It's still possible to buy and sell shares in person or over the telephone, but to really make the most from trading the stockmarket an online account is a must.
For starters, it's cheaper to trade online with prices as low as £1.50 a trade on offer. Many stockbrokers charge less for their internet-based services to reflect the fact that it's easier and cheaper to handle online trades. For example, Hargreaves Lansdown charges between £9.95 and £29.95 for online trades with its share account service. While, for telephone trades, you'll pay 1% of the value of your trade, subject to a minimum of £15 and a maximum of £50.
Pricing between the online services do vary. Many, including Hoodless Brennan, iDealing, Interactive Investor and Sharecrazy, charge a set price regardless of how much you are investing. Others, such as Fastrade, Hargreaves Lansdown and The Share Centre, have structured charging, with the fee dependent on the value of the shares you buy and sell.
Also, look out for administration fees, which will bump up the cost of running your account. These vary: Etrade's ISA account charges £2.50 a month, iDealing has a £5-a-quarter charge and Norwich & Peterborough has a £15-a-year charge. Inactivity fees also need to be carefully considered (£9 per quarter). Barclays and E-Trade (£4.85 per month) both charge a fee if you have not traded on your account.
Frequent traders
Some services will drop their dealing charges for frequent traders. While the term 'frequent trader' sums up images of people buying and selling hundreds of times a day, you don't need to be glued to a computer screen to qualify for one of these accounts.
For example, on its online frequent trader club account, Barclays Stockbrokers drops its £12 dealing charge to £7.50 if there are 11 or more deals in the previous quarter.
Sometimes it pays to weigh up whether it's better to opt for a frequent trader account or stick with the standard account.
On Hargreaves Lansdown's active trader service, for example, there is a £9.95 flat fee if you buy or sell online, but you also pay a quarterly management charge of £12.50. Compared with its standard account, this would represent better value, even if you only dealt once a quarter - providing you bought or sold more than £20,000. However, if you were dealing less than £500 a time it wouldn't be worth considering.
The Share Centre's trader account operates in a similar way. On its standard account it charges 1%, subject to a minimum of £7.50, but if you sign up to its trader account you pay a £7.50 flat rate on deals less than £25,000 and a £20 quarterly charge. This works in your favour if you buy and sell large amounts of shares.
Bulk buying
If you intend to buy shares often, a regular investment plan could be worth considering. Halifax Share Dealing and Interactive Investor have offerings that enable you to squeeze the cost of buying shares right down to £1.50.
This saving is achieved because you forfeit the ability to time the market. While you deal real-time on the standard accounts, with regular investment plans, your money is lumped with other investors' and invested on a set day. This bulk buying means a lower dealing charge can be passed on.
Many stockbrokers offer orders that you can apply to automatically buy or sell shares at prices you set.
There are a variety of orders available. The most common are the limit orders, where you set a limit for a purchase or a sale. This ensures the service will buy at no more than (or sell at no less than) that price.
So, for example, if you are watching Tesco shares, you might decide they are too expensive at 440p but that you would buy them at 425p, and apply a buy limit to this effect. Then you could apply a sell limit at 450p so you can crystallise this gain.
Stop loss is another common order. Again this triggers a sale but, rather than selling when your share price rises to a set level, it automatically sells when it falls to a set price. For example, if you think Tesco shares might not rise at 425p you could apply a stop-loss at 418p to limit your losses.
Stop-loss orders won't guarantee to sell at that price though, because if the price is falling extremely quickly it might only be able to sell at a level lower than you specify.
A variant on this is a trailing or tracking stop-loss order, which is also known as 'price locking'. This follows the movement of the share price and will look to sell when it falls a set amount below its peak.
For example, you could put a 10p trailing stop loss on your Tesco shares when you buy them at 425p. This would automatically sell if they dropped to 415p, but if the price rose to 440p, the stop loss would also rise, nudging up to 430p.
Rising benefits
You can also take out a rising buy. You specify a higher price and the shares will automatically be purchased once they hit this. A rising buy has more limited application, but might be used if you want to invest in companies with a particular market capitalisation.
For example, if you only want to invest in large blue chips you might use it to monitor the performance of companies just outside the FTSE 100 so you can invest in them before they enter the index, and so benefit from a higher level of investment.
Being online offers additional features that can benefit your trading. These include analytic tools to help predict where share prices are heading; discussion boards to bounce ideas off other investors; latest market and company news; and trend data like which shares are the biggest gainers and losers. Many services also include share research, investment analysis and share-tipping newsletters.
How to pick the best online service for you
Price will certainly be a major consideration when deciding which service is best for you, so think about how you'll be using the service and weigh up the charges you'd be likely to incur.
Also, think about what you want to buy and sell. While they will all offer access to the UK shares if you want to trade more exotic assets you may need to shop around. Among the assets you can now trade are the UK stockmarkets, including AIM and PLUS, gilts, bonds, unit trusts, investment trusts, covered warrants and exchange traded funds.
Buying and selling these more exotic assets can mean higher dealing charges too, so you have to weigh these up when comparing accounts.
There's nothing wrong with switching online share dealing services, but you'll usually pay between £10 and £20 for each company's shares you want to transfer out.
Thursday, 8 May 2008
Share dealers you can rely on
Whether you intend to buy and sell shares once a day or once a year, the share dealing service you use can make a significant difference to the value of your investment. But finding the right account isn't simply a case of picking the one if with the lowest charges. Exactly which service works best for you will come down to a variety of factors.
Your first consideration should be whether or not you want advice. Of the three types of share dealing service available, two - advisory and discretionary - come with advice, while the third (known as execution-only) is a straightforward trading service.
The size of your portfolio will also affect your decision. There are no minimum investment limits on execution-only services. An advisory service, however, typically requires an investment of at least £20,000, while for a discretionary service you'll need around £50,000 to get started.
You also need to think about tax. Your shareholdings will be liable to both tax on the dividends and, potentially, your gains, so if you've not already used your ISA allowance it's worth considering a self-select ISA in which you can invest up to £7,000 a year tax-free.
Execution-only services
If you're happy to pick your own investments, or you haven't got a large enough portfolio to qualify for an advice-based service, you'll need an execution-only service.
You can access execution-only services in a number of ways - over the phone, by post and face-to-face. However, online services are the most popular and cost-effective way of buying and selling shares. (Try Interactive Investor's Share Dealing centre)
Whatever type of service you opt for, the stockbroker will usually ask you to set up a nominee account. This is an electronic account that is held in your stockbroker's name. You retain all rights to ownership of the shares and will receive formal statements and valuations every six months, as well as being able to monitor your account 24 hours a day. You'll also be contacted whenever there are rights-issues, and any dividends will either be rolled up into your account or paid separately into your bank account.
Another key area to check when you're comparing accounts is whether you'll be able to access all the markets you're interested in. Most cover the UK markets, gilts, UK corporate bonds and unit trusts, but some also cater for more exotic tastes.
Tools are also an important consideration; such as portfolio tools, research, news and a virtual portfolio to give you a flavour of buying and selling shares.
How often you want to buy and sell is another crucial factor. If you're likely to trade regularly, you might benefit from an account designed specifically for you.
The dealing charge is one of the key charges to look at when comparing accounts. The internet has forced these down in the last few years and you can now pay as little as £7. Some providers will also offer preferential rates if you're happy to deal online.
Checking out charges
The dealing charge may not be the only charge you'll encounter, however, so it's prudent to weigh up all the charges when comparing services.
Many execution-only brokers levy an administration charge. This is often a set fee, which can range from £2.50 a quarter to £12.50. Other brokers charge a percentage of your portfolio, especially on ISA accounts.
Sometimes administration charges can be waived. Also look out for inactivity charges. You'll also pay stamp duty on any purchase. This is levied at 0.5% of the cost of the shares. And if you buy or sell shares worth more than £10,000 you will have to pay a fee of £1 to the panel of takeovers and mergers.
There may also be charges for certain requests. For example, if you take money out of your account you might be charged if you request a cheque rather than have it paid by BACS.
Likewise, if you want to move your account you might be hit with an administration charge. Most brokers charge between £10 and £20 for each holding you transfer to another broker, although your new broker may cover these costs for you.
Regular savings accounts
Another variant on the standard share dealing account is a regular savings account. There are a number of these available, including Interactive Investor's regular investment account.
The beauty of these accounts is that you can take advantage of bulk purchases, which pushes the dealing costs down significantly. Interactive Investor allows you to buy shares for just £1.50, plus stamp duty.
However, there is a downside. To achieve these discounted dealing charges, you need to commit to a regular purchase, which will be carried out with everyone else's purchase of the same share.
You can change the shares you buy each month, but you will not have any control over the timing of the purchase. You may want a slightly different service if all you want to do is sell some shares certificates that you've obtained through an employee share scheme, for example, or as the result of a privatisation. Although most share dealing accounts are set up with a nominee account, so everything is held electronically, it's still possible to trade paper certificates.
Getting advice
Although you might be able to obtain market and company information through the execution-only services, if you want tailored advice (and have sufficient funds) an advisory or discretionary service may be more appropriate. Advisory services, which require a portfolio of around £20,000, provide you with advice on your investments, allowing you to make a more informed decision about whether to buy or sell a particular share.
With the other form of managed account, the discretionary service, you leave all the investment decisions to your stockbroker. Minimum portfolios vary but you will generally need at least £50,000 for a discretionary service.
Once you're happy with the stockbroker who will look after your money you'll have an initial meeting to determine your investment objectives and attitude to risk. This will help your stockbroker tailor their investment advice to your requirements.
Every time a holding is bought or sold you'll receive a contract note, plus details of why the trade has taken place. You'll also receive a formal valuation every six months and a tax report at the beginning of the tax year.
On top of the dealing and nominee account charges incurred for running an account, you will also pay an additional management fee for a personalised advice-based service. This is usually a percentage of your portfolio, often between 0.25% and 0.75%, although this will usually be subject to minimum and maximum amounts.
Source：Yahoo! Finance
Your first consideration should be whether or not you want advice. Of the three types of share dealing service available, two - advisory and discretionary - come with advice, while the third (known as execution-only) is a straightforward trading service.
The size of your portfolio will also affect your decision. There are no minimum investment limits on execution-only services. An advisory service, however, typically requires an investment of at least £20,000, while for a discretionary service you'll need around £50,000 to get started.
You also need to think about tax. Your shareholdings will be liable to both tax on the dividends and, potentially, your gains, so if you've not already used your ISA allowance it's worth considering a self-select ISA in which you can invest up to £7,000 a year tax-free.
Execution-only services
If you're happy to pick your own investments, or you haven't got a large enough portfolio to qualify for an advice-based service, you'll need an execution-only service.
You can access execution-only services in a number of ways - over the phone, by post and face-to-face. However, online services are the most popular and cost-effective way of buying and selling shares. (Try Interactive Investor's Share Dealing centre)
Whatever type of service you opt for, the stockbroker will usually ask you to set up a nominee account. This is an electronic account that is held in your stockbroker's name. You retain all rights to ownership of the shares and will receive formal statements and valuations every six months, as well as being able to monitor your account 24 hours a day. You'll also be contacted whenever there are rights-issues, and any dividends will either be rolled up into your account or paid separately into your bank account.
Another key area to check when you're comparing accounts is whether you'll be able to access all the markets you're interested in. Most cover the UK markets, gilts, UK corporate bonds and unit trusts, but some also cater for more exotic tastes.
Tools are also an important consideration; such as portfolio tools, research, news and a virtual portfolio to give you a flavour of buying and selling shares.
How often you want to buy and sell is another crucial factor. If you're likely to trade regularly, you might benefit from an account designed specifically for you.
The dealing charge is one of the key charges to look at when comparing accounts. The internet has forced these down in the last few years and you can now pay as little as £7. Some providers will also offer preferential rates if you're happy to deal online.
Checking out charges
The dealing charge may not be the only charge you'll encounter, however, so it's prudent to weigh up all the charges when comparing services.
Many execution-only brokers levy an administration charge. This is often a set fee, which can range from £2.50 a quarter to £12.50. Other brokers charge a percentage of your portfolio, especially on ISA accounts.
Sometimes administration charges can be waived. Also look out for inactivity charges. You'll also pay stamp duty on any purchase. This is levied at 0.5% of the cost of the shares. And if you buy or sell shares worth more than £10,000 you will have to pay a fee of £1 to the panel of takeovers and mergers.
There may also be charges for certain requests. For example, if you take money out of your account you might be charged if you request a cheque rather than have it paid by BACS.
Likewise, if you want to move your account you might be hit with an administration charge. Most brokers charge between £10 and £20 for each holding you transfer to another broker, although your new broker may cover these costs for you.
Regular savings accounts
Another variant on the standard share dealing account is a regular savings account. There are a number of these available, including Interactive Investor's regular investment account.
The beauty of these accounts is that you can take advantage of bulk purchases, which pushes the dealing costs down significantly. Interactive Investor allows you to buy shares for just £1.50, plus stamp duty.
However, there is a downside. To achieve these discounted dealing charges, you need to commit to a regular purchase, which will be carried out with everyone else's purchase of the same share.
You can change the shares you buy each month, but you will not have any control over the timing of the purchase. You may want a slightly different service if all you want to do is sell some shares certificates that you've obtained through an employee share scheme, for example, or as the result of a privatisation. Although most share dealing accounts are set up with a nominee account, so everything is held electronically, it's still possible to trade paper certificates.
Getting advice
Although you might be able to obtain market and company information through the execution-only services, if you want tailored advice (and have sufficient funds) an advisory or discretionary service may be more appropriate. Advisory services, which require a portfolio of around £20,000, provide you with advice on your investments, allowing you to make a more informed decision about whether to buy or sell a particular share.
With the other form of managed account, the discretionary service, you leave all the investment decisions to your stockbroker. Minimum portfolios vary but you will generally need at least £50,000 for a discretionary service.
Once you're happy with the stockbroker who will look after your money you'll have an initial meeting to determine your investment objectives and attitude to risk. This will help your stockbroker tailor their investment advice to your requirements.
Every time a holding is bought or sold you'll receive a contract note, plus details of why the trade has taken place. You'll also receive a formal valuation every six months and a tax report at the beginning of the tax year.
On top of the dealing and nominee account charges incurred for running an account, you will also pay an additional management fee for a personalised advice-based service. This is usually a percentage of your portfolio, often between 0.25% and 0.75%, although this will usually be subject to minimum and maximum amounts.
Source：Yahoo! Finance
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