How to Buy UK Shares 2023

Summary

Investors can buy UK shares online in publicly listed companies through an online trading broker and a financial advisor. You can also purchase shares by opening a share dealing account on an online investment platform. Each stock represents a small portion of the underlying company. And it gives shareholders the right to provide a share of the profits. In other words, owning just a few shares can build long-term wealth. This guide will show you the way to do that. The value of your investment can go up or down, and you may get back less than what you invested. If you are unsure about an investment, it is always recommended to seek independent advice.

You may want to see what other clients have done, but this is of limited value in deciding which investments are best for you. Investing in individual stocks involves various factors that can affect the value of your investment, including general market sentiment and target company assets. Compared to other asset classes, investing in stocks carries a higher degree of risk. However, stocks can also offer higher returns.

Remember your investment goals and consider whether those investments will help you build a diversified and balanced portfolio. Stocks in the UK can be bought from different brokers. Always look for an FCA-regulated broker to buy UK shares. The online trading brokers provide other third-party and proprietary platforms online to facilitate the trading experience of their UK clients. Brokerage firms allow traders to trade UK shares as CFD and also invest in real UK shares. Investors can also buy shares to invest their funds and get dividends at a maximum rate of 8%.

Before buying UK shares, you should research and consider factors like company size and stock performance. The volatility of the shares and the size of the company you want to have shares of should also be carefully considered. You can also seek leverage to trade UK stocks if you fall short of funds. Hence, shares in the UK allow investors and traders alike to enhance their trading experience and diversify their portfolios.

How to Buy UK Shares Online

If you are thinking of buying stocks in the UK, you can follow these steps:

1. Select an Online broker.
2. Create an Account.
3. Fill W-8BEN Form.
4. Deposit Funds.
5. Research the Stocks you want to buy.
6. Buy your stocks.

Pros and Cons of Buying UK Shares

Here are some pros and cons of buying UK stocks.

The Most Popular UK Exchange to Buy Shares from

The trend of investing in shares to enhance personal wealth has gained momentum among UK residents. The convenience of online trading platforms has made it easier than ever before to purchase and sell shares from the comfort of one’s residence. Despite the abundance of options, selecting the appropriate exchange to acquire shares from can take time and effort. Accordingly, this section will focus on the most popular UK exchange for buying shares, providing relevant information to assist in making an informed decision.

London Stock Exchange

Home to more than 1,000 companies across 100 countries, London Stock Exchange (LSE) is the most prominent financial center of the world. Listed companies can be categorized into individual indexes such as the Financial Times Stock Exchange 100 Share Index (Footsie). The top 100 publicly traded companies constitute FTSE 100. The Alternative Investment Market (AIM) is another place where typically smaller companies list shares for investment. These companies usually run out of private investment opportunities but still need to be more significant to conduct an Initial Public Offering (IPO).

Barclays, Lloyds Bank, IG Group, British American Tobacco, Unilever, Shell, Tesco, and Unilever are the popular shares on LSE.

Bermuda Stock Exchange

Established in 1971, the Bermuda stock exchange (BSX) is one of the leading offshore exchanges in securities. With over 750+ listings, BSX offers a plethora of investment funds, debt, and insurance-related securities. HSBC Bank Bermuda Ltd, Aurum investors, and Asia pacific basket are popular stocks in the BSX.

Gibraltar Stock Exchange

The Gibraltar Stock Exchange (GSX) is a comparatively new exchange that started operations in 2014. The exchange primarily serves as a marketplace for mutual funds and debt securities (bonds, asset-backed securities and derivative securities). Barclays Bank Ireland PLC and Alphabetica Access Products are debt securities in GSX.

The International Stock Exchange

The international stock exchange is a highly attractive regulated market for issuers, investors, and other market participants wishing to list and trade securities. The exchange is Europe’s leading professional bond market and is the second largest market for real estate investment trusts (REITs) in the UK, with an extensive sustainable finance segment. The stock exchange offers 3,500+ listed securities and has 40% of all UK real estate investment trusts (REITs).

Channel Islands Property Fund Ltd and Financial Services Opportunities Investment Fund Ltd are the popular REITS.

Eastern Caribbean Securities Exchange

Eastern Caribbean Securities Exchange (ECSE) is an electronic exchange that controls the regional securities market. The ECSE allows the trading of financial products, including corporate stocks & bonds and government securities. S. L. Horsford & Co Ltd. and Republic Bank (Grenada) Ltd. are two popular equities in ECSE.

Factors to Consider When Buying UK Shares

When considering how to buy UK shares, make sure you already have a good blend of different investment picks and assets. Do your research before investing in any shares. Make sure you don’t invest all your funds in one company’s shares. Instead, diversify your investments. Always view company financials by checking the balance sheet using investment factsheets and company income statements. Be up to date with the company’s regulatory news service before buying their shares.

Commissions & Fees

Online CFD brokers use different pricing models to charge clients for buying stocks in the UK. Some brokerage firms we list here, like Capital.com and eToro.com, offer 0% commission in trading UK stocks. Similarly, some CFD brokers may charge a flat fee. At the same time, some firms charge a percentage of the value of the trade with a minimum or maximum commission. Additionally, stock brokers also charge spread, custody fees, and an overnight funding charge in case of CFD trading. Some brokers may charge a dealing fee to buy UK stocks. An annual charge is also incurred by clients for holding a share over a year. A government stamp Duty charge of 0.5% to buy shares. Traders who buy or sell over £10,000 worth of shares also incur a flat £1 fee. This is called the Panel on Takeovers and Mergers levy. Investors and traders should consider all these charges before buying UK stocks.

Stock Brokers Regulation

If you are wondering how to buy UK shares make sure the selected broker is a regulated broker. Financial Conduct Authority (FCA) regulates and authorizes online trading brokers dealing with UK stocks. It is a regulatory body for around 50,000 financial services providers and financial markets in the UK. Its responsibilities include protecting consumers, maintaining industry stability, and promoting healthy competition among financial service providers. The FCA has headquarters at 12 Endeavour Square, London E20 1JN.

Trading Platforms

Online trading brokers allow easy access to trading platforms so that traders can buy UK stocks when trading and investing. To help monitor and manage investments, brokers often provide trading platforms in the form of in-house proprietary platforms or third-party options. Top brokers, such as eToro and Capital.com, have developed their own cutting-edge platforms that cater to the diverse needs of their clientele. Additionally, brokers also offer third-party platforms such as MT4 and MT5, which can unlock advanced trading features and capabilities for traders.

Leverage Availability

Leverage uses borrowed funds or debt to increase the potential return on investment. As a result, the potential revenue from the investment is increased. At the same time, leverage also increases potential downside risk if the investment does not pay off. To label a business, property, or buy as “highly leveraged” means that the item has more liabilities than equity.

Investors who are reluctant to use leverage directly have a variety of ways to access power indirectly. You can invest in companies that use debt capital in the ordinary course of business to finance or expand their operations. It does not increase costs. In-line with FCA regulations, the maximum leverage you can get as a retail client to buy UK shares is 1:5. If a client upgrades to a professional account, the leverage limit increases in line with trading volume in most cases.

Stock Performance

Stock performance measures a stock’s ability to increase or decrease shareholders’ wealth. Price changes usually measure performance. Stock shows better performance when the price rises. Conversely, a decrease in price means lower performance. Many factors affect the performance of a share in the market. The overall health of the market plays a significant role in stock performance. During economic downturns, many stocks fall in price. Another factor in stock performance is the health of the company issuing the stock. For instance, poor quarterly earnings lead to the selling

of shares, which results in a lower price. Remember that daily stock price fluctuation is not indicative of its long-term performance. A bad stock’s performance can instantly wipe millions of dollars out of an investor’s portfolio, with trillions of dollars evaporating from the market in a year. We advise you to carefully speculate and analyze the stock performance before considering buying UK shares.

Shareholder Pattern

The shareholder pattern shows how the company’s shares are distributed among the various units. The shareholding pattern is essential in trading as it gives traders an insight into a company’s financial health. It also shows the holding percentages of different investor classes. These companies are required to publish a statement of their ownership structure quarterly. Current and potential investors can access published reports to assess the company’s capital structure and make important investment decisions. A shareholding pattern has two components. A Promoter shareholding constitutes the percentage of shares held by the company’s founders. In contrast, public shareholding is the proportion of shares issued to retail and institutional investors. It is advisable to check the shareholding pattern of the company you want to buy shares.

Company Size

The size of the company you want to invest in is essential in how much risk you are willing to take when buying its shares. When looking to buy UK shares, understanding the relationship between a company’s size, earnings potential, and risk is critical to formulate a long-term investment strategy. Generally, company sizes are measured by analyzing their market capitalization. Companies are categorized into large-cap, mid-cap, and small-cap. Generally, big caps have a market value of $10 billion or more. They are typically mature and well-known within established industries.

On the other hand, Mid-cap firms have a market value between $3 billion and $10 billion. Typically, they are well-established companies in industries and are expected to experience rapid growth. Similarly, small-cap firms have a market value of less than $3 billion. They are typically young companies serving niche markets and emerging industries.

Over time, large-cap, mid-cap, and small-cap stocks have all alternately dominated the market, as they may be affected differently by market and economic developments. For this reason, many investors diversify and maintain a mix of UK stocks in their portfolios. Small- or mid-cap stocks may rise when large-cap stocks fall in value, which could help offset losses. A diversified portfolio having UK shares with different market caps can help you de-risk investing in specific areas and pursue your long-term financial goals. Note that diversification does not outright eliminate risk exposure.

Dividend

A company pays dividends to its shareholders as a means of sharing its profits. They are paid regularly and are one of the ways investors earn from their investment in stocks. When considering how to buy UK shares, please note that not all shares yield dividends. If you’re interested in investing in dividends, you should target dividend stocks. Investors who do not wish to research and select individual dividend stocks may be interested in dividend mutual funds and exchange-traded funds (ETFs). Available in various budgets, these funds hold stocks that pay many dividends in a single investment and distribute dividends from those holdings to investors. Companies give dividends in the form of cash or stocks.

On the other hand, some companies pay dividends through dividend reinvestment programs (DRIPs), which allow investors to reinvest stocks often at discount prices. To measure dividend certainty and safety, look at its payout ratio, or the portion of net income used to pay dividends. Investors usually aim for a ratio below 80%. Payout percentage measures payout safety and can be found on any financial or stock broker’s website. Imperial brands, M&G, Evraz, and Persimmon are UK shares that yield dividends greater than 7%.

Volatility

Volatility measures the rate at which a stock price fluctuates over a given period. When choosing a stock to invest in, traders look at historical volatility to determine the relative risk of potential trades. Shares whose prices fluctuate a lot (make new highs and lows) are considered highly volatile. Stocks that maintain relatively stable prices have low volatility. High-volatility stocks are inherently riskier, but that risk has been reduced both ways. Investing in volatile securities increases the odds of success and the risk of failure.

Political and economic factors and the company’s performance can drive stock price volatility. Traders can employ Bollinger Bands to analyze standard deviation, which is a common way to check stock volatility. Short-term traders and investors, e.g., day traders, often like highly volatile stocks to trade. In contrast, if you are looking for a long-term investment, you must buy UK shares with low volatility to get steady gains over time. Hence, it is always recommended to check volatility before buying UK stocks.

Trading Platforms to Buy UK Shares

Many online brokers offer platforms to trade and invest in UK shares. Brokers like Capital.com and eToro.com offer state-of-the-art desktop and mobile trading platforms to empower clients with varying levels of trading experience. Let’s get into more details about each of them below.

Desktop Trading Platforms

All traders need an innovative and user-friendly platform where they can easily buy UK stocks. Online brokers like eToro offer their own custom-built trading platforms to cater to their extensive consumer base. While some other brokers offer their in-house and third-party platforms like MT4 and MT5, providing a highly customizable trading environment to their clients. Here we will take eToro.com as an example.

eToro offers stocks of all companies in the FTSE 100 to trade on its platform. After thoroughly researching traders’ habits, the firm found that many traders frequently repeat the same trading habits. eToro allows clients to open new positions for their preferred instruments with a single click. Additionally, the broker has introduced a stop loss and take profit feature, with the sole purpose of helping clients to manage their positions better, protect their funds, and secure their profits.

On the other hand, MT5 is another multi-asset third-party platform that allows trading a variety of assets, including shares, forex, futures, and many others. Clients can easily access it to buy shares via any online trading broker.

Moreover, MT5 provides 35+ technical indicators. It also offers a range of custom technical indicators. In addition, the platform is laced with advanced trading scripts and an influential expert advisor to those traders who like auto trading.

Mobile Apps

If you’re unsure about how to buy UK shares, don’t worry, online CFD brokers also offer mobile platforms to facilitate on-the-go clients. Stocks in the UK can be traded on mobile apps provided by the broker, such as eToro and Capital.com. It’s worth knowing that stocks can also be traded on the MT5 mobile app. We take eToro as an example and will discuss the features that make it added to our list of intuitive platforms.

In the mobile trading app, you can find all the financial instruments offered by the broker, totaling over 3,500. The shares on eToro provide access to short, medium, and long-term investment opportunities for almost everyone. It allows you to trade stock CFDs and invest in real stocks. Smart Portfolio is another unique offering of eToro’s trading platform. These are ready-made investment strategies offering different investment portfolios in various categories. Furthermore, eToro offers 260+ exchange-traded funds. Investors can invest in Exchange-traded funds (ETFs) at eToro to get benefitted from the low-cost entry point and no management fees. Traders can invest in ETFs as an underlying asset or trade them as CFDs. You can choose from a wide range of ETFs, including SPDR S&P 500 ETF, Vanguard S&P 500 ETF, SPDR Gold Invesco QQQ, and many others.

Correspondingly, traders can also trade forex, assets, and futures anywhere and anytime using the MT5 mobile app. The MT5 mobile platform can be downloaded from the google play store or app store to buy UK shares. It offers 35+ technical indicators and 24+ analytical objects to enable a professional technical analysis of currency and exchange quotes. Enabling automated trading using robots, algorithmic trading is another amazing feature provided in the platform. This app performs trading functions in accordance with the particular strategy after analyzing the market.

CFD Trading Vs. Buying Real Stocks

The main difference between trading CFDs and buying real stocks is that when you trade CFDs, you are speculating on the market price without owning the underlying asset. In contrast, you are taking ownership of the underlying stocks when you buy real shares. eToro and Capital offer the same service when it comes to stocks in the UK. On eToro and Capital.com, traders can invest in stock outrights or trade stock prices via contract for difference.

If you trade CFDs on shares, you are exempt from the stamp duty usually paid when selling actual shares. CFDs can be switched on margin, allowing greater capital leverage and easier market access. Furthermore, CFD trading is leveraged trading and comes with high risk. In CFD trading, the price fluctuations in the market you are trading can have a larger impact on your account balance since you are trading with borrowed funds. Leverage allows you to enter larger positions to buy UK shares with a smaller capital.

On top of that, it allows you to take better advantage of small movements in the market. It also amplifies profits as well as losses. But with zero balance protection employed by most online trading brokers, your balance never drops below zero. Ease of going long or short, high leverage, and overnight costs make CFD trading suitable for day and short-term trading.

Correspondingly, buying shares can be a potentially profitable investment strategy, but it also comes with certain risks. On the positive side, shares offer the potential for capital growth, dividends, and the opportunity to own a piece of a company. However, share prices can be volatile, and there is no guarantee that the value of the shares will appreciate over time.

To conclude, whether to trade CFDs or buy real shares ultimately depends on your personal investment goals, risk tolerance, and trading style.

Can I make Profit when I buy UK Shares?

Yes, it is possible to earn profits by either investing or trading UK stocks, but it carries a high risk. With UK stock investments, you can receive dividends or sell them when the price goes high. Similarly, you can trade the stock CFDs when the price goes up or down to make a profit. However, traders and investors must have good trading and investing skills, along with proper money management, to be able to place profitable bets.

It is important to note that traders and investors may lose their investment capital due to the volatile nature of the market. Accordingly, new traders can use a demo account to practice trading before investing real money. Likewise, traders can educate themselves using educational material offered by different brokers to enhance their skills. Furthermore, traders and investors should be aware of the fees associated with buying shares, as these fees can eat into their profits or amplify their losses.

What Reddit and Quora Say About Buying UK Stocks

Quora and Reddit are two social networking platforms where users post queries, review, and answer questions on a wide range of topics. Let’s take a look at what both Reddit and Quora users have to say about buying stocks in the UK.

Reddit

Reddit is a social news collection and discussion platform where users can post content and engage in discussions with other users. It is divided into thousands of communities known as subreddits, each dedicated to a specific topic or interest. Some of the users’ reviews on Reddit about trading UK shares are given below.

This user on Reddit is satisfied with investment in UK stocks. He has a decent percentage in Persimmon. The user ‘modestman’ encourages others and says UK stocks have potential.

Another user, named ‘Rythmdev’,also shows his satisfaction with Uk shares saying, “I got good dividends”. In his opinion, Golden Virginia, Winston, and Davidoff are pretty famous and established brands.

Quora

Quora is a question-and-answer-based social platform where users discuss various topics. While searching through Quora about users’ views about how to buy UK shares, we found many threads, and most people have positive views about trading them.

Upon asking who the best investment options in the UK are, a Quora user, David Reece, replied that ‘Greencare’ is his favorite operator. He added that the company issues a steady dividend of 5%, and its share price is very stable

Bottom Line

A UK share represents a fractional ownership of a UK company. Owning a share of the company means you own a portion of the company. Investors seek shares to invest their funds and reap gains. You need to sign up with a broker to buy UK stocks online. Always choose an FCA-regulated broker to ensure the safety of your funds. It’s also helpful to check hidden fees and spread the online trading broker charges for trading stocks.

Before choosing what UK shares to buy, do your research. Consider factors like stock performance, shareholding pattern, company size, and volatility of stocks. Investors can invest money in UK stocks and get regular dividends. You can also trade share CFDs with leverage up to 1:5. Only professional traders can get more leverage to trade stocks in the UK.

Various innovative mobile and desktop platforms facilitate users and enhance their trading experience. It is advisable to always invest your funds in multiple shares and diversify the portfolio rather than investing in a single share.