Online share dealing

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.