Best Share Dealing Account UK

How to choose the best online broker

There are several things to consider and the best stock broker for you will largely depend on your personal circumstances. However, these are the main points to bear in mind when you compare share dealing accounts.

Fees

Fees can start to erode any investment gains quickly and therefore it is important that you take this into consideration. The fee structure that suits you best will depend on how frequently you plan to trade and the size of your investment pot. Small pots can benefit from a percentage fee, whereby big pots are often best served by a flat fee. Some platforms will reward bigger pots with a reduced fee.

Ensure you fully understand the fee structure for the platform you are considering and take the time to work out what you are likely to be paying. I have gone into this in more detail below.

Accounts

What sort of trading account you use to conduct your trades will depend on your tax status. Any gains made on the trades you make, over and above the personal allowance, will be subject to Capital Gains Tax.

The personal allowance currently stands at £12,500 for basic rate taxpayers. Should you be exceeding this then you would be best served by trading from an ISA where your profits are protected from the taxman and you won’t have to pay Capital Gains Tax.

Investment Options

Most of these providers will provide access to UK shares listed on the London Stock Exchange however, should you wish to access stocks from abroad then you should ensure these are available and whether you can trade from a multicurrency account or whether you need to be concerned with exchange rates and conversion fees.

The number and quality of stocks can vary wildly from one broker to another so it is prudent to ensure your needs will be met in this regard.

Platform and user-ability

It is important that the platform and interface are suited to your style of stock trading. Beginners will be better served with a simple platform that is easy to navigate, whereas experienced traders will benefit from a more complex interface along with charts and tools to aid their decisions and research.

Understanding the broker’s fees

There are a number of fees to be aware of when share dealing and it’s important you understand all the charges your chosen broker is levying in order to avoid any nasty surprises.

Platform fees

These are the fees for the use of the platform from where you will be dealing your shares. They can be charged annually, monthly or quarterly and can either be a fixed sum (better for large investment pots) or charged as a percentage of your total investment amount (better for small investment pots).

Some brokers will have a sliding scale whereby the annual platform fee is reduced as the size of your pot grows.

Trading fees

Trading fees or share dealing fees are levied every time retail investor accounts buy or sell shares. Again, this can either be in the form of a percentage of the total value or as a flat fee. There are share dealing platforms (included in my recommendations) that waive this fee completely by offering commission-free trading. These are the ideal choice for very frequent traders. This fee can also be referred to as the dealing charge.

Fund charges

These need only be of concern if you intend to buy funds as well as shares. The fund charge covers the cost of managing the fund and can vary from fund to fund.

Overseas dealing charges

Overseas dealing charges are applicable when buying and selling shares that are from an exchange outside of the UK. They can include a currency conversion or FX fee which is usually calculated as a percentage of your trade value, or in some cases, this could be a flat fee.

What is share dealing?

A share represents an ownership stake, usually in publicly listed companies and share dealing can be a decent way to add value to your portfolio with the intention that you buy a share at one price and sell when the value of that share has gone up in price.

Of course, there is an element of risk when dealing shares and there are no guarantees that the value of your shares will go up in price. In fact, you could end up losing some or all of your money. The secret to mitigating this risk is to diversify your portfolio.

That being said, share dealing, or investing, can help to protect your money from the value shrinking effects of rising inflation. Historically, returns made from the stock market have outpaced the rate of inflation.

What is the difference between share dealing or trading, and investing?

Whilst both of these entities have the same intention, to make your money grow, there are fundamental differences between the two styles. Typically investing refers to a long term approach, whereby you intend to buy, and hold your assets over a long period of time with the intention that the asset will slowly grow in value.

Conversely, dealing, or trading refers to the art of buying and selling assets at high volume over much shorter periods of time that could be daily, weekly, or monthly. This practice of taking advantage of fluctuations in the market is intended to reap smaller, more frequent profits.

What is a share dealing broker?

A share dealing broker is a trading platform that facilitates the buying and selling of shares. There is no way to buy shares directly from the Stock Market which is why a broker is required.

These days, more and more brokers are becoming fully digital, offering an online trading platform from where you can access your trading account, buy and sell shares, and research the market all from a computer or mobile phone any time of the day or night.

How to get started share dealing

Starting out can feel daunting and with so many options it’s difficult to know where to begin. However, there are some steps that you can take to ensure you get off on the right foot once you have opened your chosen share dealing account.

1. Clearly define your investment goals

Defining your goals is important as it can identify the type of investment you should be looking to make. One of the most important aspects is your time frame. Long term investments can assume more risk than short term investments as time can help ride out any volatility in the stock market (just look at what has happened as a result of the war in Ukraine).

2. Look to diversify your portfolio

Diversification is the key to mitigating your risk. Look to include stocks from a range of regions, sectors and company types. This can help ensure that any losses sustained in one area, can be offset by gains in another area. This can help to steady the overall value of your investment portfolio.

3. Consider investing little and often

Drip feeding your investment money into the stock market can also help to mitigate your risk by ‘pound cost averaging’. This means that you could benefit from the highs and lows of the market, obtaining an average price over time, rather than investing a lump sum at one price.

How to choose which shares to buy?

If I knew the answer to this, I would be happily sipping a cocktail on a beach in the Maldives by now. However, some research into the factors affecting a company’s stock price can yield favourable results. These include:

Valuation of the company

By taking the projected earnings and discounting them back to the present day, you can value a company. Savvy investors will apply a ‘discount rate’ to factor in the risks involved in order to adjust those earnings. Interest rates are a major factor affecting the discount rate, with lower interest rates decreasing the discount rate, and in turn, increasing the valuation. This is why in 2022 higher interest rates have increased the discount rates, resulting in valuations falling.

When applied to high growth stocks, such as tech stocks, this helps explain why their valuations can increase so substantially. High growth stocks will reinvest heavily, reducing profits whilst securing future growth.

Earnings growth

Any changes in the earnings of a company will be reflected in its stock price. This includes changes in current earnings, as well as changes in future earnings.

There are several elements that can affect a company’s earnings. Economic growth, inflation, interest rates, level of debt, cost structure, scope for increasing product prices and factors that affect demand.

Dividend yield

This is important to take into consideration as it will affect whether you are investing for profit, or investing for growth.

Companies will either reinvest any profit back into the organisation or, pay it to shareholders in the form of dividends. You can check a company’s dividend yield which will show you how much the company in question pays out in relation to its stock price.

A share in companies that pay dividends can be an excellent way of beating inflation. Simply ensure that the percentage of dividend yield is higher than the current annual percentage of inflation.

Also consider: Best stocks paying dividends for 2022

Can you trust online brokers?

Online brokers offer a much more cost-effective solution than traditional brick and mortar brokers who would take a large percentage of any gains made and therefore eat away at investment profits. However, can you really trust these establishments with your money?

The answer to this is yes. There is strict regulation in the UK by the Financial Conduct Authority which ensures your funds are protected from unscrupulous establishments. Not only can you trust online brokers, but there are many other reasons why they make an excellent choice for anyone looking to deal shares including

Deal shares on the go – online brokers have made share dealing fully mobile, providing access to your account at any time, from anywhere.

Get started for less – some of these online brokers have zero account minimums, meaning you can start share dealing with as little as £1, although my advice would be to check the fee structure when dealing with very small amounts as this can end up eating away at all your gains.

The multitude of tools and features – the number and quality of features and tools will vary between providers, however, most will have a basic suite of tools to aid your investment decisions.

Research and news – again the breadth and quality of research provided will vary between providers, however, most will have access to research and news.

Demo accounts – for anyone just starting out on their investment journey, demo accounts offer the opportunity to trade stocks without risking any of your funds. This is done using virtual money.

Which is the best share dealing account for beginners?

This will largely depend on how much you intend to trade and the sort of stocks you are interested in trading. However, my top two recommendations for beginners would be Freetrade who provide a beginner-friendly platform as well as commission-free trading and a free share when you sign up and deposit, and eToro who also have commission-free trading, a demo account so you can practice your skills, and a thriving copy trading community.

How many shares should a beginner buy?

This will very much depend on the value of a single share, and whether fractional shares are available. How many shares you buy should reflect your total pot size and your attitude to risk. However, it is important to remember to stay diversified in order to mitigate your exposure to risk. Diversification should include shares across many different sectors and regions.

What is considered risky when trading?

When it comes to risk, there are ways to avoid exposing yourself over and beyond your level of comfort. Cryptocurrencies, penny stocks, CFD trading, forex trading, day trading and spread betting are all considered risky options and should be avoided when just starting out.

It is also important when buying and selling shares that you do your research in the companies you are considering investing in. It may be an option to start out with companies who you are already familiar with.

However, the best way to reduce your risk and ensure you are remaining truly diversified is to consider investing in exchange-traded funds or mutual funds rather than individual stocks.

What is an Exchange Traded Fund?

An exchange-traded fund (ETF) is a pooled fund that typically tracks a particular index, sector, commodity or other asset. EFTs can be bought and sold on a stock exchange in much the same way that an individual stock can. They offer a way to instantly diversify your investment portfolio.

When to sell your shares

I have always advised that investing should be a long term endeavour of a minimum of five years. The idea behind share trading is that you aim to buy the shares at their lowest price and sell them at their highest price. However, this is almost impossible to time and rarely works out, especially for novice investors.

The most important thing to remember when considering selling shares is that any losses are only locked in once you sell your shares. Therefore avoid selling when the market is down. This is why I suggest giving yourself plenty of time in the market in order to ride out any volatility that may occur.

It’s important to consider whether the particular company in question will continue to grow or whether you should cash out at its current value. Try not to make any emotional decisions. Remember, you always have the option to seek independent advice if you are uncertain about how to proceed.

Frequently Asked Questions