savings2behad - Share Dealing Advice

Through a stockbroker or share dealing service, you can either buy or sell shares. At present, there are a number of services available for you to buy or sell shares i.e., via Internet, through telephone or postal dealing services.

The commission charged by the stockbroker or share dealing service may depend upon the kind of service that you’re looking for. The cheapest way to deal in shares is usually on an 'execution only' basis, which means that a broker will act on your instructions to buy or sell but will not give you advice on the merits of the transaction.

But if you’re new to share dealing, there are a few factors to consider before investing your money. Firstly, you need to calculate how much money you’ve available to buy the shares. Remember that share value can decrease as well as increase, so make sure you aren't investing money that you cannot live without.

Also think about how long you want to invest your money for. Are you looking to create an income from your shares through dividends, which are paid twice a year, or do you want to create a lump sum through the increase in share value (capital growth)? Asking yourself these questions will help you determine the type of portfolio that you want to put together.

Although share dealing is always going to pose a certain amount of risk, there are ways to minimise the possibility of losing money. One way is to invest in 'blue chip' companies. A blue chip is a well-established, highly successful company with a good track record on the Stock Exchange and they offer investors a more secure option, although even this can never be guaranteed.

Another way to minimise risk when share-dealing is to spread your investment over a number of different companies and industries as this will help you avoid losing your entire investment wealth should one particular company or industry suddenly come crashing down.

Stock broking involves investing in securities and a range of financial products on behalf of institutions, corporate and private clients. The work of a typical stockbroker involves researching and absorbing information about the market in domestic or foreign equities, securities and government stocks; deciding upon appropriate advice for private clients, by phone, direct contact or review letter; buying or selling for clients; managing and reviewing portfolios; and underwriting new issues in larger firms.

However, finding the right broker depends upon the kind of services you require and the amount you’re ready to pay for it. For instance, advisory stockbrokers recover the cost of holding your hand through a higher commission on deals; so you could find yourself paying five or ten times what those in non-advisory ‘execution only’ accounts are charged. It is acceptable as long as you get your returns, but will certainly make trading frequently an expensive affair. So also, if you don’t have substantial money (say at least £30,000) to invest, big advisory brokers is probably not going to be interested. In this case look out for some of the regional stockbrokers, which have lower overheads and charges.

Some brokers even offer a discount if you trade with them more than a certain number of times per month or quarter. Here you need to bear in mind that you’ll always be paying stamp duty on every purchase; so even if the commission is a flat £10, a £10,000 stock purchase is going to cost you £50 in stamp duty on top.

While some others offer quite competitive rates for the cash you leave in your account. Though you may not get much on the first £500-£1,000, but if you leave more than that make sure you’re getting a rate equivalent to a decent bank savings account. However, there is no necessity to keep large sums at your brokers place unless you’re likely to be dealing at short notice. Many brokerages now have facilities to accept payments electronically, or by Switch card, as well as by the traditional cheque.

Some brokers also offer telephone dealing as a useful back-up if you want to deal in a hurry, and do not have immediate access to the Internet terminal. It also helps if your computer or the broker’s website is down. Some of the very cheapest Internet brokerages do not have telephone dealing, while those that do often charge a little more for the privilege. Investors who are new to dealing often find that it provides helpful reassurance to talk to a real person.

Finally, a word of caution! Never go for a broker which approaches you. Always make your own decisions and double check whether the company is genuine.