Summary
More UK citizens have started owning shares in recent times, with more than 14% of all shares in the UK belonging to private individuals. Still, there are many others who have little idea of what share dealing means and little knowledge about how to go about buying shares. For some others, they don’t know how to choose the right share-dealing brokers with low commissions and fees to kickstart their trading career.
This guide will share information about share dealing, what it is, and if it is right for you as a UK investor. We will also talk about factors to consider when comparing UK share dealing brokers, the different types of share dealing accounts, and trading platforms available on share dealing brokers. Finally, we will go through some of the most commonly asked questions.
Share dealing is the process of buying shares from publicly traded companies with the intent of earning dividends or a profit if the company’s share price grows. Although not all shares produce dividends or grow eventually, this is often the intention investors have when they invest their money into buying shares. Online share dealing simply means buying and selling shares using the internet.
Online share dealing might seem like a normal thing nowadays, but it wasn’t always this way. Many years ago, share dealing was only reserved for highly educated and affluent individuals who could track down other investors and make deals directly with them in coffee shops. Today, anybody of legal age can open an account with an online broker and place a trade for companies listed on stock exchanges of other countries.
To operate an online share dealing account, all you need to do is open an account with a trusted broker and provide proof of your identity and address. Then the broker will offer you different trading platforms from which you can access the stock market and buy your preferred stock. You can also see charts, trading insights, news, and notifications from your desktop or mobile devices so that you can educate yourself better and trade on the go.
When opening a UK share dealing account, there are some steps you should follow. They are:
- Select a Broker
- Create a Share dealing account with your selected broker
- Verify Your Identity
- Link Your Bank Account Details
- Deposit Funds
- Select your Favourite Shares
- Start Trading
There are four major types of share dealing accounts you can use in the UK, and they include:
Individual Savings Account (ISA)
An Individual Savings Account or ISA is a type of savings account that allows its users to save money without paying taxes. Think of it as a protective account where you can save your money to receive interest and invest in stocks without having to pay taxes. While this is good, ISAs have a limit they cannot exceed. These limits are set by the government yearly, so the limit for the previous tax year might be lower or higher than the limit of the current one. Currently, the limit is £20,000 for the 2022/2023 tax year.
There are four types of ISAs. They are:
- Cash ISA: Cash ISAs are accounts where you can save money and pay no money as taxes on interest received.
- Stocks and Shares ISA: Stocks and Shares ISAs allow you to invest in stocks and shares without paying capital gains tax.
- Lifetime ISA: This ISA allows people to save money towards retirement tax-free.
- Innovative Finance ISA
You can have more than one ISA across these four types, but you can’t have more than one of the same type. Also, the limit on your ISA is enforced collectively, i.e. you cannot have more than £20,000 together across all the ISAs you have.
The stocks and shares ISA also called the Investment ISA is the ideal ISA for investing in share dealing. With this ISA, you can invest in shares, bonds, funds, and investment trusts. Although you don’t have to pay capital gains tax or tax on dividends, you will only pay fees and commissions to share dealing brokers for trading with them.
Self-Invested Personal Pension (SIPP)
The Self-Invested Personal Pension (SIPP) is a share dealing account that operates like a regular pension account. The only difference between SIPP and regular pensions is that SIPP offers the user more freedom to operate whereas, with a standard pension account, the pension manager chooses the investments and administers the pension, giving the user less flexibility.
You pay zero income tax on your investment with a SIPP account, and you also get tax relief when you pay some money into the SIPP account. As a UK citizen under 70, there is no limit to the amount you can put in your SIPP account.
However, there are a few restrictions. The annual allowance – the amount of money you can build up tax-free every year while benefiting from tax relief – is capped at £40,000 for most people. Also, you must wait until age 55 to access your SIPP.
General Investment Account (GIA)
A General Investment Account (GIA) is also known as a share dealing account. It is an easy way to invest your money without limits like the ISA or the SIPP account. There is no yearly limit on your GIA, and you can access your account anytime. However, there is no tax relief on GIA accounts, so you have to pay taxes for your funds in the account.
Online Trading/CFD Accounts
An online trading or CFD account is an account you open with a share dealing broker for the purpose of investment. CFD trading accounts allow traders to speculate on the direction of stock prices and bet in that direction. Online trading accounts are liable to be taxed depending on different factors like the trader’s activity and trading capital.
Pros
- Easy to Use
- Good Customer Service
- Access to Tools for Research
- Wide Range of Investment Options
- Low Minimum Deposit
- Virtual Account to Practice Trading
Cons
- Trading and Non-Trading Fees
- Taxes on Share Dealing Accounts
Before you open an account with a UK share dealing broker, there are many important factors you need to consider. They include:
Fees and Commission
Share dealing in the UK is not free. You have to pay fees and commissions to brokers for using their services. These fees differ from broker to broker, but they are often divided into two: trading and non-trading fees. Trading fees are fees you pay when you carry out trades, like buying or selling a stock, while non-trading fees are fees collected from your account even without you trading directly.
Investment Selection
Before choosing one of the cheapest share dealing accounts, it is important to know the available investment selections for that account. Some brokers offer you accounts that allow you to trade shares, funds, ETFs, Trusts, Bonds & Gilts, etc. Also, you need to know the style of investing you would be practicing and if the broker offers accounts that allow you to use that style easily.
For example, you might be interested in lump sum investing or regular investing. Check that the broker has accounts that offer flexibility so that you can do any of these without stress.
Trading Platform
A trading platform is a computer software used by share dealing brokers to connect traders to the stock market. Buying shares using the trading platform offered by the broker is only a small part of what you can do with a trading platform. You can also read news, go through charts and access other important tools that can guide your trading analysis.
There are a few widely-used trading platforms around, each with its own common features that give them an edge over the others. The most common ones are MetaTrader (MT4 and MT5) and cTrader. However, nowadays, most brokers create their own trading platforms, so they are more customizable than those generic platforms. Check the trading platforms offered by the brokers and only choose that broker if you are comfortable using that platform.
When using UK share dealing accounts, you have to pay some fees and commissions. There are many fees you may come across, but some of the most common ones are:
Trading Fees
These are fees you pay for carrying out a trade directly. Some of them are:
- Spread: The spread is the difference between the bid and ask market price of an investment. The spread is the most common trading fee you will encounter, so it is important to check your broker for the spread they offer before signing up with them.
- Conversion Fee: Some brokers charge a conversion fee when you convert from one currency to another.
- Commission: Some brokers charge you a commission on every trade you carry out on their platform. This is often a small percentage of the trade.
Platforms Fees
These are fees incurred by traders when they are not trading on a platform. They include:
- Inactivity Fee: Some brokers charge you for leaving your account dormant for many months, usually 6 months or more.
- Withdrawal and Deposit Fees: Some brokers charge you a small percentage of the money you withdraw or deposit into your account.
Fund Charges
If you are investing in some kind of fund, like Mutual funds, ETFs or Hedge funds, some brokers will make you pay a fee. This fee is often a small percentage of your investment in the fund per year.
Oversea Dealing Charges
For traders who live in the UK, they have to pay an overseas dealing charge if they wish to deal shares outside the UK. These charges differ from broker to broker, so you might want to check them out first before you start trading with them.
As mentioned earlier, a trading platform is a piece of computer software that allows brokers to connect traders with different markets. There are different trading platforms available on the cheapest UK share dealing accounts. Some of them are popular and well-known, while others are proprietary software used exclusively by the broker. Let us go through what proprietary platforms and apps are and also look at one of the most popular trading platforms today – MT5.
Proprietary Trading Platforms and Apps
A proprietary trading platform is a trading platform created by a broker and used exclusively for traders registered under the broker. It is different from other widely-used trading platforms that can be accessed by any broker and used by any trader. For example, eToro and Capital.com have their own proprietary trading platforms only accessible by traders who are registered to eToro and Capital.com.
Proprietary platforms have become very common in recent times, as brokers try to create a platform with all the benefits of mainstream trading platforms (MetaTrader and cTrader) and only a few downsides. This platform also has the advantage of flexibility. You can customize your platform to get the best out of it when you need it.
Proprietary platforms are available on desktop and mobile devices as applications. They are also web-based, so you operate the platform from your browser without downloading the mobile app on your desktop or mobile device
MT5 Platform and App
The MT5 is a web and application-based trading platform that allows traders to access forex, stocks, and other financial markets from their desktop and mobile devices. MT5 is an upgrade from MT4, another trading platform created by the MetaQuotes company. The platform is renowned for its accurate charts, live prices, and order types. It also has good copy trading, automated trading, and other tools for fundamental and technical analysis.
MetaTrader 5 is web-based and application-based, meaning you can use it as a downloadable software on your mobile and desktop device, and you can also use it on your web browser.
The minimum investment required on UK share dealing accounts depends on the type of account you wish to open for investment. For example, a General Investment Account (GIA) requires that you invest nothing less than £25 either regularly or as a lump sum. There is no limit to your investment on a GIA. On the other hand, for ISAs, the minimum lump sum investment you can deposit is £100.
Many people are familiar with share dealing in the UK, but only some investors know about CFD trading. As explained earlier, share dealing is the process of buying shares from publicly traded companies with the intention of owning a piece of those companies. CFD trading, on the other hand, is something entirely different.
Contracts for Difference (or CFDs) are contracts between the investor and a broker that allows the investors to take a speculative position on the future value of a stock or any other asset. Simply put, an investor bets on where they think the share price will go to in the future and gets a contract for it. The investor never owns any share, but will receive payment if the share goes in the predicted direction.
People might prefer buying either real shares or CFDs for different reasons. When you buy a real share, you own a piece of the company, and the value of your asset increases as the company’s value goes up. However, the value of your asset can also reduce if the company’s value reduces in the stock market.
For CFDs, you don’t have to own any assets before you can make a profit. Also, you can make a profit even if the value of the company goes down, as long as you predict it. However, CFD trading exposes traders to leverage risks which could lead to serious losses and debt if the market goes the other way.
Some brokers offer only real shares, while some offer only CFDs. Then there are many brokers who offer both CFDs and real shares. eToro offers both real shares and CFDs, while Capital.com offers only share CFDS. To trade real shares or CFDs with these brokers, all you have to do is open a standard account and start trading.
While trading with share dealing brokers is not free, there are some brokers that offer commission-free trading. A commission is a small fee taken as a percentage of trades on a broker’s platform. A broker may also decide to collect commissions on a trader’s managed assets.
Brokers like eToro and Capital.com do not collect commissions on trades or managed assets on their platforms. However, they do collect other trading fees like conversion fees when you deposit and withdraw money using currencies that are not the US Dollar, and non-trading fees like inactivity fees after many months with zero trading activity.
Before you start share dealing in the UK, it is important to get some information from people who have traded shares in the UK and what they think about the different UK share dealing accounts and how to get started. We went through various posts on Reddit and Quora and compiled them here.
Many redditors had different opinions about what they thought was the best share dealing account to use and some of the best brokers to register with when share dealing in the UK.
The first thread that caught our eye was on the r/FreetradeApp subreddit. A redditor asked if it was better to start with a stocks and shares ISA or a GIA as they were considering buying CGT (probably Capital Gearing Trust stocks). They were considering choosing the ISA because they knew it would take some time to get to £12,300 in profits (since the current capital gains tax allowance is £12,300).
Another redditor said that stocks and shares ISA was better in the long run, if he wanted to keep investing.
One redditor told their personal story on how they started with GIA and moved to ISA when they started making some profit on their shares and wanted to enjoy the ISA zero capital gains tax benefit. They advised the first redditor to consider stocks and shares ISA if they were okay with paying the monthly fee, but hold on a little till they are close to the £12,300 profit.
On another thread, a redditor asked what people thought was the best trading platform for UK share dealing.
One Redditor mentioned that he uses Hargreaves Lansdown due to their wide range of investment products and great customer service. He also mentioned that although their trading costs are quite high, they have a great reputation and are worth trying out.
Quora
We took a trip through Quora, the popular social community to see what people thought about the best UK share dealing accounts. The first post we saw was from a Quora user who wanted to find out the cheapest share dealing accounts in the UK. One Quora user responded by saying that Trading 212 offered some of the cheapest share dealing accounts in the UK. He added, however, that trading fees shouldn’t be the only criterion a trader should look out for when selecting a broker to deal shares within the UK.
Another user mentioned that fees were often dependent on different factors set by the broker. He encouraged the first user to check out Hargreaves Lansdown. He explains that this broker is not as cheap as others, but has a great reputation.
In another post, a Quora user asked for companies that offered the lowest prices on stocks and shares ISA. Someone responded that iDealing offered the cheapest stocks and shares ISA, and their prices haven’t gone up since they started using them over a decade ago. They also mentioned that the broker had great customer service and responded to any complaint as quickly as possible.
Bottom Line
Share dealing in the UK means buying and selling shares from companies listed on the stock market. Thanks to the internet today, it is possible for investors to buy shares with their smartphones and other mobile devices from the comfort of their homes. All they have to do is select a broker, create a share dealing account with the broker, verify their identity, link their bank account details, and start trading.
There are different types of share dealing accounts, depending on your personal trading needs and preferences. When you choose a broker, you can select the account you prefer to trade with. Before you choose a broker, there are many important factors to look at, like the fees and charges, regulations, and the trading platforms offered by the broker. Most brokers offer their own proprietary trading platforms that are customizable. If you are comfortable with them, you can choose that broker. There are also brokers that offer commission-free trading, although they charge other fees like spreads and conversion fees.
On communities like Reddit and Quora, different experienced traders have opinions on the cheapest UK share dealing accounts and how to get started. Names like eToro and Hargreaves Lansdown were mentioned often as great investment brokers for people interested in share dealing in the UK.
Q & A
Some of the cheapest share dealing accounts in the UK are offered by brokers like Capital.com, Trading 212, eToro and FreeTrade.
Some of the best UK Share dealing accounts are offered on Capital.com, Interactive Brokers, eToro, Hargreaves Lansdown, IG, and Degiro.
You might pay tax on a share dealing account depending on the type of account. For ISAs, you don’t pay tax on the account as long as you stay within the required limits. However, GIA requires that you pay tax on the funds.
The best share dealing account for a beginner is the Individual Savings Account (ISA)
Yes, trading shares is the same thing as share dealing.
Yes, you can transfer your shares from one provider to another using the Automated Customer Account Transfer Service (ACATS). The ACATS is a system that standardized processes for the transfer of shares from one brokerage firm to another. This transfer is only possible in traditional brokerage firms and not online brokers like eToro and Capital.com.
A good share dealing account is characterized by factors like low fees, good regulation, a wide range of investments, and a good trading platform.
To pick the best shares to invest in, there are a few steps to follow. First, determine the goal of your investment, then choose the industry you wish to have stock. Research top companies in that industry and pick only companies you think have a competitive edge. Avoid sentiments and emotions when picking a stock to invest in.
No, it’s not costly depending on the broker and share dealing account you choose.
