Trading stocks in the UK

Want to get started trading stocks in the UK but not sure where to start or how to do so? Read ahead in this trading guide on stocks and shares trading and you will find information to help you get started. This article will cover stock trading methods, a step-by-step how-to guide on stock trading and an overview of where to trade stocks.

What is a stock market?

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 and cryptocurrencies. 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. Some common exchanges include: 

  • NYSE (New York Stock exchange)
  • NASDAQ (National Association of Securities Dealers Automated Quotations System)
  • LSE (London Stock Exchange)
  • JPX (Japanese Exchange Group)
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How the stock market works

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 shares of the company offering an IPO, the company can then raise capital and allocate this money towards growth opportunities in the market. 

How to trade stocks in the UK

  1. Create a live trading account. Open a live spread betting or CFD trading account with us to get started on trading on price movements in the stock market. Not sure which account to pick? View our article on the differences between spread betting and CFD trading here.
  2. Research and pick your stocks. Visit our news and analysis section, which is filled with market insights from our market analysts. Also, make use of our news and insight tools that include Morningstar research reports, which can help you to analyse a company’s fundamentals.
  3. Determine the direction of your trade. Based on your research decide if you wish to go long and ‘buy’ the stock or go short and ‘sell’. This is a matter of speculating whether the price of the stock will rise or fall based on your research.
  4. Use your trading strategy. Once you know which share you are trading on and the direction of that trade, you can determine your entry and exit points based upon your trading plan. Make sure you don’t forget to implement your risk management guidelines as part of your trading plan.
  5. Determine your position size, then ‘buy’ or ‘sell’ the stock. If the trade aligns with your trading plan, open an order ticket to speculate on the asset’s price action. Make sure to place stop-loss and take-profit orders to manage the risk of your position size.
  6. Close your trade. Keep an eye on your trade and close it as stated in your trading plan. That is, if it has not already been closed by the risk management conditions that you previously set.
  7. Evaluate and track. Think about how you performed in your trade, analyse what went well and what could have gone better. Note down your performance as per your trading plan to help you keep track of your results.

Types of stocks available

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

  • Top stocks, which refers to the fact they are the top-performing stocks in a particular industry
  • Dividend stocks, which focus on offering a high dividend yield in comparison to the wider market
  • Tech stocks, which refers to any stock in the technology industry, including streaming stocks

For this section, we explore three of the most interesting and commonly mentioned stocks categories: growth stocks, value stocks and penny stocks

Growth stocks

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. Pharmaceutical stocks are a good example of these growth stocks.

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, such as top stocks.

Growth stocks typically perform well during bull markets and are prevalent in sectors related to technology. 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. 

Value stock

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.

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.

Penny Stocks

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, 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.

Stock trading methods in the UK

When trading shares, you can either buy the physical share or trade via a spread betting or CFD trading account. The main difference between the two is that with spread betting or CFD trading, 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. 

CFD trading shares

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

  • Stamp duty. CFDs are exempt from stamp duty, unlike share trading.
  • Leverage. CFD trading accounts are pre-set to trade with leverage, which can amplify both profits and losses.
  • Demo accounts. Access to a demo trading account to practise your share trading strategies.
  • Native mobile apps. We offer native mobile apps for our trading customers.
  • Lower costs. Spread betting and CFD trading can have lower costs than share trading.

Spread betting shares

When spread betting shares, you will encounter some unique differences that spread betting has in comparison with CFD trading. 

  • Tax. Spread betting is free from capital gains tax*, unlike CFD trading and share trading
  • Availability. Spread betting is only available in the U.K. and Ireland.

What moves stock markets

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.

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

Earning reports

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.

Economics

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. 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. 

Politics

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.

Where to trade stocks

When looking at how to trade stocks, it is key that you also know where to trade stocks. With CFD trading or spread betting, you can trade over 9,000 shares & ETFs on our elegant platform that is available on both desktop and mobile devices. Find out about our trading platform here.

Stock trading platform

Our stock 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. Open an account to test it out here.

Stock trading mobile application

The Next Generation trading 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. Open an account to test it out here.

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*Tax treatment depends on individual circumstances and can change or may differ in a jurisdiction other than the UK

​CMC Markets is an execution-only service provider. The material (whether or not it states any opinions) is for general information purposes only, and does not take into account your personal circumstances or objectives. Nothing in this material is (or should be considered to be) financial, investment or other advice on which reliance should be placed. No opinion given in the material constitutes a recommendation by CMC Markets or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although we are not specifically prevented from dealing before providing this material, we do not seek to take advantage of the material prior to its dissemination.

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