Buying shares refers to the process of purchasing shares of a company, keeping in mind the sequence of steps to be followed. When an investor, be it an individual or entity, purchases shares of a company, the latter gets an opportunity to raise funds to explore, expand, and grow its business. The former, on the other hand, gain share in the profits of the firm.

Knowing how to buy shares in a company is crucial for a person who wants exposure to the equity market. Equity markets are volatile, and the timing is critical. Shares trade in exchanges, but you cannot go and buy a share from the exchange. Instead, there are several steps involved in purchasing a share.

• A person must understand how to buy shares and get exposure to the equity market. Shares are volatile, and timing is essential. 
• Shares trade in exchanges, but one cannot go and buy a share from the exchange. Instead, there are a few steps engaged in purchasing a share. 
• Five parties are involved in the share transaction: the company, exchange (trading platform), broker, depository bank, and investors.
• Shares are one of the approaches to creating wealth. Share prices are not fixed. Therefore, one should wait for the best opportunity to purchase and buy shares. 

Buying shares is an important step to getting involved with a company. It is a way to build wealth. Systematic investment is crucial to building wealth over a longer tenure. The share prices do not remain constant. So, one should wait for the best opportunity to purchase and sell shares. One should conduct proper research while choosing the broker and during the stock selection.

In the process of buying shares online or offline, there are mainly five parties involved.

1. The company is the one whose share one wants to purchase. The stocks or shares must be a listed security. If the company is not publicly listed, one cannot buy its shares.
2. The exchange is where the shares trade. Without the exchange, which is the ultimate trading platform, investors cannot buy shares.
3. Brokers work as authorized parties in the trade. The exchange permits brokers to trade on behalf of investors.
4. The depository banks work as safekeepers of the shares on behalf of investors.
5. Last on the list are investors, who are willing to buy or sell a share.

All the parties play a vital role in accomplishing a share transaction.

Mr. X wants to purchase Facebook shares, which are trading at $207. How will he do that?

Solution

Step 1: Mr. X will open a brokerage account. Mr. X chooses ABC as the broker and sets up a trading account. Every broker has ties with depository banks, and the broker will help Mr. X open an account with the depository bank.

Step 2: Mr. X will transfer money from his bank to the broker account. The broker also helps clients by giving them a margin. They can buy shares more than the money they have in a broker’s account and pay back the broker later.

Step 3: Now, Mr. X will have to buy the shares of Facebook using his online trading platform or by giving instructions to a broker on the client's behalf. If Mr. X wants shares at a fixed price, he will provide limit orders. However, if he wants to buy shares at any price prevailing in the market, he can give a market order.

Step 4: Once bought, he will use money from his brokerage account. Depending on the market, the shares take a few days to credit to the brokerage account.

While buying shares has a lot of advantages for the companies issuing the shares and the individuals and entities buying them, it also has some risks associated with it. One of them is to be well aware of the market fluctuations to book the right share transaction deals at the right time.

Benefits

• Shares are a great way to gain exposure to the equity market. The equity market has several sectors that comprise a country's economy. So, if a person feels that the auto sector is going to rise, that person should purchase a share of a company from the auto sector or invest in an ETF.
• Systematic investment in shares for a longer period has always been beneficial. If you analyze data from the past 20 years, you will see that, on average, the equity market has provided more returns than the debt market.
• If one has faith in a company and they like how the company has been performing, buying a share is the easiest way to involve with the company. It offers investors buying ownership in a particular company.

Risks

• Market fluctuation, as discussed earlier, is the main risk. One never knows when the prices of the stocks in question would increase or decrease.
• The level of company risk is high. In case, the company suffers and incurs a loss, it will affect the share prices. This deterioration in the prices affects the investors automatically as they are the share buyers.
• There are rules to follow to ensure buying shares remains an ethically and legally sound process.

This article is a guide to Buying Shares meaning. Here, we explain how to buy shares along with the advantages, disadvantages, and an example. You may learn more about financing from the following articles: -

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