What you need to know about trading shares – MoneyWeek

Whichisbest?

Thatdependsonhowconfidentyouareandonhowmuchresponsibilityyouwanttotakeforyourinvestmentdecisions。

Inthepast,whenstockmarketinvestmentwasthepreserveofthesuper-rich,thevastmajorityofstockbrokersoperatedonan‘advisory’or‘discretionary’basis。

Ifyoufeelyouwantlotsofhelpwithyourinvestments–andarepreparedtopayforit–youmightbebestsuitedtoafulladvisoryservice,wherethebrokerwillmonitoryourindividualcircumstancesandportfolioandgiveyousuggestionsonbuyingandsellingshares。

Butifyoureallywanttohandeverythingovertosomeoneelse,youcouldchooseaso-calleddiscretionaryservice。

Here,brokersarefreetobuyandsellshareswithyourmoneywithoutaskingyoufirst,withinanagreedstrategy。

Thiskindofbrokingishighlytailoredtoindividualcircumstances–andisveryexpensiveasaresult。

What’sthealternative?

Muchmorecommonthesedaysare‘execution-only’services。

Withthiskindofservice,thebrokersimplytakesyourorderand‘executes’itforyou。

Theriseoftheinternetoverthepasttenyearshasledtoanenormousboominthisarea。

Thishascomeaboutfortworeasons。

First,thevastamountofinformationpubliclyavailableontheinternetaboutcompanies,stocksandmarketsmeansthatfarmorepeoplearewillingandequippedtocarryouttheirownresearchintopotentialinvestments。

This,afterall,ishalfthefunofinvesting。

Thesecondreasonistheriseofonlinebrokers,whooffercheapandconvenientexecution-onlyservices。

Onlinebrokerscannotlegallygivecustomersanyadviceontheirshare-dealingdecisions。

Butmanydoofferawealthoftools(accesstocompanyresearch,news,share-pricegraphsandportfolio-analysissoftware)forallkindsofinvestors,fromexpertstonovices。

Andtheyareverymuchcheaperthantheold-fashionedtypeofbroker。

HowdoIpickabroker?

Therearefourprincipalfactorsthatyoushouldtakeintoaccount:thequalityofinformation,thespeedofexecution,themarketsavailable,andthecost。

First,decidewhetheryouwanttheoptionoftelephoningyourbrokeraswellasdealingonline。

Somebrokerschargeextraforthisfacility,butothersdon’t。

Next,askyourselfthefollowingquestions:doyouwanttobeabletodealinAmericanandotherinternationalsharesaswellasontheUKmarket?

Ifso,howmuchextrawillyourbrokerchargeyoufortheprivilege?

Willtheygiveyouaccesstoinstrumentsotherthanequities,suchascontractsfordifference(CFDs),whichareanincreasinglypopularwayofaccessinginternationalmarkets?

Howmuchinterestdoesthebrokerpayontheunusedcashinyourtradingaccountandwhatdiscounts/penaltiesarethereforfrequent/infrequenttrading?

WheredoIstartlooking?

Currently,someofthebiggestnamesaretheShareCentre,TDWaterhouseandSquaregain;alsoHargreavesLansdown,Internaxx,ETradeFinancial,Barclaysandtheotherhigh-streetbanks。

Therearemanymoreandsomeofferflat-feedealingforunder£10。

Comparisonsites,suchasMoneysupermarket。

comandInteractiveInvestor,arealsogoodplacestostartlookingforabroker,asistheLondonStockExchange’sLocateaBrokerservice。

Butbearinmindthatyourneedscouldchangeinthefuture;asyoubecomemoreconfidentandexperienced,youmightwanttobranchoutintonewtypesofinvesting?

Placinganorder–themechanics

Whetheryouchoosetotradethroughyourbank,throughatraditionalbrokeroverthetelephone,oronline,thefirstthingyouneedtodoistoopenanaccountwithyourbrokerandsendthemsomemoney。

Whenyou’vedecidedwhatsharesyouwanttobuy,youarereadytogivethebrokeryourinstructions。

Onatypicalshare-dealingwebsite,thefirstthingyouwillbeaskedisyourusernameandpassword。

Next,youwillbeaskedwhatcompanyyouwanttobuy,andhowmanyshares,orwhatcashvalueofsharesyouwant。

Youwillthengetapricequoteandashortamountoftime(around15-20seconds)tomakeupyourmindwhethertodoit。

Ifthissoundsabittense,don’tworry。

You’llsoongetusedtoit。

Ifyoudon’twanttodothedeal,youcanwait,haveathink,andcomebacktoit(althoughpossiblyatadifferentprice)。

Foraddedpeaceofmind,youcanuselimitorders(whichmeanyoudon’tbuyaboveacertainprice,orsellbelowacertainprice),orstop-lossorders(whichlimityourlossifthemarketmovesagainstyou)。

Onceplaced,thebrokerwillemailyouconfirmationoftheorder,andthedeedisdone。

Recommendedfurtherreading:

Ifyouarenewtobuyingshares?

readourguidetotheartofspottingawinner,andalsoseethefiveinvestmentmythsyoushouldignore?

Foradviceonwhattobuyandwhattosellseeoursectionofsharetips。

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