Ways to trade and invest · Guide 1 of 11

Stocks and Shares Explained for Beginners

Last reviewed 2 November 2026Beginner friendlyCovers the UK, US, EU, Australia and Canada

The short version

A share (also called a stock) is a small piece of ownership in a company. If the company does well, your piece can become worth more, and the company may pay you part of its profits. If it does badly, your piece can lose value, and if it fails completely you can lose all of it. This guide covers how to invest in stocks from scratch: what you’re buying, how to buy it, what it costs and what can go wrong.

You get: Part ownership of a company
Typical costs: Dealing fees, platform fees, small spread; UK stamp duty on most UK shares
Can you lose more than you put in?: No, if you buy with your own money
Risk: Medium

Shares are bought and sold on the stock market, through exchanges such as the London Stock Exchange or the New York Stock Exchange. You buy them through an online stock broker or investment platform.
You make money two ways: the share price rising, and dividends, which are cash payments some companies make to shareholders.
Prices move every day. Over long periods shares have beaten cash, but they can fall by a third or more in a bad year.
Owning just a handful of companies is risky. Most people hold many companies, often through a fund.
Buying shares with your own money can’t lose you more than you put in.

What is a share?

Companies are owned by their shareholders. A big company might be split into billions of shares. If you buy 10 shares in a company with 1 billion shares, you own a tiny fraction of it, but that fraction is real: you’re entitled to a slice of the profits the company pays out, and usually a vote at its annual meeting.

Companies list their shares on a stock exchange when they want to raise money from the public or let existing owners sell. After that, the shares change hands between investors every working day. The company doesn’t get your money when you buy on the exchange; the seller does.

"Stocks" and "shares" mean the same thing for our purposes. Americans tend to say stocks; people in the UK more often say shares.

How the stock market works

The stock market is the name for all the places where shares in companies are bought and sold. Most of the buying and selling happens on stock exchanges, which set the rules, publish live prices and make sure every trade settles, so the buyer gets the shares and the seller gets the money.

Nobody sets the price of a share. It’s whatever the last buyer and seller agreed on, and it moves through the day as more people want to buy or sell. Exchanges are open on working days during set hours, for example 8am to 4:30pm in London and 9:30am to 4pm in New York, local time.

When the news says the market rose or fell, it usually means a market index moved. An index tracks a group of companies, such as the FTSE 100 or the S&P 500. Our funds guide explains indexes and how to invest in a whole index at once.

How buying shares works

You open an account with a broker or investment platform, put money in, search for the company and place an order. Most platforms show two prices: the bid, the price you can sell at, and the ask (or offer), the price you can buy at. The gap between them is the spread¹, a small hidden cost you pay every time you trade.

Once you own the shares, the price changes as investors decide what the company is worth. Good news, such as rising profits, tends to push the price up. Bad news, a weak economy or simply a gloomy mood in the market can push it down, even when nothing is wrong with the company.

Many platforms now let you buy fractional shares, which means part of one share. That’s handy when a single share costs hundreds of pounds or dollars.

How to buy stocks, step by step

Choose the account. Decide where the shares will sit. In many countries a tax-free or pension account is the best home, for example an ISA in the UK, an IRA in the US or a TFSA in Canada. The country notes further down list the main ones.
Open it with a broker. Sign up with a regulated broker or platform that offers that account (see the next section). You’ll need ID, and a bank account to pay in from.
Add money. Transfer what you plan to invest. Leave your emergency savings in cash.
Find the company. Search by name or by its ticker, the short code the exchange uses, such as AAPL for Apple.
Choose the order type. A market order buys straight away at the best price available. A limit order only buys at the price you set or lower⁶. Our trading basics lesson explains both.
Enter the amount and check the costs. Type a number of shares, or an amount of money if the platform offers fractional shares. Check the dealing fee and any currency charge before you confirm.
Confirm. The shares appear in your account, usually within seconds. Ownership is formally settled a day or two later.

Choosing a stock broker

A stock broker is the firm that places your orders on the exchange and holds your shares for you. Today most are apps or websites, often called investment platforms. What to check before you sign up:

It’s regulated where you live. Search the firm on the official register: the FCA register in the UK⁷, FINRA BrokerCheck in the US⁸, ASIC in Australia, CIRO in Canada, or your national regulator in the EU.
It offers the account you want, such as an ISA, IRA or TFSA.
The full cost. Compare dealing fees, the yearly platform fee and the currency conversion fee together. A “commission-free” app can still cost more overall.
Your money is protected if the firm fails. Look for FSCS, SIPC or CIPF cover, or your country’s equivalent.
You’re buying real shares. Some apps that look like a stock broker mainly sell CFDs or spread bets, which are bets on the price rather than ownership. See our CFD guide.

What it costs

Dealing fee (commission): a charge each time you buy or sell. Some apps charge nothing; traditional platforms might charge a few pounds or dollars per trade.
Platform fee: a yearly charge for holding your account, either a flat fee or a percentage of what you hold. A flat fee tends to be cheaper once your pot grows.
Spread: the gap between buying and selling prices. Small for big companies, wider for small ones.
Currency conversion fee: if you buy shares listed in another currency, the platform converts your money and usually takes a cut, often 0.5% to 1.5% each way. This is where “commission-free” apps often make their money.
Taxes on buying: in the UK you pay 0.5% stamp duty when you buy most UK company shares electronically². The US, Canada and Australia have no equivalent tax on buying ordinary shares, and some EU countries (such as France and Italy) charge their own small transaction taxes on some shares.

Fees look small but add up, especially if you trade often or invest small amounts. A £5 fee on a £100 purchase is 5% gone before you start.

The risks

Prices fall, sometimes a lot. Whole stock markets have dropped by a third or more in crashes such as 2008 and early 2020. Recovery can take years.
Single companies can fail. If a company goes bust, shareholders are paid last, usually nothing. That’s why owning only one or two companies is risky.
You might need the money at the wrong moment. If you have to sell during a crash, a temporary fall becomes a permanent loss.
Your own behaviour. Selling in a panic when prices drop, or chasing whatever has just gone up, costs beginners more than almost anything else.

Spreading your money across many companies, countries and industries is called diversification. It doesn’t stop the whole market falling, but it means one company’s collapse won’t sink you.

Penny stocks

Penny stocks are shares in very small companies that trade at very low prices. In the US the term usually means shares under $5, and many trade over the counter rather than on a major exchange⁹. In the UK they’re often called penny shares. A low price makes them look cheap, but it says nothing about value.

Hard to sell. Few people trade them, so you might not find a buyer when you want out⁹. The spread can be a big slice of the price.
Little reliable information. Small companies publish less, and some publish very little at all⁹.
A favourite of scams. In a “pump and dump”, promoters hype a penny stock on social media or in chat groups, then sell their own shares once the price rises¹⁰. Anyone who bought on the tip is left holding shares that fall back down. Unsolicited calls offering cheap shares are a classic sign of a boiler room fraud¹¹.

You can’t lose more than you put in when you buy penny stocks with your own money, but losing all of it is far more likely than with large companies.

Rules where you live

Products, protections and tax rules differ from country to country. Here’s a summary for the main English-speaking markets. Always check your own regulator for the latest position.

UK: Shares can sit in a Stocks and Shares ISA, where gains and dividends are tax-free, or a SIPP (a personal pension)³. If an FCA-authorised platform fails, the FSCS can pay up to £85,000 per person per firm for missing investments⁴. It doesn’t cover shares falling in value.
US: Tax-advantaged accounts include IRAs and workplace 401(k) plans. If a broker that is a SIPC member fails, SIPC protects up to $500,000 per customer, including up to $250,000 of cash⁵. It doesn’t cover market losses.
EU: Each country has its own tax rules and accounts (for example France’s PEA). EU rules require every country to run an investor compensation scheme that covers at least €20,000 if an investment firm fails.
Australia: Many brokers are CHESS-sponsored, which means the shares are registered in your own name rather than the broker’s. Ask about this before you sign up. Gains are taxed under capital gains tax, with a discount for assets held over 12 months.
Canada: Shares can go in a TFSA (tax-free) or an RRSP (retirement). CIRO member firms are covered by the Canadian Investor Protection Fund (CIPF) if they fail.

Who it tends to suit

Tends to suit

People investing for at least five years who can sit through falls without selling.
Anyone who enjoys learning about businesses and wants to own a few they believe in, alongside a broader fund.
People who want dividends as a growing source of income over time.

Think twice if

Money you’ll need in the next few years, such as a house deposit.
Anyone who would lose sleep over a 20% drop.
Putting most of your savings into one or two companies.

How to get started safely

Decide on the account first: in many countries a tax-free or pension account is the best place to hold shares.
Pick a platform authorised by your regulator, and compare dealing fees, platform fees and currency charges.
Consider starting with a broad fund (see our funds and ETF guides) and adding individual companies later.
Buy a little at a time, for example monthly. This spreads your buying across good and bad prices.
Write down why you bought each company, so you have a reason to hold or sell that isn’t just the latest headline.

Words in this guide

Share (stock): A unit of ownership in a company.
Stock exchange: A regulated marketplace where shares are bought and sold, such as the LSE, NYSE, Nasdaq, ASX or TSX.
Stock broker / platform: The firm that places your orders and holds your investments for you.
Dividend: A cash payment a company makes to its shareholders out of its profits. Not every company pays one.
Bid, ask and spread: The bid is the price you can sell at, the ask is the price you can buy at, and the spread is the gap between them.
Diversification: Spreading money across many investments so one failure can’t do too much damage.
Fractional share: A part of one share, letting you invest a set amount of money rather than buying whole shares.
Margin account: An account that lets you borrow from your broker to buy more shares. It adds leverage and can lose you more than you put in.
Penny stock: A share in a very small company trading at a very low price, often outside the main exchanges. Hard to sell and often targeted by scams.

Frequently asked questions

Is it better to buy individual shares or a fund?

For most beginners a fund is the simpler start, because one purchase spreads your money across many companies. Individual shares can work well alongside a fund, once you know what you’re looking for.

How do I actually make money from shares?

Through the share price rising, which you collect when you sell, and through dividends, which are paid in cash while you hold. Over long periods, reinvested dividends have made up a large part of total stock market returns.

What happens to my shares if my broker goes bust?

Your shares should be held separately from the broker’s own money, so they’re still yours. If something goes wrong with that, compensation schemes such as the FSCS in the UK, SIPC in the US and CIPF in Canada can step in up to set limits.

What are the best stocks to buy now?

We don’t publish lists of stocks to buy now, and it’s worth being careful with anyone who does. A list like that can’t know your goals, how long you’re investing for or what you already own, and by the time a tip reaches you the price usually reflects it already. If you’re starting out, a broad index fund spreads your money across thousands of companies, so you don’t have to pick winners. If you want individual companies, learn to read their results first and set yourself a limit on how much of your money any one company can take.

Is stock trading the same as investing in stocks?

No. Investing means buying shares and holding them for years. Stock trading means buying and selling more often to profit from shorter price moves. It takes more time and skill, and most beginners who try it lose money. If you want to understand how traders work, our trading lessons start from the basics.

Sources and further reading

Numbers in the guide, like ¹, point to these sources. Rules, fees and tax change, so check the latest version before you act.

Bid Price / Ask Price (glossary) Investor.gov (SEC).
Tax when you buy shares. GOV.UK.
Individual Savings Accounts (ISAs) GOV.UK.
Investments: what we cover. Financial Services Compensation Scheme (FSCS).
What SIPC Protects. Securities Investor Protection Corporation.
Types of Orders. Investor.gov (U.S. Securities and Exchange Commission).
The Financial Services Register. Financial Conduct Authority.
BrokerCheck. FINRA.
Investor Bulletin: Microcap Stock Basics (Part 1 of 3: General Information) Investor.gov (SEC).
Pump and Dump Schemes (glossary) Investor.gov (SEC).
Share, bond and boiler room scams. Financial Conduct Authority.