The 5 stages of buying and selling a stock

As an investor, you can access plenty of tools for buying and selling shares. What can set your portfolio apart from others in a way that suits your investing strategy is using proper research. Our step-by-step guide explains how.

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Research can involve using an economic calendar to stay ahead of significant macroeconomic events, reviewing the latest data on stocks and shares with market analysis tools, or absorbing opinions from professional analysts and experts. If you want a leg up on deciding when to buy or sell your stocks, there’s probably much more information available than you realise.

Our video gives you a demo of some tools on the IG platform, as an example, and the guide below gets into more detail.

Step 1. Decide on your strategy

There’s no “one-size-fits-all” method for how to buy shares. So, this first step is all about making the process relevant to your portfolio.

When you’re buying stock, any new investment must align with your goals. It should fit in well with both your investing time horizon and appetite for risk.

You may want to buy a stock and make it a core holding in your portfolio. Or, you may pick an investment that will play a smaller role.

The biggest tip when buying shares is to make sure that it’s a purchase with intention behind it. Don’t pick a stock just because others are buying it. It’s worth taking the time to think about the investment and how it fits in with your long-term investing plans.

Step 2. Research the stock

Once you’ve got an idea about the type of shares you want to buy, the next step is research.

Before buying shares, it’s worth using all possible research tools. This can involve digging into elements such as:

• Current company news
• Environmental, social and governance (ESG) or socially responsible investing (SRI) credentials
• Valuation fundamentals
• Analyst opinions
• Whether you’d be better off buying an individual stock or diversifying with an exchange traded fund (ETF)

Not all brokers offer a full range of tools for research and stock analysis. One example of a platform that provides plenty of research tools is IG. With IG, you can access:

• Stock screeners
• Insights and expert opinions
• Analysis tools and market insights
• Macroeconomic calendar for notable events
• Up-to-date news and trade ideas
• Podcasts and special reports
• Learning resources like webinars, seminars, and strategy planning articles

Step 3. Buy the stock

Once you’ve identified that you want a stock, it’s time to buy it.

With most platforms, you’ll be charged a fee for buying shares. This is due to the work that goes on behind the scenes to make your trade.

Fees can vary depending on what you want to buy. For example, international shares can be more expensive because of the extra effort involved.

When buying a stock, it’s important to use the right trading order type. Using a trading order can help ensure you don’t overpay. Below are some basic order types.

Step 4. Monitoring your shares

Once you’ve decided on an investing strategy, researched your stock, and placed an order to buy shares at the right price, your next job is to monitor the performance.

When keeping on top of your investments, aim for a happy medium between being aware of movements while not obsessing over every single one.

Being totally hands off isn’t ideal for active investing. But on the flip side, checking on your shares too much could lead to mistakes or rash decisions. There’s no exact schedule you should follow, and it could be worth monitoring:

• Weekly
• Quarterly
• Yearly

Unless investing is your full-time job, checking daily is pretty unmanageable. At the other end of the spectrum, only checking every couple of years can also put you at a disadvantage.

Step 5. How to sell your shares

The practical steps you take when selling your stock are similar to those for buying. You’ll likely have to pay your broker platform some commission for arranging the sale and finding a buyer.

You can also use a similar range of order types. What order type you use may depend on whether you want to get out quickly or sell only for the right price.

Take the money or reinvest?

This is a key question to consider before and after you sell shares. What’s right will depend on your motivation for selling in the first place. Here are some points to consider:

• Were you selling shares to use the proceeds as income?
• Did you make a profit and want to reinvest those gains to compound your returns?
• Does it make sense to keep some or all of the money as cash while you wait for another investment opportunity?

Whatever you end up doing, always keep in mind the potential tax implications. Selling stocks and shares can create a taxable event if you’ve made money and are not using an ISA or a SIPP.

The bottom line

Learning how to buy and sell shares properly is an essential part of every investor’s journey. The best thing is, once you’ve run through things once, it becomes much faster and easier in future. Always ensure that when you’re buying or selling stock, you’re using all the possible research tools at your disposal to make it more likely that you’ll become an educated and successful investor in the long run.

Frequently asked questions

• Can you buy and sell shares immediately?

  Some brokerage platforms will allow this. For example, with an IG share dealing account, it’s possible to execute trades in just 0.014 seconds.

• Do you get taxed every time you sell a stock?

  It depends on your account and whether you’ve made a gain. If you’re holding stock in a general investment account (GIA), or outside a tax “wrapper” (a product which shelters your money from tax, like an ISA or a SIPP), you may have to pay tax on gains that breach your yearly tax-free allowances.

• How do beginners buy and sell shares?

  In the same ways as all other investors. If you’re a beginner, you may want to keep things simple when buying or selling shares and perhaps just use market orders. If you use a brokerage with low fees, it’s also worth practicing with some smaller trades. Or alternatively, use a demo account if your broker offers one.