Last updated on September 9th, 2024 at 02:01 pm
This Remitly guide is a quick overview of investing in the UK and can introduce you to the stock market. However, it’s not a substitute for financial advice from a qualified financial adviser.
Investing in the stock market can be risky. Consider seeking professional advice before investing in the stock market. That said, let’s start exploring what it means to buy and sell shares in the UK.
What does it mean to invest in stocks?
Investing in stocks basically means buying shares in a company. A share is a small portion of ownership you pay a price to purchase.
Share prices change from minute to minute. You make a profit when you sell shares at a higher price than you paid for them. If share prices go down and you sell shares, you take a loss.
Ultimately, the goal of investors is to buy when the share price is low and then sell it later when the price is higher.
Buying Stocks in the UK 101
Before you begin to buy shares, you need to know some basic terminology and understand how the process works. Read on for answers to common questions about selling and buying shares in the UK.
What is a stock exchange?
You can think of stock markets or stock exchanges as supermarkets for buying and selling stocks. Investors flock to these exchanges to buy shares of stocks they find attractive.
There’s an array of stock exchange options out there, and even non-investors will know some of the biggest ones. These include the Nasdaq, the New York Stock Exchange, and the London Stock Exchange.
How do I buy and sell shares in the UK?
You can buy and sell shares on a stock market in the UK in three main ways. Let’s take a look at each.
Full-service brokerages
Working with full-service brokerages is one way to invest in stocks in the UK. They provide customer support and detailed investment advice to help people choose which UK shares to buy.
Because they provide extra services, full-service brokers tend to charge higher fees.
Discount brokerages
Discount brokerages offer an alternative way to buy and sell UK shares. Discount firms offer fewer resources and less personalized advice than full-service brokerages. However, their fees are generally lower than their full-service competitors.
Online investment platforms
An online investment platform makes it possible to buy and sell shares online. When you sign up for one, you open a brokerage or share dealing account.
Once everything is set up, you can access stock exchanges by logging into your share dealing account. For example, you’ll be able to navigate to the London Stock Exchange section of the site or app. Here, you can see the current prices for shares in companies like Unilever, Tesco, and easyJet.
You can then decide whether or not to buy.
Online trading platforms won’t provide you with the personalized service and advice that you’ll get from full-service brokers. However, online platforms offer a fuss-free, low-cost way to invest, often with no commissions on trades.
What is a dividend?
A dividend is a share of profits that companies pass on to shareholders. Companies pay dividends when they perform well, and shareholders can then spend or reinvest the dividend income they receive.
Not all publicly listed companies pay dividends on stocks, making it important to read the details of any shares you wish to purchase if you’re hoping to receive dividends.
What is an ETF?
An exchange-traded fund or EFT is an assortment of stocks and bonds from a specific stock exchange. As with UK shares, prices of these investment funds fluctuate throughout the trading day, and you can buy and sell them whenever the stock market is open.
Because EFTs allow you to buy shares from multiple companies in one fund, they make it possible to diversify your investment portfolio while reducing the fees paid.
What is capital gains tax?
Capital gains tax is a type of tax you pay on profits you make when buying and selling assets in the UK.
Regarding the stock market, UK tax rules require people to pay tax when they sell shares for more than the purchase price they originally paid during a particular tax year.
However, the rules for paying tax on investments are complex. As a result, it is best to consult a tax professional before you begin investing. They can advise you on how your investments will impact the capital gains and income tax you will owe.
What is a stocks and shares ISA?
A stocks and shares individual savings account or ISA is a type of investment account offering investors tax benefits. Typically, money in a stocks and shares ISA isn’t subject to income or capital gains tax. A financial advisor or tax professional can provide more information about stocks and shares accounts.
Can you buy and sell shares for every company?
In the UK, you can typically only buy and sell shares for publicly listed companies. Privately owned companies don’t make their shares available on the stock market.
What is an initial public offering?
An initial public offering or IPO is a stock debuting on the market. An IPO becomes available when a private company becomes publicly listed and starts selling shares to investors.
Can you invest in foreign stock markets?
Although share dealing accounts work in different ways, some make it possible to invest in shares available through a foreign stock market. However, extra fees apply in many cases, and you may not receive the same regulatory protection on foreign shares you enjoy when you purchase UK shares.
What is profit-taking?
This is an example of stock market jargon referring to something very straightforward. It simply means selling stock after the share price rises.
Profit-taking may take place when investors see an abrupt spike in the value of their shares. It’s crucial to remember that the stock price can soar and drop depending on multiple factors. Whether you choose to cash out will depend on your finances and longer-term goals.
Steps to investing in the stock market online
Now that you know the basics about buying and selling shares, let’s look at how to invest through an online brokerage step by step.
1. Choose your investment platform
Before you can begin to make trades, you need to choose a share dealing platform. There are many online investment platforms to choose from in the UK. As you compare options and decide where to open your share dealing account, some things to consider include the following.
Fees
How much will it cost you to use the investment platform?
The trading fee is a good place to start. Trading fees are paid when you do a transaction on your trading account, such as buying a stock or selling shares. Some platforms have no trading fees or will waive the fees if you keep a minimum balance in your share dealing account or make a minimum investment.
While trading fees are important to consider, there are other fees to keep in mind. Is there a foreign exchange fee for buying from foreign stock markets or conducting transactions in foreign currencies?
Are there inactivity fees charged if you don’t use the investment platform for a certain number of months or years? Do you have to pay a fee to withdraw money from your share dealing account?
Initial investment
Does the trading platform require you to make an initial investment when you sign up? If so, how much do you need to invest?
Resources
Some trading platforms offer resources to help you research stocks. If you’re new to the world of stocks, these resources can provide a good starting point for deciding which shares to buy.
As a result, it may make sense to choose an investment platform with a wealth of resources even if it charges a higher trading fee. After all, you may pay more money to make trades, but you could end up better informed and able to make smarter investment decisions as a result.
2. Open an investment account
Once you’ve decided which platform to use to invest money, you’ll need to open a share dealing account. Typically, you can apply for one online by providing personal information.
3. Deposit money to make trades
After your trading account is open, it’s time to make an initial deposit so you can begin buying and selling shares. Most platforms allow you to link your share dealing account with your bank account, so you can transfer money from your checking or savings account whenever you want to make a trade.
4. Do some research
Now that your account is open, it’s time to research stocks and decide which ones to buy. Experienced investors may look at things like past performance and news stories to try and guess what companies’ future results may be. However, beginners usually benefit from getting personal advice from a financial adviser.
5. Make your first trade
You’ve decided what stock to buy. Next, watch the share price and then initiate a trade when you believe it to be at a low point.
After you’ve made your investment, keep a close eye on the share price so you can determine if and when to sell.
Stock tips for beginners
When you invest in shares, your main goal is to buy shares at low prices and then sell when stock prices are higher, but selling and buying shares is a bit more complex than that. Read on for tips that will increase your chances for success as you invest in stocks.
Start investing early
It might be tempting to wait to invest until your income is over a certain threshold. However, starting investing as early as possible may be more prudent and productive. Let’s look at a few reasons why.
More time to grow wealth
The earlier you start investing, the more time you’ll have to gather assets, reinvest earnings, and grow your portfolio. You’ll be laying the financial foundations for your retirement. You’ll also have more time to make up for any losses incurred than those who invest later in life.
Possibility of beating inflation
The cost of living in the UK is a particular concern in our uncertain times. Say inflation rises above what your bank savings account generates in interest. This means your savings will shrink in value, as they’ll have less purchasing power. Investing in high-yielding companies is one way to potentially avoid this issue.
That’s because your returns may be significantly more than what your bank will pay in interest. Remember, however, that you’re playing the long game here. Generally, you’ll want to hold investments for several years to ride out the marketplace’s ups and downs.
Diversify your stocks
You may hear the word ‘diversification’ mentioned a lot. This simply refers to holding investments in different companies and sectors. Diversifying your stocks is wise, as it means you won’t be “putting all your eggs in one basket.” Instead, you’ll be hedging your bets by spreading your investments around.
Say, for example, you’ve invested in one company/industry sector that suffers a dip in fortunes. If you’ve diversified, your other more fruitful stocks may make up for this loss.
Consider penny stocks
You don’t need to have lots of disposable income to start investing. You might want to consider penny stocks, typically traded below £1 per share.
There are a few key reasons why penny stocks should be on your radar. The most obvious benefit is affordability, compared to stocks in big-name companies that come with steep price tags.
Just as importantly, penny stocks can let you stake a claim on startup companies that may be poised for big things. Yes, there’s a risk you’ll back a dud, and the company will never amount to much. If so, the relatively low cost of the stocks should lessen the sting somewhat. On the other hand, if the company really takes off, you may see your penny stocks balloon in value.
Imagine buying a slice of the next big thing when it’s still in its infancy. That’s the prospect that can make penny stocks so interesting. But this is also why research is very important.
Before investing, you should thoroughly research penny stock companies. What are their backgrounds? Have they identified a particular niche? Have speculators been talking about these companies in blogs and online forums?
In the UK, penny stock companies are usually listed on the Alternative Investment Market (AIM). This submarket of the London Stock Exchange is designed especially for smaller companies looking to attract investment.
Invest in innovation
In theory, companies that innovate within their industries should flourish and make money for their investors. Of course, things don’t always pan out that way in real life.
Equally innovative competitors may out-flank some promising companies. Or, their particular industry may not be a very lucrative one in the long run.
Again, you’ll want to research before putting your money on the line. Look at which industries are booming or set to boom. For example, the global energy market looks to be undergoing a seismic shift. This is in response to concerns about the climate crisis and soaring fuel prices. Green energy firms, such as offshore wind farm companies, may provide attractive investment opportunities.
Other booming markets for UK investors include:
- E-commerce companies, such as online retailers and food delivery firms
- Fintech companies, which continue to innovate within the online payments space
- Online gaming companies, which fared well throughout the pandemic
Many investment firms offer ETFs (exchange-traded funds) that bundle stocks in future-facing industries like robotics, fintech, cloud computing, nanotechnology, and genomics. You can check out some of the most popular ones available to UK investors here.
Stock investing and risk
The bottom line is that nearly all investments carry risk. You are, in effect, betting on whether your stocks will rise or fall in value.
These will be informed bets if you research as any savvy investor should. However, there are no iron-clad guarantees.
Generally, stocks aren’t as risky as trading some other asset classes, buying other investment products, and engaging in activities like spread betting, but the risk of losing money still exists. As a result, it’s often unwise to simply put all your money into a single stock or fund.
Diversifying your stocks, considering your investments as long-term projects, and keeping up with industry news will all help you navigate the markets and hopefully reap the financial rewards.
Get your investment portfolio started
Living in the UK, you may be interested in buying stocks in companies. But, if you’re new to investing, it can all feel a little daunting. The good news is that online brokers provide a quick and convenient entry point. Simply put, these are sites (and apps) where you can buy and sell stocks in the UK.
Now that you know about the basics of investing in shares, you’re ready to start selling and buying shares and working toward your personal finance goals.
Start researching trading platform options and prepare to open your share dealing account today.
