How to start trading stocks and shares in the UK

A stock market or stock exchange is a financial market in which company stocks are bought and sold. A stock market is usually more organised and regulated in comparison with other markets, such as forex. Additionally, the prices of stocks and shares in exchanges are determined by the organic forces of supply and demand, and are not determined by a broker or market maker.

Stock markets exist in major cities around the world; see here for stock market trading hours​. Some common exchanges include:

A stock market brings together buyers and sellers on one platform and enables them to negotiate prices and transfer ownership of stocks and shares. If a company is public, its stocks are freely traded on the stock market and the price is determined by supply and demand from investors. Stock traders aim to buy stocks at a low price with the hope that the share price will rise in the future so they can cash out on the price increases. However, it can be just as common for investors to lose money if the stock price falls.

Companies initially list shares of their company via a process referred to as an IPO (initial public offering)​​. Here, a company’s shares are offered as they transition from a private to a public company. When investors buy IPO stock​, the company can then raise capital and allocate this money towards growth opportunities in the market. Alternatively, companies can use a SPAC​ to avoid the IPO process and opt for a cheaper and quicker option.

Share trading is the buying and selling of company stock with the aim of making a profit. For a trader, share trading is one of the most popular ways to get involved, but there are different ways you can approach it.

In this instance, you would normally open a ‘nominee’ account. A stockbroker will often place trades on your behalf, for a small fee. Most share trading takes place on stock exchanges where public companies are listed. This method involves buying and selling shares outright through spot or forward contracts.

Alternatively, you can use derivative products like spread bets - UK only - and contracts for difference (CFDs) to trade on shares. This way, you can take a long or short position and take advantage of rising and falling share prices. With spread betting and CFD trading, you do not take ownership of the actual shares you are trading. You simply speculate on whether you expect prices to rise or fall and take a position accordingly. For this reason, you do not pay stamp duty when you spread bet on shares or trade share CFDs in the UK, however, you do pay capital gains tax on CFDs and laws are subject to change in the UK.

If you think the price for a particular stock, say streaming stock Apple for instance, is about to rise, you can go long or buy. If the price goes up as you had predicted, you would make a profit. If the price moves against you and goes down you would make a loss.

You could also speculate on falling share prices. If the price for Apple shares will fall, for instance, you can take a short position or sell. If the price falls as you had anticipated, you would make a profit, if your prediction was incorrect and the price rises, you would net a loss.

Spread bets and CFDs are both leveraged products. This means that you are able to get greater exposure to the share market by putting down a smaller amount of capital to place your trade. Leveraged trading​ could potentially result in bigger profits. It carries greater risks as well, however, as you could lose all of your capital if your trade goes against you. The margin rates for stock trading start relatively low at around 20%, or at a leverage of 5:1.

Stocks can be split into various categories to help organise the wider stock market. These can include:

A growth stock is a company stock that is suspected to experience growth that surpasses the market average. Therefore, it is a faster-growing company when compared with its competitors. These companies typically do not offer dividends due to the fact they often reinvest any earnings that accrue to expedite their growth.

From a risk perspective, growth stocks are considered towards the higher-risk end of the scale. They are usually characterised by a medium-sized market cap, lack of dividends and heavy investment into their growth. Therefore, they are considered a highly speculative investment in comparison with other investments.

Growth stocks typically perform well during bull markets and are prevalent in sectors related to technology, such as Chinese tech stocks. They are usually fuelled by their appetite for innovation, which provides them with a means to outperform industry rivals. However, the high potential of growth stocks can cause them to be overvalued due to the ‘hype’ that can surround the industry or company.

A value stock is a company stock that is undervalued when compared to its intrinsic value. Investors attempt to estimate a company’s intrinsic value by vigorously analysing a company’s fundamentals​. Therefore, a value stock generally has a good price relative to the company’s success on paper. Investors often buy value stocks as they can provide consistent dividend yields and stable growth forecasts. Learn how to value invest​.

The price of a value stock can be undervalued for several reasons, with some contributing to a better motive to buy than others. Perhaps the company has a low stock valuation as the industry is becoming less relevant, or it has seen bad press or tighter regulations. Given these reasons, there could be little future utility in purchasing a value stock.

However, investors often look for value stocks where they believe in the opposite of the above. That is, regulations loosening in the future, press coverage and public perception improving and the industry becoming more relevant. Beyond a company’s intrinsic value, a value investor should also look at macroeconomic drivers to forecast future growth opportunities.

A penny stock is a share that has a value worth below £1 in the UK or below $5 in the US. Their value is the only thing that characterises them against other stocks. When trading penny stocks in the UK​, it is best to trade with care as they can be very volatile. However, if you pick the right penny stock, you can experience significant growth in comparison to larger stocks due to the low share price.

You can either buy the physical share outright or trade via a spread betting or CFD trading account. The main difference between the two is that with derivatives, you don’t own the underlying asset; instead, you trade on its price movements. However, you can still benefit if the market moves in your favour or make a loss when the market moves against you.

When spread betting stocks, you will encounter some unique differences that spread betting has, such as:

There are some differences between CFD trading accounts and a traditional share trading account. Some of these can include:

There are some costs you should consider when buying and selling shares through an online broker. The main fees applicable to buying and selling shares are account fees and commissions. Online brokers will charge different account fees. For example, they may charge you a monthly, quarterly or annual account fee. Sometimes, fees may be waived if you make a minimum number of trades, or if your account is a certain size.

Typically, when you spread bet shares, an additional spread will be built into the price of the shares displayed on the trading platform. This will be applicable upon execution of any order. The additional spread is one of the costs associated with placing a spread bet on a share. When trading share CFDs, a commission will be charged upon execution of any order. Minimum commission charges may apply and can be charged at a flat rate or as a percentage. Read about our CFD commission rates and other trading costs.

Basic trading knowledge indicates that the market value of a stock is determined by the supply and demand of that asset. Generally, prices increase if supply declines and/or demand grows. Conversely, prices decrease if the asset’s supply overshadows its demand. Both of these can lead to a stock breakout; learn more about how to identify breakout stocks​.

This we know, but what factors can determine and influence a stock’s supply and demand in the first place?

Major stock exchanges require businesses to release information on their financial performance. This provides stocks and share traders with opportunities to predict market movements. If a company exceeds profit and/or revenue expectations, the share price is likely to increase in order to reflect the positive outlook of the company. However, the opposite can happen if a company misses targets or under-performs relative to its forecasts.

Marco-economic forces such as interest rates, inflation and GDP (gross domestic product) can cause shifts in the supply and demand of all industries. During bull markets, the profits of companies are generally increasing, which could cause an increase in demand, and thus, the stock’s price. In this situation, companies sometimes decide to perform a stock split and sell fractional shares, which are of a lower value and therefore more affordable for investors. Learn more about stock splits and fractional shares​​.

Similarly, if the wider stock market is experiencing bearish movements, the profit of companies is likely to be generally decreasing, which can decrease stock demand, and thus, stock prices.

Trade wars, coups, legislation changes, strikes and other politically motivated events can cause major disruptions and changes in markets. For example, if legislation is about to loosen around a certain industry, it can cause stock prices to increase in companies operating in that industry as the new legislation could improve business profitability. Similarly, if a company is working in an industry that is closely related to political agendas, an event such as a trade war can cause a stock to decrease in price. Some traders focus on trading US elections and other major political events, such as Brexit.

Stocks are traded on a major centralised stock exchange for each country, such as the London Stock Exchange (LSE) or New York Stock Exchange (NYSE). With CFD trading or spread betting, you can trade over 9,000 shares & ETFs on our advanced platform that is available on both desktop and mobile devices.

The risks of share trading depend on your method of trading. If you are buying, holding or selling shares outright, then the most obvious risk is that the shares can depreciate in value. Small losses in value will often balance out over time, but it’s possible for share prices to crash, or for a company in which you own shares to go out of business. Stock market crashes are also possible. For example, in 2008, the FTSE 100 nearly halved in value in just a few weeks. Instances like this are generally related to the overall economic outlook.

It’s important to diversify your portfolio. For example, if you traded on the shares of three different energy companies, you are limiting yourself to one sector. If anything impacts on the value of that sector, it’s likely all your shares would be affected. Traders often prefer, therefore, to invest across different sectors to prevent this from happening. Established companies such as blue-chip stocks are also likely to be lower risk than new, unestablished start-ups, although this cannot be guaranteed.

If you are using derivative products such as spread bets or CFDs, then your risks will be slightly different. Spread bets and CFDs are leveraged products. This means you get greater market exposure with a smaller outlay of capital. However, profits and losses will both be based on the full value of any trade, so it is possible to lose all of your capital. You should read about our risk-management tools​ before placing a trade.

Our CFD trading and spread betting platform is designed to be adaptable to your specific trading needs. Suitable for traders of all levels, our Next Generation trading platform​ combines the latest innovations with an easy to use interface.

Our platform features can also be accessed on our award-winning native mobile trading application​. This application has been specifically designed so that you can trade as if you were on a desktop device, with full order-ticket functionality and advanced charting features.