How to trade stocks and shares online?

Functionally, trading online is relatively straightforward. The first task still is to find a reliable, appropriate broker: relating directly to Exchanges, let alone to unquoted stocks, is still a time-consuming, expensive, difficult exercise with plenty of risk. Online brokers such as Fidelity and Merrill and their many competitors can be found recommended at several consumer websites: there is plenty of justification for careful evaluation of the relative benefits of the different offerings. Some of the key issues to study are these:

  • Does it provide all the information you need? Most obviously this includes data on price movements – ideally, live streaming of prices – but also the size of your position in each stock, as much information about bid-ask spreads and liquidity as possible, and news feeds?
  • Does the dashboard provide watchlists? Does the broker provide screening information and third-party tools – Morningstar is a good example. Screening can be based on performance, such as capital growth, traded volumes or stockbroker expected returns, or it can be ethical, such as picking ESG or Sharia-compliant stocks.
  • What about charts? Can you set up alerts? Does the broker provide other information such as ETF performance and bond prices? What about educational information and learning experience – this may be especially important for a beginner.
  • Is the dashboard easy to use? Quick, accessible order processes are prized assets for an online trading system. Questions to ask include whether the broker provides the ability to input stop-loss and limit orders to prevent losses beyond a certain level, or can cope with day orders or ‘fill-or-kill’ (immediate execution only) orders. Will you be able to participate in IPO lotteries, if you decide to? In time, dashboards will accommodate international aspects, such as positions and performance in different currencies, as well as integrating risk management instruments, but for the average retail investor this is still many years away.
  • Does it fit well onto your mobile device as well as your computer? Most online traders now want the ability to trade 24-7, but the user interface must be instinctively appealing as well as completely understandable, customisable and easy to use.
  • Is compliance up to date and correct? For example, is the broker allowed to accept funds if you are in a certain jurisdiction, or able to invest in international stocks, if you need to? Is the output formatted correctly for your own accounting software, to avoid time-consuming duplication of record-keeping?
  • What minimum level of investment is required and is there a funds level you must maintain?
  • How much personal contact do you need with the broker? if so, will you grant discretion to trade, if not, execution only will suffice. Generally full-service brokers are much more expensive and require significant minimum trading amounts.
  • Do you plan to use fundamental analysis to trade – if so, you will need access to research.
  • Are there indicators provided and facilities to input trading algorithms if you intend to use technical analysis (i.e. based on share price movements)?
  • What speed of execution do you need – especially important if you intend to act as a day trader, exploiting extremely short-term price movements – slightly less vital if your intention is to invest long-term.
  • What cost per trade (commission) does the broker charge, are there discounts for multiple trades, and is there a platform or funds transfer fee? This is a highly competitive industry and it pays to shop around. Some have a fixed fee and zero commission – find a payment structure that suits you.

Asset management courses, however, cover much more than these essential mechanics, which are best experienced first in an online training trading environment before actually investing. The core of profitable share trading is the right combination of sector selection and stock picking. The majority of online investors fail to recognise the need to study sectors as well as jump on individual, momentum stocks. Investors online face exactly the same issues as ever, such as understanding and predicting business cycles, forecasting which shares will grow in capital value and by how much, how any dividends will be paid and structured, and how best to arrange to pay the usual taxes such as CGT and stamp duty. No broker’s dashboard can substitute for genuine understanding of the market.

Author Julian Roach of Redcliffe Training