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Our parent company, The Motley Fool, has been helping individual investors in the UK invest better for more than 20 years. So we like to think we know a thing or two about what makes a great share-dealing broker. Here are MyWalletHero’s picks for the best online share dealing accounts.
In this section:
How we chose our top share dealing accounts
There are a lot of features to use to compare online broker accounts. Below are the elements we focused on in creating our ratings.
- Platform fee – Sometimes this is called a ‘platform fee’, sometimes it’s a ‘monthly fee’ and sometimes it may be called something else, but the bottom line is that this is an ongoing fee that you have to pay to maintain your account. In some cases it’s paid monthly, while in others you pay once per quarter. In general, we prefer the lowest fees possible, and like it even better when a share dealer doesn’t charge any platform fee at all.
- Dealing fees – Dealing fees (or trading fees) are the the fees you pay when you buy or sell shares. Like the platform fee, this is pretty simple: We like lower dealing fees! That keeps money in your account and helps your portfolio grow faster.
- Fund charges – In some cases, brokers charge management fees if you hold funds (as opposed to just shares) in your portfolio. These charges vary more than most other fees you’ll face, so if you plan to hold funds in your account, it’s a very good idea to pay attention to these fees.
- Overseas dealing charges – When you purchase shares outside of the UK, there are often extra charges that come along with that. In some cases this is a currency conversion fee (a percentage of your trade value), in some cases it’s a flat fee and in some cases it’s a conversion fee plus an additional flat fee. Once again, we awarded brokers who kept these fees as low as possible.
- Platform features – Stock screeners, market news and third-party research can help investors find new shares to invest in. We gave extra points to those share dealing accounts that have better research and screening tools.
- User friendliness – Some share dealing accounts are simply easier to use than others. In these accounts, navigating the site, placing trades and managing your portfolio is more straightforward and makes life easier for newer investors in particular. ‘Pro’ investors may be fine to trade user-friendliness for lower trading fees, but we awarded points for platforms that were easier to use.
- Introductory offers – We love an extra boost, and some brokers offer that in the form of free trades or discounted trades for some period of time after you open your account.
Why you can trust us
Here at MyWalletHero, we aim to do right by you. We’re looking for the best financial products, and we try to lay out the pros and the cons of those products for you in plain English. The financial world can often seem dark and tangled, so our hope is to help shed some light and untangle it. As a company, we’ve been doing this for more than two decades, in the UK, the US, Australia, Germany, and beyond. When our work can help make someone’s financial life just a bit easier or richer, we consider that a job well done.
How to compare online brokers
There’s no one-size-fits-all here, so when choosing an online broker, it’s important to consider your needs and not get hung up with an outside view of which broker is the ‘best’ (yes, even if that’s our ‘best’!).
To do this, you’ll want to consider what is most important to you in your broker. The top online brokers have compelling offerings, but these offerings vary slightly and will advantage certain investors. To make the best choice, it may help to consider what kind of investor you are, since that can help match you up with one broker or another.
Here are a few examples of investor types and what type of broker that might match well with:
- Brand new to investing – These investors will probably want a balanced offering. Paying sky high commissions won’t work, since you likely don’t have a very big portfolio. But the stripped-down platforms that you find with most ultra-low-cost brokers may prove bewildering to a new investor. A bigger name online broker with a balanced offering will also likely offer tools and research that can help a new investor start off on the right foot.
- Steady fund-focused investor – This type of investor will want to look for an online broker that offers a broad selection of funds, and/or a good selection of low-fee funds. If you’re this kind of investor, you’ll also want to aim to steer clear of fund custody fees and inactivity fees.
- Hardcore investing veteran – As someone with many years of experience, this kind of investor can typically leave aside extra research and a pretty interface in favor of dirt-cheap commissions. They still may want some screeners and other tools to help in their search for the very best shares, but even the lowest-rate online brokers tend to have some tools for their customers.
Of course this doesn’t cover all of the possible types of investors. And even among these three types there may be crossovers. For instance, a hardcore investing veteran may be willing to pay a bit more in commission in order to have access to research. And perhaps there’s a brand new investor that’s not scared off by a spartan investing interface. But the bottom line is to understand what your needs are as an investor, and look for those features in your online broker.
What is a share dealing broker?
Here’s what we know for starters: You can’t find shares sitting on the shelves at Tesco. And even though Amazon seems to have nearly everything, you can’t log onto Amazon’s site and find company shares. And that’s where share dealing brokers come in.
In the past, we could say that brokers were the actual people that facilitated the buying and selling of shares (more on that in a moment). Today, it’s as often referring to a platform on which shares are bought and sold. But we don’t need to get too caught up in the details. In short, when we talk about brokers, we’re talking about the companies and people that facilitate the buying and selling of shares. Simple as that.
As mentioned, in the past, a broker might actually be a person that you’d go to — or call on the phone — for help buying or selling shares in a company. You’d say, for instance, “I’d like to buy 1,000 shares of Walt’s Wheat Ltd for less than £5 per share” and the broker would hit the phones to try to find somebody else willing to sell you those 100 shares at the price you’re hoping for. And that broker would almost always charge you a very generous commission for those services.
Today, you can still find these ‘full-service brokers’. Though maybe not as comparably expensive as in the past, they’re still quite expensive. And they’re probably not terribly interested in working with you unless your account has seven digits or more.
One of the biggest changes to this picture in our lifetimes was the rise of online share dealing brokers. These are websites focused on enabling you to trade the shares you want, quickly, easily and at a much lower cost than the full-service brokers. This was a massive change in the industry, because the commissions that online brokers charge make it much more attractive for investors of all wealth levels to invest in shares. These days, most brokers charge £12 or less for a standard share trade. And while the full-service brokers look for massive account sizes, account minimums at online brokers are typically very low, if there’s a minimum at all.
This landscape continues to change though. As online share dealing brokers continue to grow, they’re offering more and more services that you’d previously only expect to find at a full-service broker. So depending on how much assistance you need placing trades or researching shares, you can find online brokers that offer a higher level of support.
Why choose an online broker
The answer here may seem simple: cost. For many investors, the cost of a full-service broker eats up most, all or even more-than-all of their investment gains. It simply doesn’t make sense. So the low fees of an online share dealing broker make much more sense for investors without massive portfolios. Which, of course, isn’t to say that investors with massive portfolios shouldn’t use online brokers — after all, doesn’t everyone love saving money?
But the appeal of online brokers goes beyond the fact that the fees are much more attractive. Here are a few additional reasons that we like online brokers:
- Ease of use — Fancy making share trades in your pyjamas? With an online broker you can do exactly that. There’s no need to leave your house, no need to even pick up the phone. With an online broker, you can simply turn on your computer — or, in many cases, your mobile — and you can quickly be investing.
- Research — Not all online brokers offer research as part of their platform, but many do. And while it’s important to come to your own conclusions about your investments, getting additional insight from quality research can be helpful in the process
- Screeners and other tools — Like the research, it varies from broker to broker whether you’ll have access to screeners and other investing tools. However, many online brokers, even those with the lowest commissions, do have tools that you can use to quickly narrow down the daunting number of companies to an easier list to research.
- Low account minimums — It’s not uncommon to find online brokers now that have no account minimum. And those that do tend to have low minimums. That means that you can start investing earlier in your financial life. And at least in the past, the earlier you started investing, the better off you were.
How to buy shares online
Deciding which company’s shares to invest in is beyond the scope of this page (though you can find help with that at Motley Fool UK). Once you’ve figured out which shares you want to buy though, the rest is pretty easy.
Each publicly listed company has a “ticker symbol” — a short combination of letters — that lets you call up those shares quickly. Marks & Spencer Group has the ticker symbol ‘MKS’, while GlaxoSmithKline is ‘GSK’ and Sainsbury’s is ‘SBRY’. You may not know the ticker symbol for the shares you want to purchase, and that’s ok, since most online brokers also have a ticker-symbol lookup tool that allows you to find a ticker based on the company’s name.
Once you’ve landed on the trading page for the shares you want to trade, you’ll need to decide what type of order you want to place. The two most popular order types are ‘market’ and ‘limit’ orders. A market order tells your broker that you want to buy X number of shares of that company at the best price the market offers when the trade goes through. By contrast, a limit order specifies a price for the shares, so you might specify buying X number of shares at or below 450p per share.
Is one type of trade better than the other? Not really, but a limit order is generally safer than a market order. That’s because you’re assured that your broker won’t buy the shares if the price spikes above the price that you’re comfortable with. The main ‘risk’ with a limit order is that the price does go above your limit and you don’t get the shares. In that case, you have the chance to reconsider and, if you feel comfortable with a higher price, you can put in a new limit order with a higher limit price.
Where this becomes particularly important is when trading shares of a company that has low trading volume. The reason is that this type of share can exhibit very large price swings. If you’re trading shares of GlaxoSmithKline, there are so many shares trading that it’s very unusual that the price will move more than a few percentage points per day. With smaller, less-traded shares, prices can easily move 5% or 10% in a single day, and if you place a market order at the wrong time, you might be sorely disappointed at the price you end up with. So with small, less-traded shares, limit orders are particularly smart.
Once your order is placed, you’ll be alerted by your broker when that order has been ‘filled’ and the shares will appear in your portfolio. For a highly-traded share that you buy with a market order, completing the trade could happen in a fraction of a second. While a limit order on a thinly-traded share could take hours to complete, if your broker is able to fill the trade at all.
And that’s it! While becoming a good investor takes patience, study and practice, buying the shares isn’t terribly complicated at all.