How to buy stocks in the UK
To buy stocks in the UK you need: choose a well-regulated online stock broker, submit documents for verification, fund your account, and start trading.
The United Kingdom's financial market is replete with several investment assets including stocks, bonds, ETFs, mutual funds, debentures, cryptocurrency, and Treasury bills. For the inexperienced, making the best decision from a myriad of choices can be difficult as each investment asset has its strengths and weaknesses.
This article explores how to buy stocks in the UK vis-a-vis the processes of opening a brokerage account and fund depositing. It also explores the importance of due diligence in selecting the best stocks for long-term profitability. To cap it all, we shall explore the processes of placing stock orders through a trading platform, and examine the benefits of trading shares, and tax implications.
Want to buy stocks? Open an account with RoboForex!How to buy stocks online in a few easy steps
1. Choose an online stock broker
To begin investing in stocks, you need to select an online stock broker. Look for a broker that offers a user-friendly interface, low fees, good customer service, and a wide range of investment options. It is essential to ensure that the broker is regulated and operates within your country's jurisdiction.
For beginners, brokerages with extra benefits such as social trading can be invaluable as they offer opportunities to learn from experienced traders, as well as study best strategies. Additionally, access to comprehensive educational resources, fractional shares trading, and a diverse range of ETF investment options can further empower beginners in making well-informed and diversified investment decisions.
2. Sign up for an account
Once you have chosen a suitable broker, you'll need to sign up for an account. The registration process typically involves providing your personal information, which may include:
Your full name;
Address and contact details;
Date of birth;
Social Security number (or equivalent);
Proof of identification (such as a driver's license or passport);
Employment and material status information is optional.
Keep in mind that some brokers might require mandatory verification of your identity and documents.
3. Make your first deposit
To pay for the stocks you want to purchase, you'll need to deposit funds into your brokerage account. Most brokerages offer various funding options, such as bank transfers, credit/debit cards, or wire transfers.
Bank Transfers: Usually free or low-cost, but may take a few days to clear.
Credit/Debit Cards: Instant, but may involve additional fees.
Wire Transfers: Instant, but may involve additional fees.
How much money should I deposit for the first time? TU experts recommend starting with a small amount to understand the stock market and gain practical experience.
4. Choose the stocks you want to buy
With your account funded, it's time to choose the stocks you want to buy. You can use your brokerage's research tools or other financial websites to gather information about potential investments. Take into consideration factors like your budget, risk tolerance, and long-term investment goals when making your decisions.
If you are inclined towards long-term investing, it is essential to focus on conservative trading strategies, prioritize portfolio diversification, and thoroughly understand the businesses of the companies you invest in. On the other hand, if you prefer active trading, consider learning technical analysis or other techniques to make informed decisions and navigate the dynamic nature of the stock market effectively.
5. Place your orders to buy stocks
There are different types of orders you should understand:
Market order executes the buy order at the current market price. It prioritizes execution speed over price, ensuring immediate execution.
Market order use case: Investors who want to enter or exit a position quickly, especially in highly liquid stocks.
Limit order sets a specific price at which the investor is willing to buy or sell a stock. It allows investors to control the price at which the trade will execute, offering price protection.
Limit order use case: Traders who want to buy or sell at a specific price and are willing to wait for the market to reach that price.
Stop order (stop-loss order) executes the order when the stock reaches a specified price. Stop orders are used to limit potential losses by triggering a sale if the stock's price moves unfavorably.
Stop order use case: Traders who want to protect their investments from significant price declines.
6. Monitor your investments
The stock market can be volatile, and the value of your holdings may fluctuate. Stay informed about the companies you've invested in and keep an eye on market trends. Remember that investing is a long-term endeavor, and it's essential to review and adjust your portfolio periodically based on your financial goals and risk tolerance.
By following these steps and staying informed, you can start your journey into the world of online stock investing. Remember that investing involves risks, and it's crucial to do thorough research and seek professional advice if needed. Happy investing!
Rules and Regulation
Licensing in the UK
Exchanges in the UK must be approved by the FCA and meet the requirements regarding anti-money laundering and combating the financing of terrorism (AML/CFT). These rules came into effect in 2020. To obtain a crypto license in the UK, a company must:
- register;
- open an account with a British bank;
- open an office;
- observe AML/CFT policies;
- establish a Know Your Client (KYC) procedure;
- have an internal audit service.
Investor protection in the UK
Besides the FCA, investor protection in the UK is ensured by the Financial Services Compensation Scheme (FSCS), under which users get compensation in case of a company’s bankruptcy.
Taxation in the UK
In the UK, cryptocurrency is not considered to be a payment method, but is classified as an asset. It means that profits from cryptocurrency trading are subject to a 10% or 20% capital gains tax (CGT).
How do I sell my stocks in the UK?
Pretty much like buying, selling stocks in the UK requires the use of trading apps that connect you to prospective buyers for a fee. While most trading apps work similarly, it is best to choose the ones equipped with stock alerts that notify you of price movements for the best-selling decision.
Contrary to what some fancy stock brokers portray by dressing the art of stock trading in the garb of technicalities and jargon, selling stocks in the UK is easier than you might think. Most platforms require you to select either the price value or numbers of stock to be disposed of through a simple self-explanatory process. Sales proceeds are credited to your stockbroking account and can be redeemed without breaking a sweat.
TU experts generally recommend the adoption of long-term trading strategies which stipulates that selling decisions are not based on the impulsive fear of missing out (FOMO) on every price increase or decrease. It is best to base selling decisions on a conviction that exiting the market will be beneficial. This may be due to several factors including a company showing limited growth potential.
It is also important to state that most successful stock traders acquire stocks from companies with outstanding growth potential over a period. Their strategies include accumulating wins in stock price market value increase over some time and not impulsive buying and selling. The stock market's volatility suggests a constant roller coaster of highs and lows which is well traversed by understanding the psychology of stock trading. Read also: What time does the stock market open in the UK in the TU article.
Best stock brokers in the UK
What are the benefits of buying stocks in the UK?
A better question to how to buy stocks online in the Uk would be what are the benefits of buying stocks in the UK? Well, buying stocks in the UK offers several benefits to potential investors including capital appreciation, dividend income, access to international markets, stable economies, global brands and companies, etc.
1. Capital appreciation
The high propensity for the market price increase of stocks remains one of its best benefits. It satisfies the ultimate desire of every investor to increase the market value of their investment in stocks. This explains why stock holding is considered in rating the wealthy and why rich people invest in stocks.
Capital appreciation refers to this increase in the market value of an asset over a period as against its purchase price. It is calculated by subtracting the purchase price of an asset from its selling price.
For example, If A buys a stock for £10 and sells it for £20, he has earned £10 in capital appreciation. Stocks enjoy unlimited capital appreciation rates provided that you make buying decisions based on a company’s growth potential. Capital appreciation rates depend very much on a company’s overall growth potential, management team, and shareholders' confidence in its growth prospect. Check out local stock brokers around you for the best stocks with high growth potential and capital appreciation rates.
2. Dividend income
One of the easiest ways to earn a passive income is to buy dividends-yielding stocks. Dividends refer to the share of a company's income paid to its shareholders. Buying dividends-yielding stocks guarantees a share of the company’s profit based on your shareholding proportion – the bigger the stocks, the bigger the dividends.
As you might have deduced, not every stock entitles you to a dividend which invariably limits your earnings to sales. It is best to stick with stock trading platforms offering dividends-yielding stocks to maximize your earnings. Interestingly, dividends are automatically added once they are declared by the company.
3. Access to international markets and stable economies
Our technology-driven increasingly integrated world allows cross-border economic participation without geographical restraints. Several stock brokerage platforms allow stock trading access to international stock exchanges stress free.
Suffice it to say, your stock options are not constrained to UK companies. You are allowed to trade shares from other countries and benefit in no small measure from innovations, technological advancement, and economic growth.
4. High liquidity
In economic parlance, liquidity refers to the degree of ease or difficulty at which an asset including stocks can be converted into cash. An asset enjoys a high liquidity rate if it can be converted into cash easily. Its liquidity rate is low if it cannot be converted into cash easily. Buying stocks from certified stock brokerage platforms guarantees that they can easily be resold for profit at the prevailing market price.
5. Ownership of global brands and companies
Companies are divided into small units of ownership called shares. Acquiring shares allows you to co-own a company and share in its profit in the proportion of your shareholding. Interestingly, it doesn’t cost a fortune to co-own a global business brand of your choice. All it takes is to buy the brand's shares from a reliable stock broker.
6. Voting rights
Buying stocks grants you the right to vote to make decisions in the proportion of your shares on behalf of a company. Whether it is to gauge the performance of the management team or decide the company's trajectory for an incoming financial year, buying shares grants you the right to be heard.
Is it safe to buy stocks online?
Yes, in general, stock investing is safe, but you should learn some basic safe investing rules that will help protect your money.
Research and select a well-established, reputable online brokerage platform with a track record of security and customer satisfaction.
Buy stocks using a secure internet connection, preferably your private home network, to reduce the risk of unauthorized access or data interception.
Create strong and unique passwords for your brokerage account, incorporating a combination of letters, numbers, and special characters.
Enable 2FA whenever possible. This adds an extra layer of security by requiring a second form of verification, such as a code sent to your mobile device, before accessing your account.
When funding your brokerage account or making transactions, use secure payment methods such as bank transfers or credit cards. Avoid sharing credit card details directly with third parties.
Be cautious about sharing unnecessary personal information online, especially on social media platforms, to minimize the risk of identity theft or fraud.
Keep a close eye on your brokerage account's activity. Regularly review statements and transaction history for any unauthorized or suspicious transactions.
Educate yourself about common stock frauds and phishing attempts related to stock trading.
Can the British trade stocks with international brokers?
There is no law or regulation stopping British citizens from trading stocks with international stock brokers. This explains why several international brokerage firms allow British investors and stock traders to open accounts and directly trade stocks listed on global stock exchanges.
While the British can trade stocks with international brokers, it is strongly advised that they exercise due diligence in choosing the best international brokers. Due diligence allows you to separate worthy international brokers with secure transaction infrastructure, transparent fee structures, and easy-to-use interfaces, from the opposite.
International stock trading platforms like eToro, Interactive Brokers, Saxo Bank and XTB seem to tick all the right boxes in efficiency, security and transparent fee structure which perhaps explain their dominance in the British stock trading space.
While there is no law prohibiting the British from trading stocks, some religious restrictions may however apply, which begs the question is stock trading haram in Islam?
Generally, stock trading is not haram in Islam, however, Muslims are prohibited from trading in stocks from companies operating in the insurance, tourism, banking and tourism sectors.
What is the minimum stock investment in the UK?
Having conclusively answered the question of how to buy and sell stocks in the UK, to balance the equation we must state the minimum stock investment capital requirement in the UK.
While there is no minimum stock investment requirement in the UK, stock brokerage platforms are at liberty to set a minimum investment threshold. However, several stock broking platforms allow you to buy shares according to your financial capacity.
TU experts generally recommend stock investment based on your risk appetite as the market can be quite volatile. It is best to invest whatever you can afford to lose without jeopardizing your finances.
Can I trade fractional shares?
It is worth noting that shares from blue chip companies including Apple, IBM and Microsoft do not come cheap. Some stock brokerage firms like eToro allow investors to trade fractional shares instead of a full share. This ensures that investors can buy shares from any publicly quoted company irrespective of cost.
Are capital gains or dividends taxable in the UK?
The United Kingdom’s extant tax regime empowers the country’s major taxing authority (HMRC) to deduct taxes from your stock dividends. Stock dividends are treated as savings income and are thus taxable.
However, HMRC allows a dividend tax allowance of up to £2,000 for the 2022/23 tax year which means that you are ineligible to pay tax on dividends if your earnings do not exceed £2,000. To fulfill your tax obligations on dividend earnings above £2,000, contact HMRC directly or tax professionals.
Conclusions
Facts about the stock market suggest that it is one of the oldest financial institutions in the world. With over 60 stock exchanges and several stock brokerage firms, it has never been easier to buy stocks online without breaking the bank.
However, the ease of stock trading and the allure of dividends should not prevent you from exercising caution and ensuring that stock trading is only done through authorized and highly rated platforms. It is strongly recommended that you read objective, independent reviews from trusted reviews aggregate sites before signing up to a stock broking platform.
FAQ
Do you need a broker to buy shares in the UK?
Yes, you need a broker to buy shares in the UK as only stock brokers can access the stock exchange market to execute trading deals on your behalf.
Can you buy shares in the UK?
You can buy shares in the UK through stock broking platforms for a fee.
How do I open a stock account in the UK?
Open a stock account through a stock broking platform by going through small baby steps of account creation and funding.
What do you need to trade stocks in the UK?
You need a stock trading account to trade stocks in the UK.
Team that worked on the article
Glory is a professional writer for the Traders Union website with over 5 years of experience in creating content in the areas of NFT, Crypto, Metaverse, Blockchain, or Web3 in general. Over the last couple of years, Glory has also traded on different cryptocurrency and NFT platforms including Binance, Coinbase, Opensea, and others.
Dr. BJ Johnson is a PhD in English Language and an editor with over 15 years of experience. He earned his degree in English Language in the U.S and the UK. In 2020, Dr. Johnson joined the Traders Union team. Since then, he has created over 100 exclusive articles and edited over 300 articles of other authors.
Mirjan Hipolito is a journalist and news editor at Traders Union. She is an expert crypto writer with five years of experience in the financial markets. Her specialties are daily market news, price predictions, and Initial Coin Offerings (ICO).