Share dealing is probably the most recognisable form of trading or investing available. In its traditional form it involves buying a portion of a company – say Apple, Coca Cola, Barclays or BP – in the expectation the value of that company will rise.
However, share dealing isn’t just restricted to the major companies. Individual investors can usually buy a part of any company, regardless of its size or the sector it operates in, as long as the management has issued shares.
How do shares work?
The overall value of a company is divided up into units of equal size and each of these units is known as a share. So, if a company is worth £50,000 and releases 1000 shares to the market, each share is worth £50 (£50,000 ÷ 1000).
Should the overall value of a company rise or fall, so will its share price. Investors are therefore hoping the company will grow in value, so that any shares they own can be sold for a profit.
You will also hear shares referred to as stocks.
Why do companies offer shares?
By allowing investors to own part of the company by buying shares, the management can raise money to reinvest back into the business.
As long as this money is used wisely, the company should become more profitable. And if it does, the value of the business and its share price will increase.
The company and its investors are therefore heavily reliant on each other.
How are shares traded?
There is a global network of specific exchanges where shares are bought and sold. Most UK shares, for example, are traded on the London Stock Exchange (LSE), while US shares will be primarily traded on the New York Stock Exchange (NYSE) or NASDAQ. Collectively, these exchanges are known as the stock market.
The businesses that are listed on these exchanges are known as public companies, because members of the public are able to buy and sell their shares. In the UK these companies are called ‘public limited companies’ and usually include the abbreviation ‘plc’ as part of their legal name. HSBC Holdings plc, Vodafone Group plc, or Manchester United plc are three examples.
When private business owners want to ‘go public’ and offer their company’s shares on the stock market, they need to carry out an initial public offering (IPO). You may also hear this referred to as a ‘stock market launch’ or 'flotation'.
Any share that is available for trading will be priced in its local currency. You will therefore see that UK shares are listed in pence, while US shares are listed in dollars, for example.
In traditional trading, shares can only be bought and sold during the opening hours of the stock exchange where they are listed.
Below are the opening and closing times for a few major exchanges (UK time, April – October. Opening times will be different throughout the rest of the year due to local daylight saving time changes):
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