How to trade stocks in the UK: a beginner’s guide

What is stock trading and how does it work?

Stock trading involves speculating on the share price movements of publicly listed companies with a view to making a profit. Trading is not the same as investing. When an investor buys a share, he or she purchases a small ownership stake in that company. The share price fluctuates based on company performance, market sentiment, economic conditions and countless other factors. Investors tend to take a long-term approach, typically holding onto their shares for many years (generally at least five) in the hope of one day selling their shares for more than they paid for them.

In contrast, share trading allows traders to speculate on the price movements of shares without owning them. Share traders tend to take a short-term approach, typically keeping their positions open for minutes, hours or days. Trading usually happens through a broker or trading platform that executes your orders on your behalf.

One of the reasons why traders might choose trading over investing is to make use of leverage. Traders use leverage – essentially a loan from a broker – to increase their market exposure and potentially enhance their profits. However, leverage amplifies your potential profits and losses equally. If the market moves against you, you could lose more than your initial outlay. It's therefore essential to understand and manage the risks involved.

How does stock trading work?

The basic mechanics work like this: you open an account with a broker, deposit funds, research a company you believe will increase in value, and place a ‘buy’ order (alternatively, trading allows you to place a ‘sell’ order if you think a company will decrease in value).

If the share price moves in your favour, you can exit your position and make a profit. If the price moves against you, you could close your position and incur a loss or hold and wait for a recovery. This sounds straightforward, yet many traders lose money. Research from the Financial Conduct Authority (FCA) shows that most retail traders of leveraged products such as contracts for difference (CFDs) and spread bets lose money.

Trading vs investing: understanding the differences

Trading and investing both involve buying financial assets, yet they differ significantly in approach, time horizon and risk profile. Understanding these differences could help you to choose the right approach for you.

As mentioned above, trading focuses on short-term price movements. Traders might hold positions for as little as a few seconds or as long as several weeks, but rarely longer than that – partly because trading carries overnight holding costs. Traders aim to profit from market volatility and often use technical analysis (studying price charts and patterns) to inform their decisions. Trading requires active attention and typically involves more frequent transactions, which means higher dealing costs.

Investing, on the other hand, takes a longer view, often measured in years or decades. Investors typically select assets based on fundamental analysis (evaluating company financials, management quality and growth prospects). They expect to benefit from long-term capital appreciation and dividends while riding out short-term volatility.

Trading methods explained

UK traders can access the financial markets through various methods, each of which has distinct characteristics, risks and tax treatments.

Stock trading

Traditional stock trading means investing in (and actually owning) shares through a stockbroker. You own the underlying asset and can receive dividends. This method offers direct ownership but requires the full purchase price upfront. Profits are subject to capital gains tax (CGT) above your annual allowance, currently £3,000 for the 2025/26 tax year.

Spot trading

Spot trading refers to buying or selling assets for immediate delivery at current market prices. In practice, share purchases settle within two business days. This is the standard method for purchasing shares outright. You take ownership and bear the full risk of price movements in either direction.

Investing

Long-term investing involves buying shares or funds with the intention of holding them for years. Many UK investors use stocks and shares ISAs (individual savings accounts), which shelter up to £20,000 per tax year from CGT and income tax on interest or dividends. This approach suits those who want to build wealth gradually without daily monitoring.

Research from Vanguard suggests that staying invested through market downturns historically delivered better returns than attempting to time the market. However, past performance does not guarantee future results, and all investments can fall as well as rise in value.

CFD trading

CFDs let you speculate on price movements without owning the underlying asset. You agree to exchange the difference between the opening and closing price. CFDs offer leverage, meaning you can gain exposure to a larger market position with a smaller deposit (known as the margin).

As we’ve already discussed, leverage amplifies both gains and losses. A 10% price movement against you on a position with 10:1 leverage would wipe out your entire margin. The FCA has reported that approximately 80% of retail CFD accounts lose money. CFDs are exempt from stamp duty, but profits are subject to CGT. Losses can be offset against gains.

Spread betting

Spread betting allows you to speculate on whether a share price will rise or fall. You stake a certain amount per point of price movement. Like CFDs, spread betting uses leverage and does not involve owning the underlying asset. However, losses cannot be offset against gains and the same leverage risks apply.

The key advantage for UK residents is tax treatment: spread betting profits are currently exempt from CGT and stamp duty in the UK. Spread betting is classified as gambling by HMRC, which is why it receives this tax treatment. Tax treatment depends on individual circumstances and may be subject to change in the future.

Options trading

Options give you the right, but not the obligation, to buy or sell an asset at a specified price before a set expiry date. Call options let you buy; put options let you sell. Options can be used for speculation or to hedge existing positions.

Options are complex instruments with multiple variables affecting their value (underlying price, time to expiry, volatility). They can expire worthless, resulting in total loss of the premium paid. Options profits are subject to CGT.

*Spread betting profits are free of CGT and stamp duty but losses cannot offset other gains. Tax treatment depends on individual circumstances and may change.

How to start trading stocks in the UK

Getting started requires preparation. Rushing in without understanding the basics increases your risk of losses, so follow these steps to build a solid foundation.

Step 1: Learn the basics of stock markets

Before risking money, understand how markets work. Learn key concepts: bid and ask prices, market orders versus limit orders, trading hours and settlement periods. Free resources such as the FCA’s InvestSmart website and established financial education sites can provide reliable information.

Consider using a demo account to practice without risking real money. Most brokers offer these, allowing you to experience market movements and test strategies in a risk-free environment.

Step 2: Choose an FCA-regulated trading platform

Only use platforms authorised by the FCA. The FCA’s regulation provides important protections: firms must segregate client funds, provide clear risk warnings and adhere to conduct standards. Check the FCA Register to verify any firm before depositing money.

Be wary of unsolicited contact from trading platforms, especially those promising guaranteed returns or pressuring you to deposit quickly. These are common tactics used by scammers.

Step 3: Open and fund your trading account

Opening an account typically requires identification documents (passport or driving licence), proof of address and your National Insurance number. You will answer questions about your trading experience and financial situation. These assessments are regulatory requirements designed to ensure products are appropriate for you.

Fund your account only with money you can afford to lose. Never borrow to trade or use emergency savings. Start small while you learn.

Step 4: Research and select your first stocks

Research companies before investing. Read annual reports, understand the business model and consider the competitive landscape. Look at valuation metrics like price-to-earnings ratios, but remember that cheap stocks can get cheaper and expensive stocks can keep rising.

Avoid acting on tips from social media or forums. What works for someone else may not suit your circumstances, and some tips are deliberately designed to manipulate prices.

Step 5: Place your first trade

When you’re ready, decide on your position size (how much money you want to put up) and order type (market orders execute immediately at the current price; limit orders execute only at your specified price or better), then set your risk management measures (stop-loss orders can automatically close positions if prices move against you).

Review all the details before confirming. Check the total cost including any fees. After placing your trade, monitor your position but avoid obsessive checking, which can lead to emotional decision-making.

Choosing a stock-trading platform

The trading platform you choose depends on your specific needs. Consider these factors when comparing different providers:

• FCA regulation: This is a must. Verify on the FCA Register.

• Fee structure: Compare dealing fees, platform fees, FX conversion charges, withdrawal costs, and any other applicable charges.

• Available markets: Ensure you have access to the shares you want to trade (whether UK, US or international).

• Account types: Check if they offer ISAs if you want tax-efficient investing.

• Educational resources: Quality learning materials will help beginners improve.

• Demo account: Taking the time to practise trading on a demo account helps build confidence.

• Customer support: Responsive UK-based support can be important if issues arise.

• Mobile app quality: If you plan to trade on your phone, test the app thoroughly first.

Avoid choosing a platform based solely on which one has the lowest fees. A slightly more expensive platform with better educational tools, support and reliability may prove more valuable while you learn.

Types of stock-trading strategies

Different strategies suit different lifestyles and risk tolerances. Each requires distinct skills and time commitments.

Day trading

Day traders open and close positions within the same trading day, never keeping positions open overnight. This eliminates overnight risk but requires significant time, focus and fast decision-making. Day trading is highly demanding and statistically unprofitable for most participants.

Studies consistently show that most day traders lose money. While some individuals succeed, you should approach day trading with realistic expectations.

Swing trading

Swing traders hold positions for days to weeks, aiming to capture medium-term price movements. This approach requires less constant attention than day trading but still demands regular monitoring and analysis. Swing trading suits those who cannot watch markets all day but want more active involvement than long-term investing.

Position trading

Position traders hold for weeks to months, focusing on larger trends rather than short-term fluctuations. This approach blurs the line between trading and investing. It requires patience and the ability to withstand short-term volatility while waiting for a thesis to play out.

How much money do you need to start trading stocks?

You can start trading with relatively small amounts. Many UK platforms have no minimum deposit. When it comes to investing rather than trading, fractional shares allow you to buy portions of expensive stocks. However, having more capital allows better diversification and absorbs the impact of fees.

For some individuals, a practical starting point might be £500 to £1,000 for direct share ownership, accepting that dealing fees will take a larger percentage of smaller trades. For leveraged trading products like CFDs or spread bets, minimum deposits vary by provider but often start at around £100 to £250. Remember that leverage means you could lose more than your deposit.

Whatever amount you choose, only trade with money you can genuinely afford to lose. Creating a budget that separates your trading capital from essential savings helps prevent financial stress from affecting your decisions.

Managing risk when trading stocks

Effective risk management can help separate sustainable traders from those who ‘blow up’ their accounts (lose all or most of their trading funds). Consider these essential practices:

• Position sizing: Never risk more than a small percentage of your total capital on any single trade. Many experienced traders limit risk to 1-2% per position.

• Stop-loss orders: These automatically close positions when prices reach a predetermined level, limiting potential losses. However, in fast-moving markets, execution may occur at worse prices than specified (slippage).

• Diversification: Spreading capital across different stocks, sectors and asset classes reduces the impact of any single position going wrong.

• Leverage awareness: If trading CFDs or spread betting, understand that leverage magnifies losses as well as gains. Start with lower leverage until you understand its effects.

• Emotional control: Fear and greed can lead to poor decisions. Having predetermined rules helps you act rationally when markets move sharply.

Common stock trading mistakes

Learning from others’ errors can save you money. These are some of the mistakes that new traders often make:

• Trading without a plan: Know your entry and exit criteria before placing any trade.

• Overtrading: Excessive trading racks up fees and often stems from boredom or fear of missing out rather than genuine opportunities.

• Ignoring fees: Transaction costs, spreads and financing charges erode returns. Factor these into every decision.

• Averaging down without reason: Buying more of a falling stock to reduce average cost can dig you deeper into a losing position.

• Letting emotions drive decisions: Panic selling in downturns or chasing rallies rarely ends well.

• Neglecting research: Acting on tips or hunches rather than proper analysis increases risk.

• Using inappropriate leverage: High leverage can wipe out your account from a single adverse move.

UK tax implications for stock trading

Understanding tax obligations helps you avoid surprises and plan efficiently. Tax treatment varies significantly by trading method.

Spot trading tax treatment

When buying shares directly, you pay stamp duty at 0.5% on UK share purchases. In the UK, profits above your annual CGT allowance (£3,000 for 2025/26) are taxed at 18% for basic rate taxpayers and 24% for higher and additional rate taxpayers. You can offset losses against gains. Dividends have a separate £500 tax-free allowance.

CFD trading tax treatment

CFD profits are subject to CGT at the same rates as share dealing. No stamp duty applies because you do not own the underlying shares. Losses can be offset against other capital gains. CFDs cannot be held within an ISA.

Spread betting tax treatment

Spread betting is currently free from both CGT and stamp duty for UK residents, since HMRC classifies it as gambling. However, losses cannot be used to offset gains from other sources. If spread betting becomes your primary income source, HMRC may challenge this treatment. Tax rules can change, so professional advice is worthwhile for regular traders.

Options trading tax treatment

Options profits fall under CGT rules. The tax calculation can be complex depending on whether options are exercised, sold or expire worthless. Keep detailed records of all transactions. Professional tax advice is recommended for active options traders.

*Tax treatment depends on individual circumstances. Tax rules may change. Seek professional advice.