settlement period in the UK for share trades is three days. At that time, the broker’s client will be informed that he/she is the new beneficial owner of the shares, the cost of those shares will leave their bank account and the money will be credited to the seller.