I am pretty sure you already imagined several times to invest in the stock exchange, gain enough cash to travel the world and rest for your entire life.
Achieving this vision is not easy but you have to start somewhere, and buying shares online is one of the best ways for that. The good news is you can do this fully online. In this article I will explain jargon-free how to buy shares online. It is not as easy as watching TV series, but don’t worry it is not rocket science either.
Buying shares online is worth the time and effort
There are two main motivations for you to buy shares. The first is profit and the second is experience.
Both can provide fun if you select the right stocks.
If the share you bought pays dividends or its price increases, you can make a profit. If you do this in the long run, these profits can add up and make you even a millionaire, like it happened with Mr. Gremel. The 98-year-old Mr. Gremel bought 20 Walgreens shares for $1000 in 1953. This investment today is worth $2 million.
On the experience side, you will improving your financial literacy is one of the best long term investments. Did your friends or neighbours talk about investments and the stock market, and you had no clue about the topic? Once you start investing and learning about it, this will not happen again. You will understand better how the stock market works and how it influences the economy and your everyday life.
Last but not least, as a shareholder you will be part of a company's story. Have you ever wanted to participate in a Berkshire Hathaway annual meeting? If you buy some Berkshire shares, you will have the opportunity.
What are shares and how do they work?
When you buy a share of a company, you will be an owner i.e. a shareholder of that company in a very small percent.
For example, Tesla has 164 million shares outstanding. When you buy 100 Tesla shares you will be one of the owners of Tesla. Your ownership percentage will be very tiny, 0,000061% (100/164 million), but still, you will be an owner with all the rights that comes with this ownership.
The two most important ownership rights that come with buying shares of a company are:
- The right to receive dividends - when the company allocates dividends you will receive a part of this. Remaining at the previous Tesla example, let’s assume in 2020 Tesla will pay 100 million USD in dividends, then you will receive 61 USD (0,000061%*100 million).
- The right of voting - if you are a shareholder, you have the right to participate at the annual meeting. At the annual meeting, you will have the right to vote about the topics that will fundamentally influence the future of the company. These topics can vary from the election of the board of directors to the amount of the dividends allocated.
Speaking about financial literacy: when your read about buying share online you may find that both the expressions "stock" and "share" are used here. What is the difference between them? The word stock is the general term for company ownership. For example “I invest in American tech stocks like Apple and Facebook”. Share usually refers to the ownership percent of one company. For example “Yesterday I bought 100 Tesla shares”.
The six step plan to buy shares online
As I said before, buying shares online is not rocket science. You just have to follow our six step plan explained below.
Step 1: find a good online broker
When recommending a broker we take into account the broker’s trading platform, the cost of service, the quality of customer service and accessible markets to trade. Security is also highly important, but since we review only secure brokers on our website, you do not have to worry here.
Step 2: open your investment account
After finding your online broker, you need to open your investment account. This is usually an online process, quite similar to opening a bank account. The investment account is basically what you need to start buying shares online. Imagine again as a bank account, but apart from holding cash on it, you can also hold shares. The account opening process usually takes a couple of days, but at some brokers (for example eToro), you can do it within one day.
Step 3: upload money to your account
For buying shares online, you need to have money in your investment account. Usually you can choose between bank transfer and funding via credit/debit card. At some brokers your can fund your investment account even from Paypal (for example at IG).
Step 4: find the stock you want to buy
After loading some money into your account, you can start searching for the best stock targets to buy. You can get inspired by external ideas or you can even do your own analysis. Most of the people do the former, but the latter usually pays out better and you can can learn more from it. External investment ideas can come from your broker in the form of research or you can use other, independent researches as well. The financial news and investment courses can also be useful to learn how to select good stocks to buy.
Step 5: buy the share
You have the account, the cash and the share target. The last step is to push the buy button. You log in to your online trading platform, search the share in mind, insert the number of shares you want to buy.
When placing an order, you can choose from different order types. The market order buys at the actual market price, while the limit order allows you to specify the exact price at which you want to buy the share.
Step 6: review your share positions regularly
You are done, your shares are bought. However, it is key to monitor your investment. This basically means following your investment strategy. If you bought the share for holding it for a longer term, you might participate at the annual meeting and collect all the news and information about the company.
For short time buyers, the position management could mean only setting up the stop-loss price of where to cut the losses and the target price of where you want to sell the share with a profit.
Best 5 brokers to buy shares online
As we live in the internet era, trading nowadays takes place through an online platform. Trading floors became well-designed tech platforms with interactive tools and charts.
If you just start to explore how to buy shares online, we recommend you to choose between the following three brokers. We tested all three and we have live account with them.
Dutch discount broker DEGIRO offers highly competitive fees and good access to the biggest stock markets. Search function is clear, so you would be able to find shares and other financial instruments easily. DEGIRO has an easy to use platform, where placing an order for buying a share is almost self-explanatory. Read our full review.
Internaxx (for TD Direct Investing) is a Luxembourg based broker with a banking background. Internaxx is an excellent place to trade shares with access to well-designed analysis tools. The trading platform is intuitive and suitable for anyone interested in stocks and funds. Internaxx’s platform incorporates Morningstar research with detailed company analysis. Read our full review.
Swissquote is a Swiss broker listed on the stock exchange. It is suitable for investors interested in thematic investing, like ‘3D printing’ or green energy. Read our full review.
After gaining more experience with investing and buying shares online, you can also take a look at Interactive Brokers and Saxo Bank:
IB is one of the biggest global brokerage companies with a US background. It has very competitive fees and you can trade with almost any asset type (options, futures, FX etc) and on most markets. Be aware that Interactive Brokers has a complex trading platform that needs some time and effort to learn. Read our full review.
Saxo Bank is Danish broker with a banking background. As a leader of innovation they just recently started their robo-advisory type services. Saxo has a good quality research providing both short term trading and longer term investment ideas. Saxo’s trading platform has really nice analysis features, but requires some experience. Read our full review.
Tip: demo account
If you do not want to start by investing your real money, you can open a demo account. With a demo account you can “play” with a virtual portfolio and explore the platform without risking your savings. Not all of the brokers provide such accounts. From our broker selection, you can open a demo account only with Saxo Bank.
Good to know: minimum account balance
You should know that some brokers have an account balance minimum. Interactive Brokers' minimum account balance is USD 10.000. This means that your portfolio (cash + shares value) has to be at least USD 10.000.
Every penny matters: be aware of the costs
Buying shares online comes with some costs.
We categorise the costs in two groups: trading fees and other fees. Trading fees occur only when you execute a trade, namely you buy shares online. Other fees are usually associated with having an investement account. These type of fees include account fees, money withdrawal costs and inactivity fees.
You can compare all fees in our comparison table, but below I have highlited the fees of a transaction worth USD 2,000 in case of each broker:
|DEGIRO||Internaxx||Swissquote||Interactive Brokers||Saxo Bank|
Your investment account is protected
Since you are trading with your savings, it is very important to pay attention to protection.
The online brokerages we selected have some of the best protection schemes, the level of it depending on the regulatory body of the broker.
|Supervisory authority||DNB, AFM||CSSF||FINMA||SEC, CFTC||DFSA|
|Protection amount||€20,000||€20,000||CHF 100,000||Cash dep. up to $250,000||Cash dep. up to $100,000|
|Securities up to $500,000||Securities up to $20,000|
DEGIRO is regulated by the Dutch Central Bank (DNB) and The Netherlands Authority for the Financial Markets (AFM) and provides a protection up to EUR 20,000.
Internaxx is regulated by the Commission de Surveillance du Secteur Financier (CSSF) offering compensation up to EUR 20,000.
Swissquote is regulated by the Swiss Financial Market Supervisory Authority (FINMA), an independent body of the Swiss banking system. Under this protection scheme you are protected up to CHF 100,000.
Interactive Brokers is regulated by US authorities, the SEC and the CFTC. The protection level is USD 250,000 for cash and 500,000 for securities.
Saxo Bank is a fully licensed EU Bank, regulated by the Danish Financial Supervisory Authority (DFSA) with protection up to EUR 100,000 for cash deposits and for securities up to EUR 20,000.
Tip: use national tax free accounts
In your country of residence you may open special investment accounts that provide you with favourable tax conditions. For example in the UK, this account is the ISA, the Individual Saving Account, which is exempt from income tax and capital gain tax on the investment returns.
Manage the risk of buying shares
Investments always come with some risks that you should aim to manage. Below, you can find the most common ones and our advice on how to mitigate them.
Avoid the scams
Risk: unfortunately, tons of scam “brokers” are out in the market and are trying to steal your money. When you are faced with binary option ads and automated investment algorythms that generate outstanding returns, start to get highly suspicious. In these cases the best thing to do is to immediately turn down these ads.
How to manage it: when buying shares online, go with our broker selection. We have an active account with the brokers we selected and we test them regularly.
Diversify your portfolio
Risk: spending all of your savings on one or two shares. If the company you have selected goes bust, you lose all your invested money.
How to manage it: diversify your investment portfolio. This practically means buying more different shares and not putting all your eggs in one basket. The ideal number of shares in a portfolio varies somewhere between 20 and 30.
Avoid crappy shares
Risk: when buying individual shares, there is always a risk of selecting the wrong ones. Wrong here could mean defaulting or just buying an overpriced share.
How to manage:
Learn. This is the tricky part, since you need some knowledge and routine. The best is to start learning by reading investment books and taking online courses. There are tons of great books out there, but you can start with the Intelligent investor by Benjamin Graham. This is also the most recommended investment book by Warren Buffet.
Gather information: While you are learning, start collecting as much information about your target companies as possible. Read news about them, understand their business profiles, start to play with their income statement numbers, get some knowledge about their management background or even attend the annual meeting. These will help you get a better understanding of the company and of the specific industry.
Compare the multiples: when it comes to pricing, use industry multiples as a proxy for your your target share. P/E is a basic multiple, but each sector has its own favourite.
So how to buy shares online? You just have to follow six easy steps: find a broker, open an account, fund the account, find the stock, buy the share and review your position. As I mentioned before, it may look tricky for the first time but all you need is to progress step by step. I hope we will see each other at the next Coca-Cola or Berkshire annual meeting.