For many people, investing can be a great way to build wealth and save for retirement. But to invest, you need a share dealing account. Today, the easiest and cheapest way to trade shares is usually with an online share dealing account.
In this guide, you’ll find everything you need to know about online share dealing, so you can choose a platform like a pro!
What is a share?
With a share, you own a share of a company. How’s that for simple?
It’s true: shares, which are sometimes called ‘stocks’ or ‘equities’, represent ownership in a company. When a company is ‘publicly listed’ it means that ownership in that company can be bought and sold by just about anyone.
The reason we care to own a piece of a company like this is because, when we do, we also have a claim on the profits of that company. Sometimes, this profit share is very clear. Many companies pay a dividend, and in those cases, the company sends you money every time a dividend is issued.
Other companies may not pay dividends but instead choose to hold their profits. These companies may reinvest those profits to try to grow faster. In these cases, you don’t get a cheque in the post, but as that company grows, you’ll own a share of an ever-more-valuable company. That means you may be able to sell the shares that you own to other investors at a higher price – hopefully a much higher price!
Owning a share of a company does come with risk. Ideally, the value of that company might increase, and you could sell your shares to other investors at a higher price. However, the value of the company might also decrease. And in that case, the shares you own would fall in value.
But the bottom line is: when you own ‘shares’ of a company, it means you are a part owner of that company.
What is share dealing?
Share dealing is the buying and selling of shares, which allows you to buy shares when you want to own part of a company, or sell shares that you already own.
You can imagine it as a big marketplace – sort of like a bazaar. There are thousands of publicly traded companies, and each has thousands or millions of shares that investors own. Share dealing is the buying and selling that goes on in this marketplace. Just as selling a loaf of bread requires that a seller and a buyer agree on a price, in this share marketplace, for a given share to change hands, a buyer and a seller need to agree on a price.
Share dealing is simply the activity of buying and selling that goes on in our share marketplace.
What is a share dealing broker?
Let’s continue to imagine our big share marketplace. In the past, share dealing was the domain of humans. These share dealing brokers would make the buying and selling of shares happen in the marketplace by matching up buyers and sellers. They would do this for a fee, and it was often a high fee, meaning that it only made sense for the very wealthy to consider shares as part of their savings and investments strategy.
Today, when we talk about share dealing brokers we’re just as often – if not more often – referring to websites online. The companies that operate these websites act as brokers for investors looking to buy and sell shares. And while humans are still often involved in the process, there are often computers matching the buyers and sellers. This shift online and the use of computers has helped push the fees for share dealing lower and lower, so owning shares is possible for a much wider range of people.
What’s the difference between online share dealing and a share dealing broker?
You won’t find too many people who have a human share dealing broker these days. They do exist, but, more often, people will have a financial adviser who can provide broker services but also is able to provide advice and guidance.
With that in mind, the key differences between having a financial adviser (or human share dealing broker) and an online share dealing service are price and service level.
With a human adviser or broker, you’re more likely to get personalised advice. And you’d have a dedicated human who can make trades for you and answer any questions that you have. But this comes at a price, as financial advisers and brokers can be quite expensive. In some cases, the cost may be £100 or £200 per hour, while in others, you may be charged a percentage of your total investment account – likely to be between 0.5% and 1%.
An online share dealing service requires that you do a lot more on your own. It’s less likely that you’ll get personalised advice. However, many online share dealing sites offer very good general research and data to help you make your investing decisions. On the other hand, the cost is quite a bit lower in most cases. While fees vary, a typical fee for buying (or selling) shares in a single company might be between £5 and £10.
How to choose a share dealing broker or financial adviser
If you feel you need a dedicated person to work with on your share investments, then finding a human broker or financial adviser could be a good choice. Again, you should make sure that your personal financial situation is a good fit for this service, as this often isn’t a good fit for those with lower income or lower investable assets.
When you’re choosing among brokers and advisers, you should meet them in person and make sure you’re comfortable with them. A good adviser is someone who listens to you and tries to understand your financial situation and goals. A nice office, a fancy degree or a finely tailored suit don’t mean much if an adviser doesn’t listen to what your needs are.
Fees are also important, and you should make sure you understand the full fee structure for anyone you work with. Depending on your needs, it’s possible to find advisers who work on a fee-only basis, which means that you’ll pay them an hourly fee – or fixed rate for a project – and owe them nothing beyond that. Other advisers will manage your portfolio and charge you an ongoing fee – usually a percentage of that portfolio size. Fee levels and structures vary, though – so, again, it’s very important that you understand the fees for any adviser or broker up front.
How to choose an online broker
When choosing an online broker, there are two main things to look at: fees and service level.
Fees vary from one online platform to the next and are not always easily comparable. All online share dealing services will have a fee for share deals. That’s the amount you’ll be charged to buy or sell a share. And if you’re investing in individual shares, this is naturally a very important fee to consider.
Some online brokers also charge a platform fee, which is a monthly or quarterly fee for having the account open. Others charge custody fees on the value of all your investments or certain types of investment, for instance the investment funds that you own. And there are a variety of other fees that are worth understanding as well, varying from the cost of placing a trade by phone (rather than online) to fees for closing your account or getting extra copies of paper statements. You should make sure you understand all the fees up front, so as not to be surprised later.
But, as important as fees are, you need to compare the level of fees for an online share dealing service with the quality of the service itself. Some online brokers charge extremely low fees but have websites that are more difficult to use (especially for beginners) and don’t offer bells and whistles like company research. These types of site might be good for experienced investors who just need a place to make low cost share deals, but they may be a really bad fit for newer investors. For that reason, it’s a good idea to look around the site to understand what features are available with the service.
To see our top picks for online brokers, check out our best online share dealing accounts page
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The Motley Fool receives compensation from some advertisers who provide products and services that may be covered by our editorial team. It’s one way we make money. But know that our editorial integrity and transparency matters most and our ratings aren’t influenced by compensation. The statements above are The Motley Fool’s alone and have not been provided or endorsed by bank advertisers. John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. The Motley Fool UK has recommended Barclays, Hargreaves Lansdown, HSBC Holdings, Lloyds Banking Group, Mastercard, and Tesco.