Investing in stocks has always been an attractive way for investors to make their money work harder. The UK stock market, the London Stock Exchange (LSE), was founded in 1571, making it one of the oldest exchanges in the world. It is also is one of the most highly developed and popular. British residents looking to invest in stocks, however, are not limited to just trading on the LSE, but through the right brokers can invest in any stock exchange around the world. But before you can put any money down, you need to learn how to invest in stocks.
Nowadays, investors can often buy and sell stocks of a publicly listed company through their bank, investment bank, or a stockbroker. However, some of these stockbrokers will only be able to connect you to a limited number of exchanges, and costs can and do vary significantly from broker to broker.
In this guide, we cover everything you need to know about how to invest in stocks. We will list three of top trading platforms in the UK, outline the main factors to look when you choose a broker, and present a step-by-step guide on how to make your first trade.
Table of Contents
eToro - Invest in shares with 0% commission
- 0% commission on stocks
- No markup, ticketing fees, management fees
- Fractional shares available
- Easy to use platform
What is Stock?
A stock is a form of investment and a representation of your ownership share in a company/mutual fund/trust fund/financial asset. By buying a company’s stock, you are ideally acquiring a portion of that company. Stocks, also known as equities, are issued by companies and corporations that seek to raise capital from the general public.
There are two primary types of stocks; common and preferred stocks. Their key differences is that common stockholders get voting rights and are involved in making critical decisions involving the company.
Preferred stocks, on the other hand, don’t have voting rights but enjoy preferential treatment when it comes to dividend payout and debt repayment during liquidation. Unlike common stocks whose dividend is irregular and not guaranteed preferred stocks get fixed dividends and are paid first if the company liquidates.
How to Invest in Stocks in the UK?
You can invest in stocks by buying actual company shares and receiving a stock/share certificate or by investing in stock CFDs online. Both can be purchased online via different brokerage stock/share brokerages. Buying actual shares is, however, more complex and time-consuming and so is their disposal.
After creating and funding an investment account with a stock broker, you then have to wait to be matched with a seller. The upside to this is that the electronic share certificate ensures that you enjoy all the rights and privileges of a common/preferred stockholder.
Buying online stock CFDs, on the other hand, is immediate. And the only significant difference between CFDs and actual stocks is that the former does not give you ownership over the company. Ideally, CFDs are a bet between you and the online stock brokerage about the future price direction of company stock. While stock CFDs do not earn you dividends, they are easier to acquire and dispose of, and they also make it possible for you to short trade companies with falling stock prices.
What Kind of Investor are You?
There are numerous types of investors, often defined by their approach to stock investments. However, two types of investors stand out; Dividend investors and Capital Gain investors. Capital gain investors can further be subcategorized into active, speculators, and short-term investors.
They invest in companies that they believe will appreciate in the shortest time possible and will only hold onto its stock for a short period of time. They are especially interested in companies that don’t pay dividends or others engaged in stock buybacks.
Dividend/long-term/retirement investors, on the other hand, are interested in companies that pay dividends consistently. Unlike capital gain investors, dividend investors are long-term investors that wish to benefit from the accumulation of capital gains over a long period of time but still need regular incomes from dividends. They, therefore, employ the buy and hold strategy, and prefer investing in stable companies with significant cash reserves and a proven record of distributing dividends.
Best Investment Platforms for Stocks in the UK 2020
There are several ways you can trade stocks as a UK resident. Firstly, you can invest in stocks through stock exchanges, meaning you own stocks of the company. But there’s another way you can trade stocks – via derivatives like Contract for Difference (CFDs). Basically, CFDs allow you to speculate on the price movements of a certain financial instrument without owning stock in the company.
Regardless of the investing method you choose, it’s advisable that you start trading with an FCA regulated broker. That ensures that your funds are protected and that the broker must follow strict laws and regulations that were implemented to regulate the financial sector.
We have listed the top three brokers currently available to trade online with.
1. eToro - Best Social Trading Platform in the UK
eToro is located in Limassol Cyprus and has additional offices in Europe and other countries including the United Kingdom. The stockbroker operates in the United Kingdom under eToro UK, a registered and regulated company by the Financial Conduct Authority. This means that investors from the United Kingdom can open an account at eToro and therefore they will be protected by the FCA. Bear in mind that in case of eToro becomes insolvent, investors will be compensated by up to £85,000 guaranteed by the Financial Services Compensation Scheme (FSCS).
In terms of trading conditions, eToro is the largest social trading platform in the world with more than 4.5 million registered on its platform. The eToro platform is quite similar to a social network where investors can communicate with each other and copy trades of other members by using the CopyTrade feature.
eToro offers a selection of more than 800 stocks from 17 different exchanges. That includes 315 popular stocks from the London Stocks Exchange which can be traded through the stock market or via the CFD market. eToro, in fact, enables traders to buy non-leveraged positions which will be held in your name and are completely commission-free. Otherwise, you can buhttps://learnbonds.com/uk/buy-sharesy and sell stocks (including fractional shares of a company) via the CFD market. You should note that clients from the UK can leverage stock trades by up to 5:1.
- eToro is the largest and most effective social trading platform in the world
- eToro UK is registered & regulated by the Financial Conduct Authority (FCA)
- A wide selection of stocks from 17 different stock exchanges
- eToro charges an inactivity fee
- Does not offer the MetaTrader4 nor another desktop-based trading platform
2. Plus500 - Leading Stock CFD Platform
In the UK, Plus500 is operated by Plus500UK Ltd, a UK-Based company that is registered and regulated by the Financial Conduct Authority (FRN 509909). By being FCA regulated broker, Plus500 ensures that investors’ funds are kept in segregated bank accounts and compensation will be given in the case of the broker’s insolvency. Moreover, Plus500 is a publicly listed company on the London Stock Exchange under the ticker symbol PLUS and is listed on the prestigious UK FTSE 250 index.
Founded in 2008, Plus500 has more than 200K active customers as of 2019. The broker takes pride in offering a simple-to-use trading platform, a wide selection of more than 2,000 financial instruments, and advanced trading tools and features that differentiate Plus500 from other brokers in the market.
Traders on the Plus500 trading platform are eligible to trade shares with a margin requirement of 20%, meaning a leverage ratio of 5:1. Furthermore, Plus500 gives you access to some of the most useful risk management trading features and advanced trading tools that include the trailing stop order, the guaranteed stop order, email & push notifications on market events, and alerts on price movements and market sentiment.
- Traders on the Plus500 trading platform have access to over 2,000 financial instrument
- An easy to use trading platform that is highly suitable for beginners
- Plus500 offers access to options trading on many markets
- Plus500 does not support the MetaTrader4
- Only CFD trading - Does not allow you to trade directly through the stock exchange
3. IG - Best Stocks Trading Platform in the UK
IG is, in fact, a trading name of IG Markets Ltd, a company registered in England and Wales, and IG Index Ltd, a company registered in England and Wales. Both IG Markets Ltd and IG Index Ltd are regulated by the Financial Conduct Authority (FCA). IG is also a publicly-traded company on the London Stock Exchange under the symbol IGG.
Traders on the IG trading platform have access to 9,000 stocks and a total number of 17,000 tradable assets. As for the share trading, IG (like eToro) is one of the few brokers in the industry that offers clients to trade stocks via CFD and spread betting but also enables users to invest in company shares through the stock market and earn an income from the company’s dividend payments.
What really sets IG apart from other competitors in the industry is the selection of markets and the trading terms it offers. Traders can get unique opportunities when trading on 70 key US stocks after the US market closes (After-hours trading) and use spread betting which is tax-free.
- An extensive range of trading platform that include the MT4, ProRealTime, L2 Dealer, and IG's proprietary trading platform
- Offers clients to trade via spread betting that are tax-free
- IG Offers access to more than 9000 shares
- Charges inactivity fee
- IG charges £3 per trade for trading UK shares
What Should You Look for in a Stockbroker?
Finding the right broker is crucial in creating an effective trading environment. By now, you have a list of FCA regulated forex brokers that operate in the United Kingdom and allow you to trade stocks with the most effective trading terms, and advanced trading platforms and tools. But before you decide on any of the brokers above, here are some significant factors to take into consideration.
What Assets Can You Trade?
There are plenty of trading platforms in the United Kingdom, offering investors to get access to stocks and other financial instruments. But you will find out that some of these brokers charge excessive fees and require a complicated registration process. While it is a legitimate option to trade stocks in the UK with traditional stocks brokers, the alternatives can be a good way to get better access to the market.
CFD brokers often provide their clients with a selection of the most popular stocks in the world. Unlike traditional stockbrokers, most market-making CFD brokers are not linked to exchanges (except eToro), hence, they provide a limited selection of stocks but on the other hand, these brokers can offer better trading terms that include lower fees and commission, margin trading, and reliable execution without slippage and requotes.
If you are looking for a broker that allows you to get access to a large number of markets and products, then IG is the broker of choice. The UK-Based broker offers a selection of more than 17,000 markets to trade on. Otherwise, if you’re only interested in trading one type of asset right now, then you should consider eToro and Plus500.
What are the Fees and Commissions?
As a general guideline, if you are not a long-term investor and have no interest in dividend-stocks investment strategy, then trading stocks via the CFD market should be the preferred option. There’s no reason to pay high fees and commissions if you have no interest in gaining shareholder rights and receive yearly dividends.
If you are actively day trading, you will have to take into consideration the buy and sell spreads that apply to stock trading via CFDs. All of our featured trading platforms are commission-free when it comes to trading stocks via CFDs, but you will have to pay the buy and sell spreads that are usually around 0.1%.
What Tools Does It Include?
The majority of stockbrokers offer, more or less, similar trading terms and range of products. What makes one broker better than another is the trading tools and features it offers. At the end of the day, trading equipment is critical when you are trading on your own. Like any other profession, you need to have the right tools to get the most out of your trading account. Some traders are looking for an advanced trading platform with a wide range of indicators and charts while others feel more confident with a simple-to-use and basic trading platform.
As for our featured brokers: eToro is the right broker if you are looking for a social trading platform or a zero-commission stock trading. If you are looking for a professional trading platform for stock trading, IG has a great selection of trading platforms and trading tools.
CFDs or Shares?
It is clear that CFDs are not suited to everyone’s needs. They are especially convenient for private investors who are looking for a simple way to get the benefits of other methods of trading. Overall, CFDs are a derivative market of share trading, and therefore, CFD brokers can provide clients with attractive trading terms. The bottom line is that CFD trading is cheaper than any other method of share trading.
However, if you are looking for long-term investments, penny stocks trading, or dividend-paying companies, then you should definitely choose a broker that connects you directly to the stock market such as eToro and IG Markets.
How to Invest in Stocks on eToro
eToro is the most used social trading platform in the world today. If you are eager to start trading and don’t want to waste too much time and effort to learn complicated trading platforms, simply follow the steps below to make your first transaction.
Step 1: Navigate to Stocks
Assuming that you have completed the account creation process, and made your first deposit, you can log in to the eToro trading platform and search for the stocks section. Take note that eToro’s platform is not conventional and looks more like a social network than a trading platform. Once you are logged in to the platform, click on the ‘Trade Markets’ tab on the left-side menu, and click on ‘Stocks’.
Step 2: Search for UK Stocks
On the stocks page, look for London Exchange. You will then find 315 available stock to trade on. Whenever you choose a stock, click on the stock’s box and you will be transferred to the stock page.
Step 3: Place an Order
Now that you have chosen stock and you ready to place an order in the market, click on the Trade button. You will now be shown an order box where you will have to set the amount of the trade, the type of the order (market/limit), the leverage ratio, and a stop-loss order.
To complete your transaction, click on the ‘Open Trade’ button.
Of course, investing in stocks and shares isn’t guaranteed to make you money, but neither is putting your money in a bank account. Obviously, there are many ways to trade stocks but if you are looking for the most convenient and low-cost way, then the brokers above can provide you with a perfect solution.
Yet, you must remember that there is a high level of risk of losing your capital when using leverage in trading and therefore, you must be careful when utilizing margin trading.
eToro - Invest in shares with 0% commission
- 0% commission on stocks
- No markup, ticketing fees, management fees
- Fractional shares available
- Easy to use platform
How much money do I need to start trading stocks in the UK?
Most UK trading platforms require a minimum deposit to create an online trading account. From the brokers above, the minimum deposit at eToro is $200, at Plus500 is $100, and IG requires a minimum deposit of $300.
What kind of stocks can I trade?
CFD brokers mostly provide a selection of the most popular and traded stocks in the market, hence, you will be able to trade the most liquid and popular stocks in the United Kingdom, the United States, and Europe. However, stockbrokers such as eToro and IG connects you directly to different exchanges (not CFDs) and therefore, you can trade almost any stock that is listed on these exchanges.
Can I short stocks?
While traditional brokers require you to have a large amount of money in your account in order to short-selling stocks. You will need to use a CFD broker if you wish to short-sell a stock with low margin requirements. The ability to short stocks without having to deposit a large amount of money is another advantage of CFDs.