Make a fast buck with online share trading! Double your money overnight at the click of a button! Well, possibly. We reveal the tricks of the trade.
As with any form of share trading, there are a few ground rules to follow. Alvin says there are three keys to successful investment: "Choose a company that has a unique product or market position which is hard to copy, has good growth potential, and strong management."
You can make money on the Stock Exchange in two ways: a rise in share price (capital gain) and an income from the share dividend.
Bearing that in mind, you must then choose a broker. What’s wise here is deciding on the optimum blend of three things: cost of trading, speed of transaction and versatility of the broker. Consider how often you plan to deal, as some brokers charge a monthly fee while others charge per transaction. How much money do you intend to invest? If you prefer little-and-often trading, a high commission fee is prohibitive whereas a flat monthly rate is more acceptable. And will you expect immediate action on your instructions? If so, you may be charged for it. Should you select a major broker, what happens if there’s a panic in the market and the site is overloaded with traffic? Can you afford to lose out while the site is out of action? Does the broker deal in the companies you’re interested in? How quickly will it put through your transaction, and will it pay promptly after you have sold shares to release the capital? Find satisfactory answers and you’re on your way.
What’s more, many online brokers provide tempting initiatives to get you started. However, watch out for any tie-ins and understand what you’ll then be charged. In addition, online dealing services are generally execution-only, so there’s no friendly word in your ear to tell you when you’re making a big mistake, or when a peach of a deal is going to drop into your lap if you sit tight for a minute or two longer. However, you can often receive advice for a fee.
Stockbrokers usually charge commission of 1% to 1.5% on each deal they carry out on your behalf, subject to a minimum of around £10 to £25, which is comparatively low bearing more traditional methods in mind. In the UK, you also have to pay stamp duty of 0.5% on every share purchase, while profits are subject to capital gains tax. In addition, if you decide to change brokers you’ll be charged a ‘re-registration’ fee as a kick on your way out of the door.
Yet you can buy and sell shares at the click of a button 24 hours a day from your home computer and keep track of your investments just as easily. To make it worthwhile, however, remember that money makes money. Expect to start trading with at least £1,000 – but be prepared to lose it, just in case it doesn’t double overnight.
What companies do you invest in? While there are nearly 1,000 firms listed on the London Stock Exchange, only 10% of them account for about 90% of the entire stock market value. The daily share-price performance of these top 100 companies is measured by an index called the Financial Times – Stock Exchange 100, or ‘footsie’. Big companies are far less risky than small, recently formed concerns, which are something of an unknown quantity. So do your research, read the financial pages, assess company reports and choose carefully. Study which companies are regularly profiled in a positive manner, and see how their finances bear up to scrutiny. There is a certain amount of luck involved – and plenty of external factors, such as natural calamities or international incidents. Witness how the Dow Jones (US index) has struggled for the past year, and how Britain’s FTSE has been caught in the ripple effect. And it stands to reason that the wider you spread your cash, the less chance you have of losing the lot, although you will have given yourself a target value (or stop-loss) at which to sell if necessary. If you’re not sure you’ve made the right choices, do a dry run. Select your companies and simply pretend you’ve invested certain sums in each. Write these down and follow their performance for a while to see if you’d have made or lost on them had you really stumped up the cash. Some online brokers offer demonstrations, which work along the same principle.
It doesn’t take long to have scores of brokers advertising for you to join them on the internet. The longest part of the process is selecting the one you want to go with. There are plenty on the bandwagon, and the choice is varied. Work out what you want and see which one suits that profile the best. Then simply get on to the appropriate website and fill in an online form. However, you will usually have some paperwork to do, and whoever you choose will want a deposit on account, so have the cheque book or debit card ready.
And finally good luck. Whether you go for long-term slow-burners or get-rich/poor-quick options, there’s one vital thing to remember. As Alvin says: "As long as you invest no more money than you can afford to lose, you’ll have few sleepless nights!"
What are they talking about?
Terms you’ll soon be using
Bear Market
Traders think prices are likely to fall.
Blue Chip
The generic term for biggest companies in the footsie. They have proven records and are seen as stable long-term investments.
Bull Market
Traders think shares are going to rise.
Capital Growth
The rate at which the value of your investment grows.
CREST
A system used nationally for storing shareholder information – theoretically a paper-free method of who owns what share certificates. Shares are registered and transferred electronically.
Dividend
The profits of the company are distributed among shareholders. Each portion allotted to a shareholder is that shareholder’s dividend.
Flotation
The process of a company offering a number of shares in itself for the first time, usually because it goes from private to public limited company. It’s often done to raise capital, and the firm becomes the property of its shareholders.
Investment Trusts
A method of investing much more money – as in billions – than you’d personally be able to by clubbing together with other like-minded individuals. Put simply, you buy shares in a company that trades shares.
Portfolio
When you spread your investment among a variety of companies, this is the collective name for your interests.
Real-time dealing
As soon as you click on the appropriate icon, the deal’s done. You don’t have to wait for your instructions to be processed by a third party who may have a backlog of emails to deal with.
Scrip-dividend
Rather than money, a dividend comprises more (taxable) shares.
Yield
The dividend per share expressed as a percentage of the value of that share. If each share is worth £10 and you get an annual dividend of £1, the yield is 10%.
Can I trade shares in US companies?
Yes. There are two options: go through a UK broker, but be prepared to pay for the privilege. The other option is to open an account with a US broker. You must either open a dollar bank account or transfer funds from your UK bank account to your brokersÕ, for which there is a fee. The US Internal Revenue Service will need to be informed that youÕre not liable to US tax, and keep an eye on the exchange rate!
What kind of investor are you?
Long-term investors see the stock market almost as a bank account that they hope will bring high yields over several years. In general, looking back over the past couple of decades, this has turned out to be correct. Money left in a bank simply doesnÕt work as hard for you. Weekly, or even monthly fluctuations donÕt matter as long as the general trend is up, albeit slowly. Short-term traders, however, can be in and out in a day or less, hoping to buy while the price is low and sell at a profit by the end of the day. As a result, they have to stay on top of market changes almost hourly. But the rewards, or the losses, can be great.
Real-Time
The following is a selection of brokers that offer ‘real-time’ online dealing
Barclays Stockbrokers
www.barclays-stockbrokers.co.uk
DLJ Direct
www.dljdirect.co.uk
E*Trade
www.etrade.co.uk
Halifax
www.sharexpress.co.uk
Charles Schwab Europe
www.schwab-worldwide.com/europe
Comdirect
www.comdirect.co.uk
Deal4Free
www.deal4free.com
e-Cortal
www.e-cortal.com
iDealing
www.idealing.co.uk
James Brearley & Sons
www.jbrearley.co.uk
MyBroker
www.mybroker.co.uk
Nothing Ventured
www.nothing-ventured.com
Self Trade
www.selftrade.com/uk
Sharepeople
www.sharepeople.com
Stock Academy
www.stockacademy.co.uk
Stocktrade
www.stocktrade.co.uk
TD Waterhouse
www.tdwaterhouse.co.uk
Virginmoney
www.virginmoney.com
Xest
www.xest.com
Source: www.thisismoney.com
Useful websites
www.apcims.co.uk (Assoc of Private Client Investment Managers & Stockbrokers)
www.bbc.co.uk/education/alvin/
www.bbc.co.uk/yourmoney/
www.bbc.co.uk/yourmoney/ask/
www.moneyworld.co.uk
www.proshare.org.uk
www.thisismoney.com
www.uksharenet.co.uk/
