The Beginner’s Guide to the London Stock Exchange
How to Buy & Sell London Stock Exchange shares (LSE Shares)
To trade London Stock Exchange shares, you can use a traditional stock broker, or you can make use of an online CFD service, like the suggested brokers featured above. Here we explore the different pros and cons of both of these approaches.
The Pros and Cons to Trading London Stock Exchange Shares (LSE) CFDs
A Contract for Difference, or CFD, is a method of trading assets like shares without needing to actually own the shares. Let’s look at a few of the differences of trading CFDs in comparison to if you use a traditional stock broker.
Advantages:
The leverage that CFD brokers offer is its primary benefit. This means that a trader requires a much smaller account size relative to the trade size, when compared to a traditional share broker.
- A trader can potentially benefit from rising and falling markets because CFD brokers allow the traders to go either long or short.
- Most CFD brokers don’t charge a commission on trades and instead they have fees that are included in the spread.
- Some CFD brokers, such as AvaTrade, offer their traders the MT4 platform which allows clients to use experienced advisors for helping to automate their trading strategies.
- UK shares which are purchased as a CFD aren’t liable for the general stamp duty of 0.5% payable for a traditional share purchase (take note: tax laws are subject to change and individual circumstances).
- However, unlike traditional brokers that just offer stock trading, a CFD broker like Markets.com give access to an extensive array of instruments such as stocks, currencies, and commodities.
Disadvantages:
As previously mentioned, leverage can be a double-edged sword which magnifies both the gains and losses. As with all market trading, traders run the risk of the markets moving against them.
Many CFD brokers will charge an ‘overnight fee’ to hold a long position overnight. This fee is the cost to borrow the money from the broker for purchasing shares on a margin. If you close the position on the same trading day, there is no overnight fee. However, this would just be a con if you aren’t an intraday trader or day trader.
For more information regarding trading stocks as a CFD, check out our article “The Basics of CFDs.” It’s vital to remember that leverage works both ways and can magnify the gains and losses.
How To Choose The Best Online Stock Broker
With all the different options available in the UK trading industry for online CFD Stock Brokers, making the decision on who to trade with seems like quite a complicated and daunting task. This guide has a few main points to have in mind to help you reach an educated decision on picking the best broker for you to help you buy stocks:
Regulation
Each country has their particular regulatory body. It is in charge to make sure that the rules and regulations are followed to help protect and maintain the integrity of the market, traders, investors, and the brokers themselves, such as the Financial Conduct Authority (FCA) in the UK. These regulatory bodies help members meet regulatory responsibilities. To avoid any potential safety concerns with regards to the deposit, you should always make sure that your accounts are with regulated trading firms.
Customer Support
Before choosing an online CFD stock broker to buy stocks, you’ll want to see how complete their customer support department is. For your security and peace of mind, you will want to be able to reach and get the help you need without waiting too long to be answered. Some companies offer 24/7 customer support with a live chat option or even a local phone number.
Withdrawals
You will want to look at how long it can take to withdraw your funds once you have completed your trading and buying stocks. Some online stock brokers have fees for withdrawing remaining balances. Some also have long waiting periods for the balance to be withdrawn.
Account Types
Depending on what type you are interested in opening, you will need to know the different account options offered by each online stock broker. While some offer a broad range of accounts, others have a single account type available. You may want to look for a broker who has different account types for beginner, intermediate and advanced traders.
Tradeable Assets
While selecting a stock broker, it’s possible to just concentrate on buying stocks. However, you should keep in mind there are countless types of investment alternatives offered. Such as Forex (FX), ETFs, CFDs, or trading in futures, options or precious metals, to just name a few.
Interest
An online stockbroker should provide you all the necessary information about the interest charged when you take leverage. Although there isn’t a huge difference in the interest rates between online stock brokers, it is something to be aware of when choosing a specific broker.
Platform Types
Most traders who are just starting out don’t know how they will be trading. However, most advanced traders know that they’ll be trading while on-the-go, so they look for an online broker with an excellent mobile platform. It is best to know what your platform requirements are before signing up and investing funds.
For more information on selecting the right trading platform for you, please see our tutorial: What To Look For When Choosing A Trading Platform
