Stock trading is the buying and selling shares of publicly held companies through a stockbroker or brokerage firm.
It can be done at home, with many automated brokers available online, but most people prefer to do it with a professional and established brokerage firm.
Trading stocks without the assistance of a broker is also possible by making an offer for someone else’s stock.
It is a hazardous strategy because you must know what price they are prepared to sell at, or they’ll have to immediately come up with your money if they don’t want their stock stolen.
In most cases, it’s best to use a full-service brokerage that will hold your hand throughout the entire process.
There are two main types of UK stockbrokers, full service and discount.
Full service means that there’s a physical branch where you can walk in with your face pressed against the glass case filled with golden trophies.
They usually cater for individual investors rather than institutions or traders.
Discount brokers don’t have any branches that charge lower fees because they do everything online.
There’s no difference between them when buying stocks, but discount brokers tend to offer zero-fee trades for selling stocks, so if you’re planning to sell within hours of buying, then this is where you should be looking. If not, then either will do just fine.
It’s also worth mentioning that UK traders only seem to know how to trade UK stocks. UK investors are different to US investors because they have no idea how to diversify.
It means UK stocks are traded at a premium, meaning UK companies don’t tend to be suitable investments in the long run, but knowing this won’t do much harm either. It’s just something you should know.
Tips to new UK stock traders
So here’s what’s recommended for someone brand new to UK stock trading.
- Use a full-service provider because their online websites are easier to use for beginners.
- Please make an account with one of the UK discount brokers so that you can sell shares in addition to buying them.
- Whenever you buy or sell shares at your broker’s website, don’t trade between 11 am, and 1 pm or 2 am and 9 am on any day because those are UK market closing times.
- Don’t buy the stuff you don’t understand, and make sure to thoroughly read all documents given to you by your brokerage firm (this includes the trade confirmation email and contract note) because if not, UK stock trading will be a living hell for you.
- Use limit orders rather than market orders, but only if it’s worth it because UK brokers charge for each trade made.
It’s best just to put all your money into one good company and forget about diversification until you’re making three trades per month at least.
- Keep in mind that the UK doesn’t have as many stocks as other countries (especially compared to the US); hence UK stock trading is far riskier than it would be elsewhere, even if the UK’s economy is still more robust.
- Check out who you’re buying or selling UK stocks from before doing anything because UK companies are usually listed on either the UK FTSE100, UK FTSE250 (midcaps) or UK FTSE SmallCap (small caps).
- Keep in mind that there are different sectors within UK stocks where some do better than others; banking, oil & gas, mining, pharmaceuticals etc.
Educate yourself by finding out which sectors have performed well in the last year.
It’s also worth considering that UK stocks aren’t as diversified as they would be if you traded stocks for another country because UK investors don’t know how to diversify their portfolios.
It’s recommended to focus on just one or two sectors instead of finding a company from every sector because UK stocks don’t tend to move in tandem with each other.
This lack of diversification means individual UK companies have a more significant impact on your portfolio than they would elsewhere, so you needn’t waste time looking at motor manufacturers.
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