Have you ever wondered how to buy and sell stocks from the UK and the best platform to do so? Well, this work has answered just that question for you and further provided a list of the best platforms to buy and sell stocks in the UK today.
The high cost of establishing a company in the UK has prevented many desiring citizens and residents from owning a company in the UK today. Well, stock trading seems to have compensated a little for this lack as it provides investors the opportunity to participate in driving the affairs of a company; influencing its price, when they become shareholders in the company. This has become one of the driving forces why a lot of people are attracted to stock trading today. A second category of people known as investors seem attracted to stock trading in the UK just to make profits alongside its proprietors. Nevertheless, irrespective of the reason why you may have been attracted to stock trading for the first time, this work is here to help you push this desire to the next level. Hence, we have exposed in this work, useful guides on how to buy and sell stocks in the UK. You will also find in this work the list of our recommended brokers for stock trading in the UK. This will make it easy for you to make your choice and begin trading. This work has therefore provided an answer to many of the frequently asked questions in the UK regarding stock trading.
What is stock trading in the UK?
Stock trading is an investment package for making profits through buying promising company’s shares in the UK at lower prices and selling them at higher prices. Stock trading enables individuals to participate in the ownership of a company by investing in its shares. Often, stock trading enables companies to seek public funds for running the company by listing their shares through an initial offering for the public to invest in. Here, investors hope to receive dividends from buying a company’s stock while others hope to sell them off to new buyers when the price rises in the future.
Meaning of Stock Brokers
Stock Brokers are intermediary financial service providers; linking the individual to the stock exchange market. Often stock brokers list various approved stocks on their platforms, making it possible for traders to come together to buy and sell their preferred stocks. Without stock brokers coming to bridge the gap between the individual and the stock market, it would have been very difficult for the individual to trade stocks from the comfort of their homes today.
Role of stock brokers in the UK
Stock Brokers in the UK play an indispensable role for citizens and other residents in the UK. Thus, they link the traders through their platform to the London Stock Exchange (LSE), where they can buy and sell their preferred stocks. They also facilitate over-the-counter (OTC) transactions for private stocks. Added to this, stock brokers in the UK provide market information regarding various stocks listed on their platforms which assists investors in making decisions on which stock to either buy or sell.
Types of stock brokers in the UK today
There are three main types of stock brokers in the UK today. We have discussed them below:
- General Service Brokers: A general service broker does virtually everything for the trader. They are often known as account management brokers. This is because they undertake the management of the clients’ portfolios and deliver returns over time. Also, they provide a monthly summary of all the activities undertaken on behalf of the trader on his account.
- Online Stock Brokers: This type of broker is used by traders who wish to manage their portfolios themselves. This is in contrast to the general service broker that does everything for the client. Here, the trader decides by himself which stocks to buy and when to buy and sell them. The only aid given to the trader by this type of broker is providing rich educational contents on their platforms to assist the trader in making his decisions.
- Advisory Brokers: This type of broker executes orders only at the trader’s request. They do not perform any extra task outside the orders placed by the client on their platform. However, they often provided useful tips and relevant market news to guide the traders in making decisions.
List of best ten stock brokers in the UK
To make stock trading easy for beginners residing in the UK, we have provided the list of the ten best stock brokers in the UK today. They include:
- Saxo Bank
- Interactive Brokers
- City Index
- CMC Markets
Step-by-step guide on how to buy stocks from UK stock brokers
There are five major steps for buying and selling stocks in the UK today. They are discussed below:
- Select a broker: The first step to follow for anyone seeking to trade stocks in the UK, is to select a licensed broker in the UK who provides the platform for buying and selling different stocks listed on the LSE.
- Sign up an account with the broker: The next step after one has chosen the broker to trade stocks on their platform in the UK, is to sign up for an account with the broker. The trader here will be required to provide relevant data such as: Correct Name, Email address, Valid ID, Phone Number, and National Insurance number.
- Choose the type of account to trade: There are three types of stock accounts provided by stock brokers for the trader to choose from. They are:
- Standard Account
- Robo-advisor Account
- Human Managed account.
The trader is therefore expected to choose one out of the three types of accounts listed above.
- Fund your account: After creating one’s account, the next step is to fund it. Often brokers provided multiple options for account funding to make it easy for the trader to deposit and withdraw his money. The most common way of funding is through bank transfer.
- Choose your desired stock and place your order: The final step after one’s account has been funded is to select his desired stock and place a buy order. However, placing orders for a given stock requires a little calculation. Here, the trader needs to decide the number of shares he wants to buy. Also, in a case where one’s capital does not match the amount he wishes to buy, he can divide his available capital by the share price per stock which he wishes to buy in order to see how many shares his capital can carry. Once the buy order is successfully placed, the broker usually sends a preview of the order to the investor before proceeding to execute them.
Ways of Buying and selling stocks in the UK
There are three major ways of buying and selling stocks in the UK today. We have discussed them below:
- Buying Individual Company’s shares: This is the most popular form of stock trading in the UK; which allows the individual to buy a certain amount of a company’s share listed on the LSE and hold it on a spot trading platform with the broker, in the hope of selling them when the price rises higher in the future. Buying a Company’s share grants the buyer a stake in the company’s assets and makes him liable to receive dividends or other rewards offered by the company. Nevertheless, he reserves the right to sell his shares at any point in time he desires to do so.
- Share-based Exchange Traded Funds (ETF): Another way of buying and selling stocks in the UK is by investing in the share-based Exchange Traded Funds. ETF comprises a pool of funds used to track the performance of an underlying asset. Very often, ETFs are used to track the changing prices of a group of stocks. Hence they are regarded as stock indexes.
- Buying Stocks as CFDs: Trading stocks as CFD is a very lucrative way of buying and selling stocks in the UK which offers the trader a high leverage; enabling him to maximize his profits using a little capital. Often, there is no legal ownership of stocks traded as CFDs. The major advantage of trading stocks as CFDs is that; it affords the investor an opportunity to either go long or short depending on the market trend, thereby making steady profits during the different seasons of the market. While CFD trading has some juicy attractions for the trader, it has its inherent disadvantages too. Of course, the investor’s capital is always staked and can be lost entirely in cases of high market volatility depending on the lot size chosen by the investor.
What stocks are offered by UK stock brokers today?
Below is the list of the best twenty stocks offered by the UK brokers today:
- AstraZeneca (AZN)
- HSBC Holdings (HSBA)
- Unilever Group (ULVR)
- British American Tobacco (BATS)
- Rio Tinto Group (RIO)
- Reckitt Benckiser Group (RKT)
- National Grid (NG.)
- London Stock Exchange Group (LSEG)
- Anglo-American (AAL)
- Compass Group (CPG)
- Lloyd’s Banking Group (LLOY)
- BAE Systems (BA.)
- Barclays (BARC)
- NatWest Group (NWG)
- Standard Chartered (STAN)
- Imperial Brands (IMB)
- Ashtead Group (AHT)
- Legal & General Group (LGEN)
- Flutter Entertainment (FLTR)
- Associated British Foods (ABF)
Do stock traders in the UK pay tax?
It is an existing law in the UK for all stock traders to pay tax for all investments made in buying stocks, especially when they are not made from the personal saving accounts or pension accounts of the investor. For each share purchased from a broker, the trader is charged a tax of 0.5% on the total transaction carried out. These charges applied for trading stocks electronically in the UK are called Stamp Duty Reserve Tax (SDRT). However, this stamp duty does not apply when one purchases smaller AIM-listed UK shares from an exchange.
Is stock trading a lucrative business in the UK?
Stock trading no doubt is a very lucrative business in the UK today; which offers investors an opportunity to make profits from their investments, especially when they buy promising company’s shares, at lower offering prices in the exchange market, and wait to sell them at higher prices. Averagely, stock traders in the UK made 10-15% profits annually from their stocks investments. Others could make lower or higher depending on the success rate of the stocks they have purchased. It is therefore very necessary for UK stock traders in the UK to make proper research and investigations about a particular stock, before proceeding to buy or sell them through a broker.
Factors to consider while choosing a stockbroker in the UK today
There are some important factors to consider while choosing a stock broker for trading in the UK today. We have discussed them below:
- Regulation: Before any broker can legally function in the UK, it must be registered with the regulatory body in the UK known as FCA. Any broker operating in the UK without obtaining approval from this body must be avoided and seen as scam brokers.
- Number of stocks provided: One of the attractive features of an exchange is its ability to provide multiple stocks for the trader to choose from. Brokers with only a few stocks listed on their platforms are not recommended for trading.
- Speed of order executions: Brokers with fast execution for all trader’s orders are often the best broker to trade with. Fast order execution reduces the slippage and increases the traders profit margin.
- Rich Educational Contents: Brokers that provide rich educational contents on their platforms, including news, and market analysis are considered the trader’s friend. They are no doubt the most recommendable broker for stock trading in the UK today.
- Service Charge: The charge placed by brokers for using their platform should always be considered while choosing a stock broker. Good stock Brokers charge lower fees to support the traders using their platforms.
Guide on how to legally trade stocks in the UK without taxation
The only legal way to avoid taxation while trading stocks in the UK, is to invest in the UK stock market using a ‘tax wrapper’. A tax wrapper is a government exemption from paying tax when the individual wraps his money around his saving and investment accounts. Thus, tax exemptions are given to investments into stocks shielded under tax wrappers.
Generally, there are two main tax wrapper accounts that could be used for tax-free stock trading in the UK today. We have discussed them below:
- Stocks and Shares Individual Saving Accounts (ISA): This type of account, allows the individual to buy and sell shares of any company listed on the London exchange market and found on the broker’s platform without any form of taxation. However, one can only add a maximum of £20,000 to the ISA account in a year.
- Self Investment Personal Pension (SIPP) Account: The SIPP account is tax-free for stock trading in the UK. However, only £40,000 can be added to the SIPP account in a year. One major challenge associated with using the SIPP stock trading account is that; one cannot withdraw from the account until the owner attains a minimum of 55 years.
Above all, apart from using the tax wrappers to reduce tax payments, one can also use a general investment account to trade stocks. A general investment account permits you to invest up to £12,300 without having to pay taxes on your returns.
Advantages of stock trading in the UK
- Leverage: Often some online stock brokers in the UK provide good leverage to traders for trading stocks as CFDs on their platforms. This helps the trader to maximize his profit with little capital investment.
- Account Management: Often general service brokers make trading easy for investors by carrying out the trading on their behalf. This makes stock trading a better investment with less risk involved.
- Diversification of Portfolio: Stock Trading enables traders in the UK to diversify their portfolios. This is seen as an efficient risk management technique, providing traders with multiple sources of income against unforeseen loss from a single investment package.
Disadvantages of Stock trading in the UK
- Involves Risk: There is no guarantee of profit for stock investment over any given period. While brokers do their best to provide the most promising stocks on their platforms, there is no assurance that the prices of the stocks provided by the brokers will be worth a higher amount in the future. This is especially so as companies could collapse over time leading to a massive decline in their share value.
- Commissions are charged: Virtually all stock brokers in the UK charge some percentage as commission for using their platforms. This reduces the trader’s profit margin.
- Taxation: The government is known to charge a 0.5% on all stock purchased from brokers. This increases the cost of stock trading and reduces the traders profits.
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