Online Trading

In this edition of the Mortgages, Money and More podcast, Craig looks at online trading and whether this is something you can do yourself, or leave it to the experts.

Not so long ago, if you wanted to invest you’d have to go through a stockbroker or financial advisor. Now, investors can use DIY investment platforms to trade from the comfort of their own home with a laptop or a mobile phone. But is it worth the risk?

How does online share dealing work?

An online dealing platform allows you to buy and sell shares from companies that are listed on the stock exchange. Many platforms also include ready-made portfolios tailored to different risk appetites. Some services also offer different types of investments beyond shares, such as bonds and funds.

It is worth noting that a readymade portfolio may not always give you the best returns compared to using the expertise of a financial adviser. Once you have set up an account, you can start searching for companies and funds to invest in. You can then select the quantity or value of the shares you want to buy. You can hold any shares you purchase within the platform, so you don’t need to retain any certificates.

Is online share dealing a good idea?

Online trading is easy and convenient for experienced investors who can manage their expectations and the risks involved in going it alone. Of course, with the DIY investing platform, you won’t have to pay any charges to a broker. But for investors that are new or less experienced, there are a host of pitfalls.

First, as online trading platforms don’t provide advice or assess your attitude to risk, so you have to make your own decisions. Some people enjoy the flexibility and speed of this, but it can lead to problems if you don’t fully understand how markets operate.

Don’t forget the value of investment can go down as well as up, and you could lose most of (if not all) your money when you are investing. Knowing the potential risk and return is an essential step before you start. You should also consider what the worst case scenario might be for your finances.

What could go wrong?

Buying and selling online can be dangerous if you’re an undisciplined investor because it’s easy to act on emotion.

A DIY investor might start at the wrong time or take on a portfolio that is poorly suited to them. Investors should always be aware of how much they are paying when choosing online share platforms and think about the combination of price and service.

Don’t just look at the admin fee or dealing charges. Instead think about how much they might cost you in practice. A low admin fee might look good, but costs could soar if you buy and sell a lot.

How much does it cost?

While you’d be saving money by not paying a broker, if you use an online platform you still have to pay charges when buying, holding and selling shares. Some charge a flat fee and others charge a percentage of your holdings.

There will also be trading charges when you buy and sell shares. When purchasing UK shares, you should expect to pay 0.5% duty and an extra £1 on transactions above £10,000. You may also be charged an exit fee if you want to transfer to a different provider.

The benefits of financial advice

If you are uncomfortable going it alone, think about speaking to an advisor who can recommend investments that are appropriate for you. A financial advisor can assess your attitude towards risk and help you select a portfolio that is compatible with that.

Advisors know the importance of staying invested for the long run to take advantage of upward trends in the market. While some investment platforms offer ready made portfolios, an advisor can build a more tailored investment approach.

It’s always a good idea to make sure your portfolio is diversified so when one investment goes through a bad patch, others are continuing to do well. A typical portfolio might consist of a mix of different assets including shares, bonds and cash.

A financial advisor is best placed to help you manage the risks associated with investing, by building a well diversified portfolio so your investments are always working hard for you.