You’ve made up your mind! It’s time to dip your toe into the world of online share trading.
So… where do you start? Who can you trust with your money? You likely have a hundred questions racing through your mind.
I’m here to answer a few of those questions and help you understand what you need to do to take the first steps in opening an online trading account.
Step 1: Choosing the online trading platform that’s right for you.
Online share trading is usually the cheapest and easiest way to purchase shares. These platforms allow you to buy and sell shares, not only on the London Stock Exchange (LSE), but often many international stock exchanges as well.
But there’s a little work ahead, as you will need to compare the various trading platforms and find the one that best suits your needs. Here are some things to consider when comparing trading platforms:
- Platform fees: This is the fee that you are charged every time you buy or sell shares. Depending on the platform and the size of the transaction, this charge could be a flat fee, a percentage of the total transaction cost, or a combination of both. Some platforms may charge a monthly or annual fee as well as transfer and exit fees.
- Where can you trade: Some platforms offer access only to the LSE, while others allow you to trade on stock exchanges all around the globe.
- Ease of use: Consider how interactive and user-friendly each platform is for the type of investor that you want to be. Some providers give you the option of a free demonstration account for a short period so you can trial the features they offer.
- Who is the platform’s target audience: Some trading platforms are designed with the infrequent casual investor in mind, while others are suited to more active and experienced traders. If you can trial the account for a period of time, it may become apparent to who the platform is more suited to.
- Customer support: Can you get in touch with customer service if you need to ask a question or have an issue? If something goes wrong with your trade you may want to be able to speak to someone ASAP, rather than be forced to email or review FAQs.
- Education and research: The type of investor you are may determine how much education or company research you would like access to. If you are a beginner, then you should probably look to a platform that has more educational content so that you can learn about shares and investing (you can also find plenty of that at The Motley Fool, like this article here). If you are looking to do some research on your own, then a platform that allows you access to analysis and charting tools may be a better fit for you. If you follow a share advisory service (like The Fool) then you may wish to let them do all the research and you just purchase the shares on their recommendations. In that case, you may not need the research tools.
Step 2: Sign up for an account.
Once you have decided which platform to go with, it’s time to register for an account. This can be done completely online. If you are a new customer, some details that you will need to provide at the beginning of the process include your bank details (to transfer money in and out of the platform) and proof of ID. Before you can trade most platforms will require you to scan a copy of your identification documents for verification. You will also usually be asked to deposit a minimum amount to open the account.
Once your documents are verified and you have money in the account… you can begin investing!
Step 3: Choose which shares you want to buy
Now comes the moment of truth. Which company’s shares are you going to buy? You may have already narrowed it down to a handful of companies, but if not, you’ll have to do your homework to find out which companies match your investment goals.
Depending on the platform you chose, you may be able to access research, analysis and potentially trading recommendations, or you may need to go to individual company’s websites to look through past financial statements and company announcements to determine their suitability. (Did I mention that you can find a lot of research and commentary at Fool.co.uk?)
You’ll also need to consider the number of shares you wish to buy. This will come down to your budget and investment goals. There is no minimum amount to purchase from the LSE, but most platforms will have a minimum amount that you need to spend.
Be mindful of the trading fees (both buying and selling) that the platform charges, as buying too small a parcel of shares will mean that fees end up a higher percentage of your investment and the shares will need to increase a considerable amount just to break even. For example, if your platform charges you £10 per trade and you purchase £400 of shares, then that is 2.50% of the trade (just for purchasing), whereas if you purchase £1,500 of shares, then it is 0.67% of the trade.
So, there you have it. Opening an online share trading account to purchase your first parcel of shares isn’t as scary as it sounds. Follow these simple steps to get started and enjoy the journey.