Share trading is still the most popular way to invest in the stock markets for private investors in the UK despite the growing popularity of financial spread betting and CFD trading. This is due in part to the fact shares provide investors with actual control over the company, with the more shares they possess increasing the control over the way a firm is run. It also means they are allowed to attend annual general meetings.
The stock market is not a safe bet and those hoping to make a real success of it will find that a hands-on and focused approach is necessary. Charging for online share dealing works on a commission per trade basis. This is often set at a fixed rate, while occasionally it is charged as a percentage of the deal. Certain stockbrokers will also offer discounts to frequent traders.
What are the options?
A huge range of online share dealers are available to choose from and can be difficult to know where to start. People may already be aware of large firms such as Hargreaves Lansdown, E*Trade and TD Waterhouse but there are also a number of smaller traders that potentially offer a better deal. As always when seeking the best value, shop around to find the best offer.
Advantages
The main advantage of stock market trading is possibly its ability to deliver significant rates of returns. In contrast with an interest-bearing bank account which is likely to pay a small amount each year, traders can see the same sort of earnings over the course of a single day.
One of the other major advantages of share trading is ownership. Unlike derived products, when company shares are purchased the buyer actually owns a share of that business, thus giving them control over the way the company is run. This means that depending on the share of the firm owned it might be possible to influence the board of directors on key business decisions and future company strategies. Another plus point is no interest. Since shares are bought with the person's own money rather than cash borrowed from a broker there is none to pay for holding a position. Those seeking a long-term interest could find this an ideal scenario.
Shares in themselves also offer a residual value, so unlike a bet - and even in some respects unlike other traded products - this means they will always retain some value. They are a proportion of ownership of a firm and while one share will usually be worth very little in terms of profit-share and influence, it is still a right which someone will usually always be interested in should the option to sell seem attractive. It is quite simple to get started as all that is required is an account with an online broker and some capital to make the first steps into the fast-paced world of investing.
Disadvantages
To make a success of share trading requires effort and a sound knowledge of the market day-to-day. Choosing which stocks to invest in requires a hands-on approach. To make the best of an investment a dedication to learning the craft that's necessary with learning any new skill is required.
Despite this, markets can often be very hard to read, meaning even the most experienced traders can get it badly wrong. By their very nature stock markets are unpredictable and can completely change in a moment. If this were not the case then traders everywhere would be multi-millionaires.
There no is no fast-track method when it comes to share trading and easy, overnight success is almost impossible to come by. So those eyeing short-term millions will more than likely find themselves disappointed.
Tips: As with most things in life it is wise to do your homework beforehand and share trading is no exception. Keep in mind that the more informed you are the more likely you are to earn money rather than lose it. Situations may arise where it is tempting to make a move quickly, but it is often better to be completely aware facts as a little digging could uncover details that make the company seem a little less attractive. Those who are most successful will have invested time and money into learning the ropes and in time are likely to reap the rewards of their trading knowledge.
Why not begin trading with a demo, or virtual account. This allows a practice run and gives the user a better feel for the broker platform on which they will spend much of your trading time. It also gives them a chance to put theory into practice before risking any real-life capital.
Ahead of the first few trades it may be wise to choose markets and sectors and then get to know the major players and how their share prices interact with each other and wider economic factors. In addition to this, narrowing down a trading portfolio in the first instance will allow people to become more comfortable with the way the markets move.
To compare share dealing accounts on Know Your Money please click here.
Author: KYM Editor
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