How to Purchase Shares

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Category: Buy Shares

There are various methods of buying and financing shares. The most common means is through a shares broker. Whether they are a full service or discount broker, they arrange the transfer of shares from a seller to a buyer. Most trades are actually done through brokers listed with a shares exchange. There are many different shares brokers from which to choose, such as full service brokers or discount brokers. The full service brokers usually charge more per trade, but give investment advice or more personal service; the discount brokers offer little or no investment advice but charge less for trades. Another type of broker would be a bank or credit union that may have a deal set up with either a full service or discount broker.

There are other ways of buying shares besides through a broker. One way is directly from the company itself. If at least one share is owned, most companies will allow the purchase of shares directly from the company through their investor relations departments. However, the initial share of shares in the company will have to be obtained through a regular shares broker. Another way to buy shares in companies is through Direct Public Offerings which are usually sold by the company itself. A direct public offering is an initial public offering in which the shares are purchased directly from the company, usually without the aid of brokers.

When it comes to financing a purchase of shares there are two ways: purchasing shares with money that is currently in the buyer's ownership, or by buying shares on margin. Buying shares on margin means buying shares with money borrowed against the shares in the same account. These shares, or collateral, guarantee that the buyer can repay the loan; otherwise, the shares broker has the right to sell the shares (collateral) to repay the borrowed money. He can sell if the share price drops below the margin requirement, at least 50% of the value of the shares in the account. Buying on margin works the same way as borrowing money to buy a car or a house, using a car or house as collateral. Moreover, borrowing is not free; the broker usually charges 8-10% interest.