Stock trading has never been easier. You simply need to open an account with an online stockbroker, deposit some funds, and that’s it – you’ll have thousands of stocks to buy and sell at the click of a button.
With that said, there are many UK stockbrokers to choose from – some good, and some not so good. You need to ensure your chosen stock trading broker is right for you prior to signing up.
In this article, we cover everything you need to know about stock trading in the UK. This includes an explanation of how UK stock trading platforms work, reviews of the best providers for 2020, and a step-by-step guide on how to get started.
The Best UK Stock Trading Platforms
Before you can start trading online, you will need to find a suitable stockbroker. In order to point you in the right direction, we’ve reviewed many brokers and created the following list of the UK’s best stock trading platforms. Each broker is regulated by the UK Financial Conduct Authority (FCA) and hosts heaps of stocks and shares for you to trade.
eToro - Best All-Round UK Stock Trading Broker
If you're just starting out in the world of online stock trading, we suggest signing up to eToro. The online broker is a user-friendly platform that is tailored to the newbie investor. It takes just minutes to open an account, and you can easily deposit funds with a debit/credit card, e-wallet such as PayPal, or UK bank account. Once you do, you will have access to over 800 stocks.
Not only does this include UK companies listed on the London Stock Exchange, but lots of international markets too. This includes companies in the US, Australia, Canada, Germany, and Sweden. Stock trading is commission-free and there's no stamp duty for UK users.
eToro is somewhat unique in the sense you will have the option of investing in traditional shares, where you buy the underlying asset and are entitled to dividends, as well as trading stock CFDs. This means that you have the ability to short-sell companies, meaning you speculate on their price going down. You can also apply leverage to trade with extra capital.
What we also like about eToro is that you can copy the trades of other users. Once you select an expert trader to follow and choose your preferred stake, you can mirror their portfolio like-for-like in the click of a button.
In terms of safety. eToro is regulated by the FCA, as well as licensing bodies in Australia and Cyprus. This means that your investments are protected by the FSCS compensation scheme, which covers the first £85,000.
If you do like eToro, you'll need to meet a $200 minimum deposit, which amounts to about £160. There are no deposit fees, albeit, a small 0.5% GBP to USD conversion rate is charged. There's also a $100,000 demo account that you can use to get to grips with the platform. If you want to trade on your mobile, you can download the eToro stock trading app.
- 0% commission stock investments
- Over 800 stocks to buy or trade as CFDs
- Social and copy trading tools
- Limited technical analysis tools
- Not well-suited for the more advanced investor
2. Plus500 - Best Commission-Free Stockbroker for CFDs
Plus500 is a UK-based broker that specialises exclusively in CFDs. This platform is considered one of the best stockbrokers as it's among the most affordable on the market, with no commission stock trading and very competitive spreads. You can also get started with a minimum deposit of just £100.
This broker offers access to over 2,000 stocks from a range of UK and international stock exchanges. You can apply leverage of up to 1:5 on stock CFD trades at Plus500, meaning that a £500 balance would permit a maximum trade of £2,500.
You can deposit with a variety of different methods, including PayPal, and there are no deposit or withdrawal fees to contend with, either. Finally, Plus500 offers one of the best UK stock trading apps for iOS and Android phones, which is great if you want to stock trade on the go.
- Minimum deposit of £100
- Over 2,000 trading instruments
- UK stock trading app available
- Limited education material
- Not suitable for beginners
3. AvaTrade - Best Stock Trading Platform for Advanced Investors
AvaTrade is a good choice is you already have some experience in stock trading and are looking to take your investments to the next level. If this is the case, it might be worth exploring the merits of AvaTrade. This online broker offers stock CFDs and full support for both MetaTrader4 (MT4) and MT5, which is ideal for advanced traders.
The trading platform allows you to fully customize your screen, and it comes jam-packed with technical indicators and advanced chart reading tools. The MT4 and MT5 trading platforms at AvaTrade also allows you to place more sophisticated trades. Whether its trailing stop-loss orders, leverage, or short-selling - the broker has you covered.
W should also note that AvaTrade is very competitive in the spreads department - which is crucial if you are looking to trade on a day trading or swing trading basis. You can trade stocks with up to 1:5 leverage. This stock trading platform requires a minimum deposit of £100, which you can make via a debit/credit card or bank account.
- Spreads from just 0.9 pips
- Multiple licenses
- Both MT4 and MT5 supported
- Limited amount of stocks
- High inactivity fees
Understanding the UK Stock Trading Market
If you have little to no experience of how online stock trading works, it is important to familiarize yourself with the basics. After all, you will be risking your own hard-earned money, so it’s crucial that you have a firm understanding of what online stock trading entails. Here’s some key information on stock trading for beginners.
When you purchase stocks, you are investing money into a company. That is to say, for each stock that you hold, you effectively own a percentage of the company – proportionate to the amount you invest. For example, if you buy 1% of stocks in BT, you would own 1% of the company.
The stocks that you invest in are subsequently listed on a stock exchange, which allows people to buy, sell, and trade the stocks during market hours. In the UK, the main exchange is the London Stock Exchange. In the US, where you find major companies like Apple, Facebook, and Disney, the main exchanges are the NASDAQ and New York Stock Exchange.
The overarching objective when investing in stocks is to make money. This can be achieved in two different ways – capital gains and dividends. Regarding the former, this is when the value of a stock increases. If you then sell your stocks at a higher price than you originally paid, the profits are known as capital gains.
- For example, let’s say that you bought 100 HSBC stocks at £4 per stock
- This means that your total investment is £400
- 12 months later, HSBC shares are now worth £5 each
- You decide to cash in your profit, so you sell your 100 shares for a total of £500
- As you originally invested £400, this means that your profit (or capital gains) amounts to £100
Of course, there is never any guarantee that you will make capital gains when you trade shares on a share dealing account. On the contrary, there might come a time where you need to sell your shares for less than you paid, resulting in a loss.
The second form of income that you can make when you invest in shares is through dividends. This is when a company distributes some of its profits to shareholders. As long as you hold at least one stock, you will be entitled to your share of dividends.
- For example, let’s say that you hold £1,000 worth of shares in GlaxoSmithKline
- The company has a good financial quarter, so it decides to pay a dividend of 4%
- This means that you will be paid £40 in dividends, as your stake in the company is £1,000
Dividends are typically paid once every three months, although some companies distribute them bi-annually. Either way, dividends are a great way to potentially supplement your income, as they can provide money without you needing to sell your shares. However, not all companies pay dividends.
Types of Stocks
There are two main types of stocks that companies issue – common stock and preferred stock. As the name suggests, the vast majority of companies issue common stock. This means that as an investor, you will be entitled to certain shareholder rights.
At the forefront of this is having the ability to vote at Anual General Meetings (AGM), as well as receive dividend payments. With that said, if the company you invest in goes bankrupt, common stockholders are remunerated after preferred stockholders, meaning that you might not get anything back.
Preferred stockholders afford investors no voting rights. Instead of receiving a variable dividend every three or six months, preferred stockholders get a fixed, guaranteed dividend that is typically paid indefinitely. If the company in question goes bankrupt and subsequently distributes its assets, preferred stockholders get paid before common stockholders
Ways to Invest in Stocks
When it comes to the actual stock investment process, you have two options to consider. Firstly, if you simply want to invest in companies and make money through capital gains and dividends, you need to use traditional online UK stock brokers. This particular option gives you full ownership of the asset and is typically suited for long-term investments.
At the other end of the spectrum, if you’re looking to buy and sell stocks on a short-term basis, then you are better suited to CFDs (contracts for difference). This means you trade on the price of stocks without actually owning the underlying assets. You will rarely hold on to your stock CFDs for more than a few days or weeks and will look to make small but frequent gains.
As CFD stock traders aren’t entitled to dividends, all of your income will be generated through capital gains. You will also have the ability to short-sell a company, meaning you are speculating on the stocks going down in value. Furthermore, stock CFDs brokers allow you to apply leverage, which allows you to trade with more than you have in your account by borrowing capital from the broker.
Risks & Factors That Affect Stock Prices
There are significant risks when it comes to stock trading. Economic growth, interest rates, inflation, trends and liquidity are just a few of the many factors that affect the stock market and can cause stock values to rise or fall.
Of course, the individual performances of the companies your investing in can also cause stock prices to fluctuate greatly, as can events like the coronavirus pandemic, which has wiped value off a huge number of companies around the world.
This means that, while there’s always the chance that the value of your stocks could see significant growth, there’s always a risk of losing money when trading the stock market. Let’s take UK-based insurance firm AVIVA as a prime example.
- In 1995, AVIVA stocks were price at £5.74 on the London Stock Exchange
- So, a purchase of 100 shares would have amounted to a total investment of £574
- Fast forward to May 2020 and AVIVA stocks are priced at £2.45
- Based on 100 shares, this means that the total investment is now worth just £245
- In other words, although you might have held on to the stocks for 25 years, you are actually staring at a loss of 57%.
- This doesn’t take into account inflation or opportunity costs, so your losses would actually be significantly higher
With this in mind, you need to have a firm understanding of the risks of stock trading prior to parting with your money. As we cover in more detail further down, the best way to protect yourself from losses is to create a highly diversified portfolio of stocks.
Stock Trading Strategies
There are a number of stock trading strategies that seasoned investors like to utilize. The specific strategy you opt for will ultimately depending on what your long-term investing goals are.
Here’s a look at some of the most popular stock trading strategies:
- Buy and Hold: If you simply plan to buy shares in a company and hold on to them for a number of years, this is known as a ‘buy and hold’ strategy. This is the best option for those of you just started out in the world of investments.
- Day Trading: As the name suggests, day trading refers to the process of buying and selling stocks on a day-to-day basis. In other words, day traders rarely hold onto a stock for more than a few hours.
- Swing Trading: Swing trading is still based on a shorter-term strategy, but unlike day trading the investor will typically hold on to the stocks for a number of days or weeks.
- Scalp Trading: Scalp trading is the process of ‘scalping’ really small stock price movements. Although the trader will look to make a super-small profit, they might place dozens of trades per day.
Scalp trading graph
How to Trade Stocks in the UK
So now that we’ve taken you through the basics of how stock trading works, you may want to try it out for yourself. The following step-by-step guide explains how to trade stocks on our recommended UK stock trading platform, eToro.
Step 1: Open a Stock Trading Account
Click on our link to head over to the eToro website and open an account. You will need to enter some personal information, such as your name and email, to register.
You will also need to answer some basic questions about your prior stock trading experience. This is to ensure you are suitable for more sophisticated financial products – such as leverage and short-selling. Don’t worry, the questions are super-basic.
Step 2: KYC & Account Verification
As eToro is regulated by the FCA, as well as CySEC and ASIC, it is required to verify the identity of all of the users that register at the site. The process is simple and merely requires you to upload a couple of documents.
This includes one form of ID (passport or driver’s license) and a proof of address (utility bill or bank account statement). All documents need to be clear and in colour. eToro is usually able to validate the documents instantly.
Step 3: Deposit funds
You will now need to deposit some funds. There are no fees to deposit at the platform, although eToro does have a $200 minimum. This works out at about £160.
You can choose from the following payment methods:
- Debit Cards
- Credit Cards
- UK Bank Account
Once your deposit is processed, the funds will be converted to USD. This ensures that you have access to international markets at the click of a button. It will, however, come with a small conversion fee of 0.5%.
Step 4: Place Your First Online Stock Trade
Once your account is funded, you can then proceed to place your first stock trade. To get the ball rolling, search for the company that you wish to invest in or trade. In our example, we are looking to trade ASOS stocks.
Search for Your Chosen Share
Simply type in the company name or ticket (stock symbol) into the search bar.
Click on Trade
To go straight to the trading page, you’ll need to click on the ‘Trade’ button.
You will now need to place an order. As we noted earlier, if you think that the price of your chosen stock will go up, select a ‘buy order’. If you think the opposite, select a ‘sell order’. After that, enter the amount that you wish to invest. In our example, we are placing a $500 buy order on ASOS.
If you want to apply leverage on your trade, select a multiple between 2x and 5x. Take note – if you decide to short-sell or apply leverage, you will be trading stock CFDs and not buying the asset.
Finally, click on ‘buy’ or ‘sell’ to complete your stock trade!
Stock Trading Tips
If you’re completely new to online stock trading, you need to ensure that you have a firm grasp of how things work before risking large amounts of money. To help you along the way, below you will find some handy tips for investing in stocks!
Tip 1: Diversification
Without a shadow of a doubt, the most important tip that we can give you is to create a highly diversified portfolio of stocks. In doing so you can potentially reduce the chances of your making overall losses.
For example, let’s say that you have £1,000 to invest. If you put the entire £1,000 into Tesco stocks and the company lost 30% in value, your portfolio would now be worth just £700.
However, let’s suppose that you instead invested in 100 different companies at £10 each. You choose firms from a range of sectors, such as retail, construction, finance, travel, and manufacturing. As such, even if one of two companies went down in value, you wouldn’t fee the impact as much as you have diversified.
Tip 2: Don’t Go Crazy With Leverage
On the one hand, leverage can allow you to amplify successful trades, as you are investing with more than you have in your account by borrowing capital from the stock broker. On the flip side, it can also amplify your losses. With this is in, leverage and margin trading is best suited for those of you with a firm understanding of how it works.
If you do decide to trade with leverage, try to start off with small amounts – maybe no more than 2x. Anything more than this and you stand the chance of losing your entire margin through a single trade.
Tip 3: Don’t Assume a Company Will Recover
One of the biggest mistakes that newbie stock traders make is incorrectly assuming that a company’s share price will always recover. This couldn’t be further from the truth. As we briefly discussed earlier, AVIVA stocks are currently worth 57% less in 2020 than they were in 1995.
Similarly, the vast bulk of high street banks have yet to recover from the financial crisis of 2008, even though the wider stock markets have since set new all-time highs. Ultimately, you should always be prepared to cut your losses as opposed to assuming the stock price will recover.
Never before has it been so easy to buy and sell stocks online. You simply need to open an account, deposit some funds, and choose which companies you want to invest in. You can do this either on an online stock trading platform or a stock trading app.
However, you need to have a firm understanding of how stock trading works before parting with your money at stock trading platforms. You also need to make sure you sign up to a broker that matches your preferences.
If you’re looking for a UK stock trading platform that provides an overall excellent and user-friendly experience, we recommend eToro. You’ll have access to more than 800 companies from a range of markets, can choose from traditional share ownership or stock CFDs, and you can also make use of the broker’s innovative social trading tools.
eToro: Best UK Stock Broker for 2020
- Choose from over 800 stocks, 0% commission
- Buy stocks outright or trade stock CFDs
- FCA, CySEC and ASIC regulated
What is stock trading?
In its truest form, stock trading refers to buying and selling company stocks with the aim of making a profit due to price fluctuations.
What is the best stock trading website for beginners?
If you're looking for a platform that is well-tailored to stock trading for beginners, you should consider signing up with a user-friendly broker like eToro. This UK stock trading platform's CopyTrader tool lets you copy the trades of experienced investors with the click of a button.
How much money can you make with stock trading?
Unfortunately, there is no one-size-fits-all answer to this, as there are too many variables to consider. Crucially, it all depends on how much you invest, and how successful your stock trading picks are. Most stock traders end up losing money in the long run
What is penny stock trading?
Penny stocks are low-cap companies that are typically listed on smaller stock markets like the UK's AIM. As the name suggests, penny stock trading can be done for just a few pence per stock.
What time does the stock market open for trading?
The London Stock Exchange is open Monday to Friday between the hours of 8.30 am and 4.30 pm.