Shares, equities or stocks. This is when you buy a very small slice of a company. So you own a smidgeon of British Airways, Tesco or ITV.
You buy and sell them on the stock market and, just like eBay, people make bids and offers. But it all happens super fast. Prices bounce up and down and at the end of the day it all comes down to sentiment – if loads of people want a slice of the action and these things are flavour of the month (think Nintendo after Pokemon 2) then prices rise as the sellers get a bit cockier. If people get turned off and the share in question is uncool, then everyone tries to offload them and the asking price falls.
Don’t get put off by techno babble. It really is like a scale game of Dragon’s Den. Where the world tries to pick the future winners.
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You can either buy shares directly – through an online broker – or in a basket of investments which someone else picks for you – called a fund.
If you buy them directly there are trading costs. You will typically pay about £10 a pop and 0.5% stamp duty to the Government. So this can be an expensive way of buying small amounts – many funds in comparison don’t have trading fees. However, after the initial purchase, there are no management fees to pay as with a fund – because there’s nothing to manage! You have a single company and you have tied your fortunes to theirs. If it goes up – bonza! If it goes down – ouch.
For less experienced investors this is a risky way to get exposure to the markets. Why? Well, let’s say you have £1,000 to invest and you buy one share. If that goes badly, you’ve done badly.
If you take that same £1,000 and put it in a fund, that fund will have about 30-60 shares in it. Mitigating the risk of any one group doing badly. Spreading your bets.
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