Cheap Share Dealing

What are shares?

Shares are just divided-up units of the value of a company. If a company is worth £200 million, and there are 50 million shares, then each share is worth £4 (usually listed as 400p).

Those shares can go up and down in value for various reasons, and their changing value is shown on the stock market.

How do you make money from share trading?

There are two ways you make can money from buying shares. One is if the shares increase in value and you sell them at a profit.

The other is when they pay dividends. If the company makes a profit, it gives some of it back to its shareholders – either on a regular basis or as a one-off. HMRC gives you a tax-free dividends allowance year. Currently (as of 2019) the first £2,000 you receive in dividends is tax free.

How can you buy or sell shares?

You can either own shares yourself, or pool your funds to buy shares collectively with other people in an investment fund.

On this page we’re dealing with owning and trading shares directly, by yourself.

All shares used to be traded with paper certificates of shares. Online share dealing now makes the stock market more accessible to you, and the cost of trading shares online is much cheaper. (If you have paper shares you can convert them to online shares – usually at no cost.)

How to choose a trading platform

You buy shares online from a “share dealing platform.” These share dealing account providers are increasingly offering competitive charges, and you’ll want to consider how much active trading you will want to do, and compare their fees.

Some accounts may offer cheaper rates for frequent traders, while other accounts may have slightly higher charges per trade but don’t charge an annual or monthly administration fee.

Services available may include:

• 24-hour access to your account online
• Access to international markets
• Real time trading
• A choice of online or phone trading
• Share price alerts, research tools and market news

What to consider when you start share trading

1 Higher returns (usually) mean accepting greater risk

As you get more confident in share trading you may be willing to accept more risk. But you’d usually be advised to hold a mixture of higher-return and lower-risk shares. And it’s wise to be a bit more cautious as you get older, when you’ve got less time to recover any losses you might make.

2 First use your ISA stocks and shares allowance

If you’re new to share trading, stocks and shares ISAs should be your preferred route for your first £20,000 of investment (the ISA limit as at 2019). Most platforms will let you do this and it’s a good way to maximise tax benefits on your investment.

You can use all of your annual ISA allowance for stocks and shares trading, or only part of it, with the remainder for a pension ISA (or a cash ISA).

If you’ve got more than £20,000 to invest, you can trade the first £20,000 via an ISA trading platform, and then use a standalone dealing account for the rest.

ISA stocks and shares accounts

3 Aim to invest for at least 5 years

The share market goes up and down all the time. A longer investment period allows you ride out the fluctuations in the market that might make you lose money in the short term. If you know you might need access to your money in less than five years, investing in the stock market might not be right for you.

Don’t be tempted to try to time the market: it’s almost impossible, and even the most experienced investors get it wrong. If you sell your shares as soon as the price drops you could miss out on a recovery. Or if you sell out when you think the market has hit a peak you could see prices rise even higher.

4 Spread your risk

Avoid putting all your eggs in one basket by investing in different companies and spreading out when you buy.

If you invest heavily in one company you stand to make a substantial loss if it fares badly. Spread your risk by investing in different sizes of companies, in different market sectors or parts of the world.

Invest on a regular basis rather than all at once. “Drip-feeding” by buying at different times allows you to smooth out the ups and downs of share prices.

5 Review your portfolio regularly

You may realise that a particular stock holding just isn’t performing, so you should sell it and reinvest.

With a bit more experience you might now be willing to take a bit more risk. Or you may not be as willing to take risks as you were previously.

And… don’t panic. Shares go down as well as up. Don’t rush to sell funds (or buy them) just because everyone else is. They could be wrong.

Look at share dealing options

Look at Stocks and shares ISAs