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How shares work

What is a share?

When you buy a share in a company, you’re effectively becoming a part owner of that company. As a shareholder, with an equity stake in that business, the investment return you earn depends on the success or failure of the company itself. Companies may pay dividends to shareholders or may prefer to reinvest profits for further growth.

Benefits of investing in shares

  • Part-ownership of a company
  • Real-time dealing throughout the trading day with limit orders available when markets are closed
  • Receive dividends either as income or re-invest to buy more shares
  • Ability to vote on important company decisions

What to consider when choosing stocks and shares

It often takes careful research and consideration to confidently build your own share portfolio. Here are a few things to consider before investing in shares:

  • Diversification - If you’re considering investing in shares, ensure you have a good mix of other investment choices and assets in place already.
  • Do your research - Use the investment factsheets to examine balance sheet and income statements and get a view of the company financials. Keep up to date with company regulatory news service (RNS) feeds and statements.
  • Check the facts - Any important information will be available as part of financial statements and factsheets online.
  • Tax efficient allowances - Have you made the most of any tax-efficient allowances available to you, by opening a Stocks and Shares ISA first? If you’ve already used your ISA allowance, you can still invest in shares through our Investment Account.

Tax treatment depends on individual circumstances and all tax rules may change in the future.

What happens when you buy a share?

To answer this question, our Investment Director Tom Stevenson spoke with Alex Skrine, head of electronic trading at Winterflood Securities, one of London’s leading market makers.

He explains how we use market makers like Winterflood to find the best price for your deal, and discusses the way in which you can consider the price yourself and decide whether to proceed, or leave it to Fidelity to get the best price for you.

Risks of investing in shares

  • Your investments may become too concentrated in one company, type of product or industry so be sure to stay diversified
  • Not actively managed by an expert, so you will have to manage your portfolio yourself, and you may have to spend more time analysing your investment to understand the factors affecting it
  • If the company under-performs or the market works against you, the value of your shares could go down, so you might get back less than you invested.

This information is not a personal recommendation for any particular investment. If you are unsure about the suitability of an investment you should speak to an authorised financial adviser.

Our how-to guides can help you get started

The information and images used in the following guides are not advice or a personal recommendation for any particular investment. They are for illustrative purposes only. You must ensure that any share(s) you choose to invest in are suitable for your own personal circumstances. If you are unsure whether an investment is suitable for you, you should contact an authorised financial adviser.

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Buying exchange-traded investments

This guide walks you through how to buy shares, investment trusts and exchange-traded funds.

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Selling exchange-traded investments

This guide walks you through how to sell shares, investment trusts and exchange-traded funds.

Need more information? Read our share dealing FAQs

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