Buying Shares – Chapter 18: Q & A session

This is chapter number 18 out of 19. Read the rest:

Read Buying Shares – Everything that you Wanted to Know but were too Scared to Ask – Chapter 1: Introduction
Read Buying Shares – Chapter 2: What are Stocks and Shares?
Read Buying Shares – Chapter 3: Different Classes of Stocks
Read Buying Shares – Chapter 4: What affects ‘Stock Prices’?
Read Buying Shares – Chapter 5: Stock Markets
Read Buying Shares – Chapter 6: Stock Exchanges, Why are companies listing on a stock exchange today?
Read Buying Shares – Chapter 7: Stock Indexes – What do they stand for?
Read Buying Shares – Chapter 8: How do I Trade Shares?
Read Buying Shares – Chapter 9: What kind of a Trader are you?
Read Buying Shares – Chapter 10: Investing Methodology: Planning Trades and Picking Stocks
Read Buying Shares – Chapter 11: Placing an order – The technicalities involved, Step 1 – Open a Share Dealing
Read Buying Shares – Chapter 12: Step 2 – Research the Stocks
Read Buying Shares – Chapter 13: How to Read Quotes of Shares
Read Buying Shares – Chapter 14: Buying and selling shares- how’s it done?
Read Buying Shares – Chapter 15: Buying Shares – The Rules
Read Buying Shares – Chapter 16: Tips for Stock Market Investing
Read Buying Shares – Chapter 17: The Difference between Stocks and Shares

If I buy shares today, when should I sell them?

There were times like during the early 1990s, when it seemed like you couldn’t lose. All shares were rising, and there it seemed like it was not necessary to sell. But when the market crashed, a lot of people were left with a lot of worthless shares. Get in quick and get out quick. The best way to make certain that the winners are not overcome by the losers, is to only hold shares that are going up. That’s certainly one point of view which seems to make a lot of sense. Sell diminishing shares as soon as you realize you have made a mistake. Don’t hold on to them to try to win your loss back. Don’t become emotionally close to a share: if your shares are going down the pan, leave them.

How many shares should I have at one time?

You should hold only the amount you can follow and afford to lose. For instance if you specialize in say 10 companies then leave it at that. If you have 100 companies to follow you will not be able to do this efficiently and may end up losing trades which you should have executed. Also don’t buy more then you can afford to lose.

How can I save tax on buying and selling shares?

You can use an ISA which stops you from having to pay the tax on shares. Most brokers and banks offer this option. You can then fill it with £7,000 worth of shares a year and buy and sell them freely. Any profits you make will be tax-free.

What is a Penny Stock?

Penny Stocks rarely cost a penny, the name refers to the fact that they are often very low in value, often are smaller or less well-known companies and are often traded on the alternative stock exchanges. Because these stocks are much cheaper more at bought at one time and they are bought and sold at a much quicker pace to realize bigger profits.

Penny stocks are quite unpredictable and risky to trade as a result.

How do you buy on margin?

Margin means buying stock with borrowed money, it’s like taking a loan to buy the stock. Often brokerage firm s will give you the leverage to buy on margin, so for instance 1000 shares costing $1 would normally cost you $1000 but if the firm give you 100x the money you put in, you could invest 10 and you’d be buying the full amount of $1000.

You do of course pay interest for the loan while the brokerage is building you money on your loan. They will use your stock as collateral and take it away if you fail to pay.

Read Buying Shares – Chapter 19: Glossary words to learn