Online trading moves into Facebook era
Proof that the conservative and pedestrian world of investment has moved into the modern era was provided by the recent launch of Britain's first Facebook-style social network for private investors.
The traders Own site created by Alan Green and John Brennan personalises the rather clinical process of share trading by creating an online community that allows members to swap ideas and share information.
If it heralds a new era for online investment then it also underlines just how rapidly the market has evolved since the day of the pin-striped provincial stockbroker.
The launch coincides with an upsurge of investment activity.
The most recent figures compiled by Capita Registrars reveals private shareholdings reached £233bn, their highest level in four and a half years. Traders Own is aimed at snaring the twitter- savvy Facebook generation who want to upload photos, blog and message each other.
However, it serves a more mundane and conventional purpose as a trading platform.
Not just for shares, but investment exotica such as spread betting and contracts for difference.
So in that sense it is up against scores of competing share trading services, which means you need to exercise some caution, do your homework and actually know what you are signing up to.
Share trading services fall into two broad categories: advisory and execution-only. The latter has become shorthand for the low-cost electronic share dealing service provided by traders Own and the scores of online brokers such as Barclays Stockbrokers, TD Waterhouse and E*trade, which are all hungrily vying for your business.
They will charge between £6 and £10 per trade, though one online broker has got the cost down to just £1.50 and has done this by pooling orders into a series of low-cost bulk trades. You will pay more for advisory and discretionary services where the broker actually advises you what to buy and sell, or does so on your behalf.
Some advisory brokers charge a flat fee of £20-£25 on smaller transactions, though it is more likely you will pay a fee based on the size of the deal.
A broker taking a 1.75% commission on a £10,000 buy order will make £175.
A couple of things to mention with any share transaction: you pay stamp duty at a rate of 0.5% and you will be taxed on your capital gains.
Using a self-selected ISA may help protect those capital gains from the taxman. Hidden charges are the scourge of the sector. The advisory brokers often levy additional compliance and settlement charges and may penalise you if you don't use your account regularly enough. The same goes for the online brokers, where there are often hidden inactivity clauses or management fees, so it pays to read the small print.
Another trick of the online brokers is to charge customers for a service they deem to be out of the ordinary, but any normal investor would consider a requirement.
A great example of this is the fee charged by one broker for setting a stop-loss that automatically triggers a sell order.
In recent years we have seen an upsurge in financial spread betting and contracts for difference, which have tax and cost advantages over physical share trading. They also give you more bang for your buck, which means if the stock goes up you win big. It also means if the shares go down the losses are punitive.
However we'll concentrate on share trading accounts. Picking one is a little like choosing a mortgage, and in fact the MoneySupermarket site actually has a tool that compares all the various offers.
My first tip is, as I said earlier, do your homework - look out for hidden charges and costly wrinkles.
Don't base your choice solely on price. If you have a lot of cash to invest you may require help and advice, so pick up the phone to an advisory stockbroker. the Association of Private Client Investment Managers and Stockbrokers has a list of them, and a questionnaire that helps you chose a broker based on your preferences.
If you go for an online account, check what else the site offers.
Many of the more established brokers will offer a charting service, some even provide a real-time newsfeed and research on companies, so it might be worth paying a little more just for this.
What you are looking for is a share trading service that meets your needs.
And with so many out there it is worth shopping around.
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