How do shares work?
When you buy a share you are buying a stake in a company. That means that you have the right to vote on issues and receive any dividends that may be paid out of the company's profits.
Shares are traded on a stock market and in the UK that's the London Stock Exchange. The London Stock Exchange is open from 8am in the morning until 4.30pm in the afternoon, Monday to Friday. If a trade is placed outside of these times then the order will be processed as a delayed order.
The majority of trades placed when the London Stock Exchange is open are executed through the Automatic Trading System (ATS). When you place a trade through the ATS you are given a quote for 15 seconds so that you can confirm that you’re happy with the price. A small minority of orders cannot be dealt automatically and if this is the case you will be given an indicative price and the option of sending your order instruction through to one of our dealers to be dealt as soon as practically possible. These are called negotiated orders.
What are the risks involved with shares?
All shares carry an element of risk as the value of a stock fluctuates throughout the day. These movements occur naturally as the shares are traded but sometimes a significant change in price might occur as the result of company news such as a takeover, the announcement of particularly good or bad company performance or a merger.
What are penny shares?
Penny shares are shares of smaller holdings which have a low value. There is no official rule for when an equity becomes a penny share but it tends to be when the bid-spread offer is around 10% of the offer price or if the share price is less than 50p.
Penny shares are normally issued by companies that are generally capped at under £100 million and have only just started trading. These companies are likely only to have a small amount of assets and a short operating history and so, as a result, these shares are usually lower in price. Since these new companies are unproven there is a heightened element of risk when trading in penny shares.
The majority of penny shares are listed on the Alternative Investment Market (AIM), a part of the London Stock Exchange which is designed to allow smaller companies to float shares to gain capital. As the AIM is not as stringently regulated as the Main Market, smaller companies can join to gain capital. However, as companies do not need to satisfy the same regulations as the Main Market, there can be a greater element of risk.
What are preference shares?
Preference shares are a class of share which pay a fixed rate of dividend. They have similar characteristics to equities in that investors are able to receive dividends. However, as the dividends from preference shares are fixed, an investor won't benefit from any increases in a company's profits but they will be protected if a company's profits falls.