Stock trading is different from simply ‘buying’ shares. This is because you will be looking to speculate on whether you think your chosen stock will go up or down in price. You might keep a stock trading position open for several days or weeks - but in most cases, minutes or hours.
As such, stock trading is a short-term investment strategy that looks to capitalize on ever-changing share prices. In addition to this, you’ll also have the option of applying leverage of up to 1:5 when trading stocks in the UK. This means that you can trade with five times the amount you have in your stock trading account.
But, we should stress that most UK stock traders with little experience end up losing money on the first attempt. This is why we have put together this highly comprehensive guide on Stock Trading UK.
Our guide covers the ins and outs of what stock trading in the UK entails, how you can make or lose money, what strategies you should consider, and how to find a suitable UK broker for your needs. We’ll also walk you through the process of opening a UK stock trading account, placing an order, and deploying a strategy.
Table of contents
- What is Stock Trading UK?
- How Does UK Stock Trading Work?
- Benefits of Stock Trading via UK CFDs
- Risks of Stock Trading With Leverage
- Tradable Stock Markets
- How do you Make Money Through UK Stock Trading?
- UK Stock Trading Strategies and Systems
- The Importance of Choosing the Right UK Stock Trading platform
- Stock Trading UK Guide: The Bottom Line
What Is Stock Trading UK?
Put simply, stock trading is the process of trading stocks - such as those found on the London Stock Exchange or NASDAQ. Your primary goal is to make money. In order to do this, you need to predict whether the stock will increase or decrease in value.
That’s right - unlikes traditional share investments, stock trading also allows you to make a profit when the value of the company goes down. This is known as “short-selling” in the world of trading.
Going back to traditional share investments momentarily, this will often see investors keep hold of their stocks for several years. For example, you might buy £2,000 worth of BT shares and leave them in your portfolio to grow.
Alongside the way, you’d hopefully collect some quarterly dividends. This is known as a long-term “buy and hold” strategy.
At the other end of the spectrum, stock trading will often see you buy and sell a share for a duration of hours or even minutes. This means that you will be chasing smaller margins but on a much more frequent basis.
In some cases, UK stock traders will take a “swing trading” strategy, meaning that the position might stay open for days or weeks. Either way, rarely will stock traders take a long-term approach to investing.
Example of Stock Trading in the UK
Before we get to the nitty-gritty of how UK stock trading works, it probably makes sense to hit you with a quick example. This should hopefully clear the mist before we up the ante and overload you with useful information!
- Let’s suppose that you are looking to trade ASOS shares
- At the time of the trade, ASOS shares are priced at £4.60 on the AIM
- You believe that the shares are heavily undervalued, so you place a ‘buy order’
- By placing a buy order, you are indicating to your chosen trading platform that you think ASOS shares will rise in value
- You stake a total of £200 on the trade
- A few days later, ASOS shares are worth 10% more
- You cash in your trade - making a total profit of £20 (£200 stake x 10% gains)
As you can see from the above, the underlying concept of stock trading in the UK is actually very simple.
Now let’s look at an example of what a short-selling stock trade might look like before we overload you with valuable information!
- This time, you are looking to trade NEXT shares
- At the time of the trade, NEXT shares are priced at £6.10 on the London Stock Exchange
- You believe that the shares are overpriced and thus - think that they will drop in value, so you place a ‘buy order’
- As such, you need to place a ‘sell order’ with your chosen UK trading site
- You are super confident in this trade, so stake a total of £1,000
- A few days later, NEXT shares are worth 20% less
- You cash in your trade - making a total profit of £200 (£1,000 stake x 20% gains)
Remember, the fact that NEXT shares dropped by 20% means that you made gains of 20% - as you placed a sell order!
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How Does UK Stock Trading Work?
This part of our guide will allow you to clearly understand the difference between stock trading and investing in shares. In a nutshell, when you buy shares from a traditional online broker, you receive 100% ownership of the stocks.
In other words, if you invest £200 into the company, you effectively own a £200 stake in the firm. In return, this gives you certain stockholder rights - such as being able to vote in annual general meetings.
In addition to this, you will also be entitled to your share of any dividends that are paid out by the company. This needs to be paid in cash at the same time as all other shareholders.
With that being said, when you engage in stock trading, you will be doing this via contracts-for-differences - or simply CFDs.
CFD Stock Trading
In its most basic form, CFDs are financial instruments created and offered by online trading platforms. The main concept is that the CFD instrument will ‘track’ the value of the asset in real-time.
For example:
- The London Stock Exchange is quoting a price of 212p on Tesco shares
- At your chosen trading platform, Tesco CFDs are also priced at 212p
- A few hours later, Tesco shares are being quoted at 219p on the London Stock Exchange
- Once again, your chosen trading platform is quoting 219p on Tesco CFDs
As you can see from the above, it doesn’t matter what is happening to the price of the respective stock, the CFD will mirror it like-for-like. This makes CFDs highly appealing to stock traders for several reasons.
Before we get to that, it is important to note that by trading stock CFDs, you will not own the underlying shares. This is because the CFD is not backed by anything tangible. Instead, the CFD will simply track the value of the respective stock.
In terms of dividends, this is where things get a bit more complex. Nevertheless, the gist of it is as follows:
- Some CFD trading platforms will readjust your account balance when dividends are paid by the company
- If you are long on the stock CFD (meaning you think its price will increase) and you are holding your position when the dividends are paid, the amount will be positively reflected in your account
- But, if you are short on the stock CFD (meaning you think its price will decrease), the amount will be negatively reflected in your account
In other words, those that are short-selling the stock CFD will cover the dividend payment for those going long.
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Benefits Of Stock Trading via UK CFDs
At this point in our UK Stock Trading Guide, you might be concerned about the fact that you will not own the underlying shares. However, this shouldn’t be a concern of yours as the ultimate objective when trading stocks is to make small and frequent profits on a consistent basis.
That is to say, rarely do successful stock traders keep hold of a CFD position open for more than a couple of months. In fact - and as we briefly mentioned earlier, most trades open and close positions with a duration of days or hours!
Because of this, you don’t need to worry about owning the stocks to make a profit. Nevertheless, below we outline some of the many reasons why UK stock traders turn to CFDs to realize their financial goals.
Rising and Falling Markets
For us at Trading Education, this is by far the biggest benefit from trading stock CFDs. Put simply, you will always have the choice of going long or short on your chosen stock.
- That is to say, if you think the price of the stock will go up, then it’s just a case of placing a buy order.
- If you think the stock is overvalued and thus - its price will decline, then you need to place a sell order. It’s really as simple as that.
The short-selling side of things opens up a whole new world of trading opportunities, as traditional shares only allow you to profit when the markets are moving in an upward direction.
For example, take your mind back to the financial crisis of 2008. At the start of the year, HSBC shares were valued at 871p. Just 15 months later, the very same shares were priced at 371p - representing a decline of 55%.
Now, HSBC stockholders hoping for the best would have lost a considerable amount of money during this period. On the other hand, shrewd stock traders would have no doubt shorted the stocks. In doing so, they would have made a 15-month profit of over 55%.
This was also the case in late February 2020. Once the financial markets finally got the coronavirus pandemic jitters, a mass sell-off ensued. For example, on February 24th BP shares were priced at 438p.
Just three weeks later the shares were valued at just 233p. This means that the stocks lost 46% in less than a month. Once again, seasoned stock traders would have capitalized on this by placing a CFD sell order on BP.
Ultimately, no longer do you need to feel restrained during times of economic uncertainties. Instead, you can profit from falling markets in the form of CFD stock trading.
Leverage and Margin
When you buy shares in the traditional sense, you only have one option when it comes to stakes. That is to say, if you have £500 in your stock broker account, you can only buy £500 worth of shares - and nothing more.
However, in the case of stock trading via CFDs, you have the option of applying leverage. In simple terms, this means that you can trade with more than you have in your UK stock trading account.
There are several ways that you can calculate leverage. The easiest way is to view it as a ratio. For example, UK regulations (ESMA) allow you to apply leverage of up to 1:5 when trading stocks. This means that a £500 account balance will permit £2,5000 in trading capital. Other asset classes, such as forex, gold, and indices - come with even higher limits.
The key point is here that leverage gives you a real shot at making a good living out of stock trading even if you only have a small amount of capital at your disposal. With that said, leverage also comes with the added risk of losing more money than you had hoped for.
Before we get to that, let’s explore how leverage actually works when using a UK stock trading platform.
- You decide to go long on Marks and Spencer shares
- You stake £200 and apply leverage of 1:5
- Later in the trading day, Marks and Spencer shares have increased by 5%
- On a stake of £200, you would have made just £10 (£200 x 5%)
- But, as you applied leverage of 1:5, your profit of £10 is multiplied by a factor of 5
- As such, your total profit on this Marks and Spencer trade is £50
It is important to note that by stock trading with leverage in the UK, you run the risk of being liquidated. We explain how this works in the section below.
Risks of Stock Trading With Leverage
Sticking with the same example as above, you were able to turn a £200 stake into a £1,000 buy order by applying leverage of 1:5. The £200 that you risked is what is known as ‘margin’.
For those unaware, the margin is simply a security deposit that you give to your chosen stock trading platform while your leveraged trade is open. In this example, this amounts to a margin of 20% (£200 of £1,000).
Now, you run the risk of losing this £200 margin if your position goes against you by more than you have in margin. In other words, you went long on Marks and Spencer shares, so if the stocks drop by 20% or more, you will lose your £200 margin in full.
This means you have been liquidated.
The liquidation point will vary depending on how much leverage you apply. For example, if you staked £200 at leverage of 1:3, this means that you are trading with £600. In margin terms, this amounts to 33.3% (£200 of £600). As such, if your 1:3 leveraged trade moved against you by 33.3%, you would lose your £200 stake.
The good news is that there are two ways to avoid being liquidated:
- You set up a stop-loss order on your leveraged trade. This will close the order if your chosen stop-loss price is triggered. We talk extensively about stop-loss orders and other risk management tools later.
- You add more funds to your margin account before you are liquidated. This will give you extra breathing room in the hope that the position turns around and moves back in your favour.
Tradable Stock Markets
When you use a traditional online stock broker, you might be limited in what shares you can buy, Sure, you might be able to invest in FTSE 100 shares and stocks listed on the NYSE and NASDAQ. But, access to other, less liquid marketplaces might not be possible.
This is in stark contrast to how UK stock trading sites work. That is to say, when stock trading via CFDs, you will have access to thousands of markets across heaps of UK and international exchanges.
This is because the UK stock trading site does not need to facilitate a share purchase. On the contrary, the creation of a CFD market means the instrument can track virtually any stock that is publicly listed.
For example, let’s suppose that you decide to trade stocks with popular FCA broker eToro. In doing so, you will have access to over 1,700 stocks from 17 different markets. On top of the UK, this includes everything from France and Saudi Arabia to Hong Kong and the US.
Note: All 1,700+ shares at eToro can be purchased in the traditional sense and traded via CFDs.
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Competitive Fees
Although we cover UK stock trading fees in more detail later on, it is important to quickly note that the CFD platforms are typically much more cost-effective in comparison to traditional share dealing brokers.
Once again, this is because the underlying stock does not exist. In simple terms, this means that in a lot of cases - you can buy and sell the instrument without paying any commission. Instead, you will likely pay a small fee that is built into the spread.
For example, you can trade stocks commission-free at eToro - where spreads on major markets are usually less than 0.25%. At the other end of the scale, old-school brokers will often charge you a flat fee to buy shares in the UK. This can vary from £5 to £15 per trade.
How Do You Make Money Through UK Stock Trading In 2023?
Put simply, in order to make money by trading stocks in the UK you need to predict whether the value of the shares will rise or fall. By making the right prediction and thus - closing your position for more than you originally started with, you will make a profit. And of course - if you speculate incorrectly then this will result in a loss.
Is Stock Trading Profitable?
Yes stock trading can be very profitable if you know what you are doing.
The most effective way of assessing your profits and losses is to calculate your stake against the increase or decrease of your position in terms of the percentage. For example, if you stake £100 and your stock trading position increases by 10%, then you’ve made £10.
In another example, if you short-sold a stock and it dropped by 20%, then your £500 would make you £100 in gains. If you then applied leverage to this trade of 1:5, your gains would be amplified to £500.
In terms of how much you can make by trading stocks in the UK, there is no one-size-fits-all answer to this question. After all, it can depend on:
- How much you stake on each trade
- How much leverage you apply to each trade, if any
- What percentage gains you have made throughout the month
- What fees you paid to your chosen UK stock trading site
- What risk management tools you had in place
All in all, you should try to build your stock trading capital up slowly, as opposed to going gung-ho from day one. We cover some risk management strategies that you can deploy later in this guide.
Placing a UK Stock Trading Order
Before you open an account with a UK stock trading platform, you will first need to get to grips with placing orders. In its most basic form, this lets the broker know what stock you wish to trade, and how to plan to profit from your prediction.
Below we list the most important stock trading orders that you need to understand.
1. Buy/Sell Orders
We have mentioned buy and sell orders a few times in this guide, so we don’t need to go into too much detail. The key point is that your choice of a buy or sell orders tells the broker which way you think the stock price will go.
As noted, a buy order means that you think the stock will increase in value. A sell order, on the other, indicates that you think the stock price will fall.
Don’t forget, each and every trade that you enter will require both a buy and sell order. This is because the opposite order in which you initially placed is required when you wish to exit the trade.
For example, if you open with a buy order and you wish to close the trade, then you need to place a sell order. And in reverse - if you enter with a sell order you need to close with a buy order.
2. Market/Limit Orders
All UK stock trading sites/platforms will give you the option of placing a market order or a limit order. This is with respect to the price that you wish to enter the market.
In the case of a market order, the UK stock trading platform will execute your order at the next available price. This means that your order will enter the market instantly, albeit, it might be at a price that is a smidgen higher or lower than what you see on the screen. This is because stock prices change on a second-by-second basis.
For example:
- You want to trade Unilever stocks - which are currently priced at £4.70 each
- As per your market analysis, you think that over the course of the next hours days the stocks will increase in value
- As such, you place a buy order
- You want the position opened straight away so you opt for a market order
- You broker executes your buy order in less than a few seconds at a price of £4.69
As you can see from the above, as per constantly changing market conditions you got a price just below what you saw on screen. Equally, the price that you got from your market order could have been just above £4.70.
In the case of a limit order, this allows you to specify the exact price that you want your UK stock trading provider to execute the position.
For example:
- Let’s stick with the same example above, whereby Unilever shares are priced at £4.70
- However this time, you don’t want to enter the market until the shares hit £4.90
- The reason for this is that you want confirmation from the markets that your prediction of an upward trend is correct
- As such, you place a buy limit order at £4.90
- A few hours later, Unilever shares are priced at £4.90 each, so your buy limit order is matched and thus - your position is live
As you might have guessed, your limit order will only go live if and when your specified price is matched. If it isn’t, the limit order will remain pending until you cancel it.
3. Stop-Loss Orders
Make no mistake about it - stop-loss orders are crucial when trading stocks online in the UK. This is because they allow you to limit the amount that you can potentially lose from a trade.
For example, if you want to ensure that your stock trade does not yield a loss of more than 4%, you can instruct your broker to close the trade if the position goes in the red by 4%.
Then, if the stock continued to plummet - it wouldn’t matter from your side. After all, you’ve also closed the trade and have limited your losses to 4%.
Here’s an example of how you can effectively deploy a stop-loss order to limit your losses when trading stocks.
- You want to trade Diageo shares - which are priced at £25 on the London Stock Exchange
- You think that the price will increase, you place a buy order
- However, in full recognition that your prediction might not go to plan, you want to mitigate your losses to 5%.
- 5% of a £25 stock price amounts to £1.25
- As such, we need to set our stop-loss order to £23.75 (£25 - £1.25)
Once your trade is placed, you can rest assured that you won’t lose more than 5%. This is because as soon as Diageo shares go down to £23.75, your chosen UK stock trading site will close the position.
Guaranteed Stop-Loss Orders
In the vast bulk of cases, your broker will execute your stop-loss order if and when the specified price is triggered. However, using super-abnormal market conditions, there is every chance that this won’t happen.
This might be because the stock is rising or falling at such a parabolic rate that your order wasn’t matched by the markets. With that said, some UK stock trading platforms will offer a ‘guaranteed’ stop-loss order.
This is an additional service that will require a slightly higher trading fee/commission that you would have ordinarily paid. On the flip side, this does guarantee that your stop-loss order will be matched no matter what happens.
You likely won’t need to worry about this if you’re looking to trade major stocks such as those found on the FTSE 100 or Dow Jones. This is because these stocks benefit from heaps of liquidity and volatility is relatively low. However, it’s something to bear in mind nonetheless - especially if you want to trade stocks found in the emerging markets.
4. Take-Profit Orders
Take-profit orders allow you to set a price target on your stock trading position. If the specified price is subsequently matched by the markets, then your broker will close your position automatically. In doing so, you are able to lock in your profits without needing to manually sit at your device.
Here’s an example of how it works:
- Let’s stick with the same example as above, where you placed a buy order on Diageo shares at £25 each
- You’ve already set your stop-loss order to ensure you do not lose more than 5%
- When it comes to your profit target on this trade, you want to make 15%
- 15% of a £25 stock price amounts to £3.75
- As such, we need to set our stop-loss order to £28.75 (£25 + £3.75)
Crucially, we would strongly suggest that you deploy both stop-loss and take-profit orders when you trade stocks in the UK. Not only does this remove the need for you to close a position yourself, but it allows you to set clear entry and exit targets before the trade goes live.
This in itself is an effective risk mitigation strategy that virtually all seasoned stock traders use. As per the Diageo shares example above, only one of two things can happen thereon.
- If your prediction is correct and Diageo shares go on an upward swing, your trade will be closed when the stocks hit £28.75. This will yield a 15% profit as per your take-profit order.
- If your prediction is incorrect, your trade will be closed if the price hits £23.75 - as per your stop-loss order. This will yield a 5% loss.
5. Trailing Stop-Loss Orders
Although ‘trailing’ stop-loss orders can take a little time to get your head around, they do offer a really effective way to closing positions that are currently in profit.
In its most basic form, trailing stop-loss orders will adjust every time your stock trading position increases in value. This allows you to keep the position open for as long as the trend continues.
For example:
- Your stock trade is currently in the green by 15%
- You are somewhat happy with your gains, but you don’t want to close the position just yet. After all, the stocks could continue to rise meaning even more profit.
- As such, you set your trailing stop-loss order at 5%
- This means that from this point onwards, you cannot lose more than 5% of the profits you have already made
- Crucially, if the stock continues to rise, as will the trailing stop-loss price
The most important thing to remember is that the trailing stop-loss price will continue to increase in-line with your profitable position.
But, if the stocks then move in the opposite direction, your trailing stop-loss price will remain where it is. Once again, this ensures that you remain in the trade but that you protect a proportion of the profits that you have already made.
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UK Stock Trading Strategies And Systems
So now that you know the importance of stock trading orders, we now need to explore what strategies and systems you have at your disposal.
Types of Stock Trading Strategies
There are many ways in which you can trade stocks in the UK. This largely centers around the length of time that you keep a position open.
In turn, the shorter that you keep a position open, the smaller your profit targets are likely to be. This is because stocks can only move by a certain amount in a single day of trading.
Nevertheless, below we list the most common types of UK stock trading strategies.
Day Trading Stocks
In day trading stocks, you will need to be super-active. That is to say, most day traders place several stock positions each and every day. At the core of this strategy is that you will rarely - if ever, keep a position open past standard market hours.
Instead, you might place a trade and then close it a few hours or even minutes later. For example, you might spot a short-term stock trading opportunity on Royal Mail shares. You might place an order and then close it an hour later at a profit of 1.3%.
As you can imagine, you won’t get rich by making just 1.3%. However, the idea with day trading is that you will be making smaller gains but on a much more frequent basis than you would get with other forms of stock trading.
Swing Trading Stocks
Swing trading is also a short-term strategy. However, unlike its day trading counterpart, there is no requirement to open and close a position on a same-day basis. Instead, you will have as much flexibility as you see fit.
For example, while one stock trade might remain open for a few days, the next one might remain in play for several weeks. In most cases, the swing trader won’t keep their position open for more than a couple of months. Anything more than this and you would be considered a traditional ‘buy and hold’ investor.
The most important concept about swing trading stocks is that you will look to remain with the trend as long as possible.
For example:
- You are trading Facebook shares with a UK stock trading platform
- You have a buy order active which is currently 25% in the green
- You feel that the upward trend is coming to an end, so you lock in your profits with a sell order
- Your prediction is correct and Facebook shares and now moving southward
- In order to capitalize on this, you then place an additional sell order to catch the downward trend
Crucially, UK swing traders have no emotional ties to any of the stocks that they buy and sell. Instead, they are merely looking to follow wider market trends.
Scalping Stocks
Although this might sound somewhat obvious, scalping traders are only concerned about one thing - closing a trade in profit. But, what sets scalpers apart is that they are looking to benefit from super-small price movements on a stock - even more so than day traders.
In other words, while day traders might enter 2/3 positions per day, scalpers might enter dozens. The main thing that they are looking to achieve is to buy and sell the stock while it remains in a tight range. For example, let’s suppose that GlaxoSmithKline shares have been trading between £13.90 and £14.03 for several hours.
This represents a pricing range of just 1%. For as long as the shares go up and down within this range, the scalper will look to place heaps of buy and sell orders.
Crucially, the profit levels on each of these positions are likely to be less than 0.1%. But, as the scalper is placing such a large quantity of positions, these gains can and will very quickly add up.
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Bankroll Management
Managing your trading capital is super important. After all, the long-term goal must be to consistently grow this capital and thus - allow you to make some sort of a living from your UK stock trading endeavours.
One of the most effective ways of measuring your ability to protect your trading bankroll is to assess your ‘maximum drawdown’ percentage. This simply refers to the largest drop in the capital that you have encountered in a single period - say per month.
For example:
- In month 1 and 2 you make 10% and 15%, respectively
- You trading capital now stands at £5,000
- But, by the end of month 3, your capital has sunk to £4,000
- This means that your maximum drawdown is 20%
Ultimately, it goes without saying that the most risk-averse traders will ensure that their maximum drawdown percentage remains low. In fact, if this surpasses 10%, you might need to revisit your understanding of risk management.
Risk and Reward
Each and every stock trade that you place will come with its own risk and reward ratio. In simple terms, this can be quantified by asking yourself how much risk you are willing to take to reach a certain profit target.
There is no hard and fast rule with this one. But, a lot of seasoned traders try to make at least 3 times the amount they risk on a trade. This is known as a 1:3 risk/reward ratio. Let’s look at a practical example of how this works:
- You want to place a buy order on Waitrose shares as you think the price will increase in the next few hours
- You stake a total of £500 on the trade
- Taking a 1:3 risk/reward ratio, you are looking to make 3% in gains
- In pounds and pence, this amounts to a profit target of £15 (£500 x 3%)
- In terms of your risk, this stands at 1%
- On a stake of £500, the most you are willing to lose is £5
As you can see from the above, by deploying the appropriate orders (we discussed trading orders extensively further up in this guide), only one of two things will happen from this trade. You will either make £15 (3%) or lose £5 (1%). This allows you to set clear targets both in terms of maximum risk and potential rewards.
To clarify, in taking a 1:3 risk/reward approach, you only need 1 out of every 4 trades to return a profit for you to break-even. This translates into a ‘win ratio’ of just 25%.
For example:
- Trade 1: -£5
- Trade 2: -£5
- Trade 3: -£5
- Trade 4: £15
As per the above, 3 trades lost a total of £15, and then the fourth made £15 - taking your net gains to £0. Crucially, as you become more and more knowledgeable in how to read and analyze technical/fundamental data (which we cover in the section below), you would expect to have a win ratio that is greater than 25%!
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Fundamental Research
There are two main segments of research that you can undertake in trying to understand the future direction of a stock. This consists of technical analysis and fundamental research. In this section, we will discuss the latter.
So, fundamental research is the process of keeping tabs on real-world events and how these events might impact the price of a stock. In its most basic form, if a company releases its quarterly earnings report and the results are worse than expected, then you should expect the stock price to drop.
In a similar example, a company might announce that it has just won a new lucrative contract with the government. In light of this positive news development, the stocks will likely increase in value.
There are some important points to note about fundamental research in the context of stock trading. Firstly, day traders and scalpers pay little attention to the fundamentals. After all, they remain in a trade for such a small amount.
Secondly, it can be difficult to keep tabs on financial news around the clock. As such, you should make use of a platform like Yahoo Finance to ensure that you are kept abreast of key market developments.
In addition to this, you might consider using an economic calendar. This will display dates and times of key developments within the stock markets - for example, company earnings reports or central bank meetings.
Technical Analysis
If you are looking to trade stocks in the UK as opposed to investing in shares for several months or years, then it is crucial that you learn how to perform technical analysis. As the name suggests, you will be analyzing technical pricing charts with the view of finding trends.
Once you find a potential trend in the making, you will then be able to place an appropriate trading order.
To assist with the analysis process, you will need to understand how to use technical indicators. These are trading indicators that look for specific metrics - such as volatile or support/resistance levels.
Owing to the fact that there are over a hundred technical indicators used by UK stock trading pros, we couldn’t possibly list each and every one. However, below we discuss three technical indicators that you can begin using right now - not least because they are somewhat beginner-friendly.
Moving Averages
This indicator looks at the average price of a stock over a specified period of time. The most utilized time frames with this one are the 100-day and 200-day moving average.
Both of the aforementioned moving averages will be represented by a line on the respective stock pricing chart.
In theory, if the current stock is above both the 100-day and 200-day moving average, then market sentiment on the company is strong. In turn, this means that an upward pricing swing is either currently in place, or about to happen very soon.
On the other hand, if the current stock price is below the 100-day and 200-day averages, then this would indicate that investors are bearish on the company.
Relative Strength Indicator (RSI)
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The Relative Strength Indicator (RSI) is measured in percentage terms - from 0 to 100. It looks specifically at current market action on a stock in terms of buyer/seller volume. In simple terms, if there are more buyers than sellers by a significant amount, then the stock could be overbought.
In turn, this means that a short-term market correction might be in the making. This means that the price will temporarily go southwards until the trend resumes. If this is the case, then the RSI would yield a percentage of 70% or more.
If on the other hand, the RSI percentage is at 30% or less, it could mean that the stock is overbought. This means that while the stock might be in a prolonged downward trend, a short-term market correction could be about to come into play. If it does, then the stock price will temporarily increase, before resuming its downward trend.
Moving Average Convergence Divergence (MACD)
The Moving Average Convergence Divergence (MACD) - pronounced MAC-D, allows us to evaluate the momentum of a stock price. In particular, it looks at the current strength and duration of a trend.
For example, let's suppose that HSBC stocks are up 9% in just two weeks of trading. It can be difficult to know whether this trend is short-lived or an indication that the stocks are now in a longer-term recovery phase.
By using the MACD, this technical indicator can shed some light on the aforementioned conundrum.
Crucially, if the MACD is above the current signal line, then it indicates that traders should buy the stock. On the contrary, if the MACD is below the signal line, then traders should look to short-sell.
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Automated and Semi-Automated Stock Trading
As you might have guessed, you will need to dedicate a significant amount of time to both technical and fundamental research. This shouldn’t deter you from getting involved with the UK stock trading scene.
After all, once you learn the ins and outs of how to effectively analyze the value of a stock, you’ll give yourself the best chance possible of making consistent gains in the long run. On the other hand, it can be frustrating if you’re super-keen to start trading stocks in the UK but you don’t quite know how to determine the future value of a share.
You’ll be risking your own money, so each incorrect speculation that you make will result in a financial loss. Too many of these loss-making positions will likely see you hang up your stock trading boots for good.
Taking all of the above into account, some newbie stock traders in the UK will turn to a form of automated trading. This means that you will be getting assistance from a third-party. Possible avenues to take in this respect are stock trading signals (semi-automated), stock trading robots (fully-automated), or making use of a copy trading tool (fully-automated).
Stock Trading Signals
There are hundreds of providers in the online investment scene that offer stock trading signals. The provider will essentially send you a trading suggestion that lets you know which orders to place.
The suggestion might be on the back of an experienced stock trader that has performed technical and/or fundamental analysis. Or, it might be an automated service that utilizes algorithms and machine learning.
Either way, your stock trading signal might look like this:
- Stock: Apple
- Order: Sell
- Reason: RSI below 30%
- Entry: $118.00
- Stop-Loss: $119.18 (1%)
- Take-Profit: $113.28 (3%)
As you can see from the above, UK stock trading signals will provide you with all of the necessary orders that need to be placed. In turn, this means that you are not required to perform any research of your own.
Note: UK stock trading signals should not be viewed as a replacement for learning technical and fundamental analysis. After all, you are relying on a third-party to analyze the future direction of a stock, as opposed to making risk-averse decisions yourself.
Stock Trading Robots
Stock trading robots are advanced software files that you can install into third-party platforms like MetaTrader 4 and 5.
The software is backed by algorithms that will scan the stock markets on your behalf. If and when the algorithm spots a trading opportunity, it will then place the required orders. The main benefit of using a UK stock trading robot is that you can actively trade in a 100% passive manner.
Additionally, the robot is programmed to follow a set of predefined rules - meaning that there is no room for reckless or emotional decisions. On the other hand, stock trading robots should be utilized with extreme caution.
After all, you are allowing a piece of software to access your trading capital and thus - place buy and sell orders on your behalf. It is therefore not uncommon for the robot to burn through your entire bankroll if it hasn’t been set up correctly.
Additionally, stock trading robots do not have the capacity to interpret financial news. Once again, it is merely tasked with following the ‘what-if’ conditions that the developer has programmed in.
This means that a stock price might be heavily influenced by a recent news story but the robot will not be aware of this! We should also make it clear that there are thousands of so-called ‘profit-making’ robot providers in the online space that are nothing but scams.
They will publish bold claims on their website about making unfound riches through their robot. But, there is rarely any way to independently verify this, so do be careful. This is why we much prefer the Copy Trading feature at FCA-regulated broker eToro, which we cover in the section below.
Regulated Copy Trading Tool
If you are looking to benefit from a truly passive stock trading journey but at the same time want to avoid rouge robot providers, then we would suggest considering eToro. This fully licensed broker offers a feature called Copy Trading, which allows you to invest money into a proven UK stock trader.
This trader will then buy and sell stocks on your behalf in a 100% transparent manner. There are no additional fees for utilizing this feature, as the respective trader is compensated by eToro.
Crucially, before you invest in a trader you get to view heaps of important metrics. This covers each and every position the investor has ever placed at the broker, meaning you can view their monthly returns, prefered markets, risk rating, and average trade duration.
Read More: Copy Trading: The Ultimate Beginner’s Guide
If you are interested in taking the Copy Trading route at eToro, you only need to meet a $200 minimum - which is about £160-ish.
Your capital is at risk. Other fees apply.
The Importance of Choosing the Right UK Stock Trading Platform
So now that we have armed you with all of the information that you need to get your UK stock trading career off on the right foot, we now need to discuss the importance of selecting a platform.
This is because in order to trade stocks online, you need to do this through a broker. As you might have guessed, there are literally hundreds of such as platforms active in the UK stock trading scene. As a result, this makes it challenging to know which provider to go with.
To make the research process somewhat more bearable for you, below you will find a list of considerations to make before choosing a UK stock trading site.
1. FCA Regulation / FSCS Protection
Thinking about using a UK stock trading platform that isn’t licensed by the FCA? If so, you are walking into very dangerous territory. After all, you will be required to deposit funds into the broker to be able to trade stocks.
In turn, this means that you are entrusting the provider with your hard-earned money. This is why we strongly suggest that you only use FCA-regulated brokers like eToro. In doing so, you will also have the protection of the FSCS.
This covers your money up to the first £85,000 in the event that the broker went bust - much like you would get with a UK bank or building society.
2. Fees and Commissions
Every time you place a stock trade will you need to pay a fee to your chosen broker. This can vary quite considerably - not just in financial terms but in the way that the fee is charged.
For example, UK stock trading platform IG charges a variable commission. When trading stocks listed in the UK, this stands at 0.1%. While at first glance this might sound competitive, IG has a £10 minimum in place.
This makes it completely unviable for those of you that are planning to trade small amounts. For example, a £50 buy or sell order would cost you £10 in fees, amounting to a whopping 20%!
This is why we suggest using eToro, as the broker does not charge any commissions whatsoever when you trade stocks. In fact, whether its indices, ETFs, gold, oil, or any of the thousands of markets it supports, eToro is 100% commission-free.
In addition to commissions, you also need to check the following fees before signing up to a UK stock trading site:
- Spreads: Viewed as the difference between the ‘bid’ and ‘ask’ price of a stock, the spread is an indirect fee that guarantees the broker makes money. The wider the spread, the more you are paying to trade stocks.
- Deposits/Withdrawals: Some stock trading sites in the UK will charge you a fee to deposit and/or withdraw funds. This might vary depending on the payment method of choice.
- Overnight Financing: Otherwise known as ‘swap fees’, overnight financing is charged on CFD trades. It will kick in if you keep a position open overnight. This is why stock trading via CFDs is only suitable for short-term strategies.
- Inactivity: When a stock trading site marks your account as dormant, you might need to pay inactivity fees. This is usually after 1 year of inactivity, but some brokers implement the fee after just 3 months.
All in all, the above fees can and will have a major impact on your ability to make long-term profits. This is especially the case when trading stocks as your profit margin targets will likely be small.
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3. Markets and Exchanges
If you’re looking to trade stocks from a specific market, you need to ensure that your broker gives you access. When using a UK stock trading site it goes without saying that you will be able to buy and sell FTSE 100 shares.
But, if you want access to other UK markets - such as the FTSE 350 or AIM, check whether or not this is supported before signing up. Similarly, if you are looking to trade stocks listed on international exchanges like the NASDAQ or NYSE, be sure to explore whether the broker offers the specific market.
4. Features and Tools
You’ll likely want to choose a UK stock trading site that offers a plethora of useful tools and features. For example, the best brokers allow you to perform technical research with a variety of drawing tools and indicators. It’s also good when the broker offers fundamental data - such as financial news and company earnings reports.
When it comes to automated trading, you need to check whether or not your chosen platform can support your desired avenue. For example, stock trading robots require a third-party platform like MT4. Not all UK brokers are compatible with MT4.
Similarly, if you are interested in taking advantage of a Copy Trading system, then you need to use a broker like eToro. The aforementioned platform has thousands of verified investors that are part of the Copy Trading program, so you have plenty to choose from.
5. Payments
Don’t forget to check what payment methods your chosen UK stock trading site supports. In our view, the easiest way to get money into a broker is via a UK debit/credit card. This is processed instantly and 100% safe.
E-wallets like Paypal are also good for the reasons just mentioned. Most UK stock trading sites will offer support for bank transfers. Expect delays of 2-3 days when opting for this payment method, meaning you won’t be able to trade straight away.
On top of supported payment methods, you should also check the broker’s withdrawal policy. For example, while the best platforms process withdrawals requests within 48 hours, some are known to take much longer.
Other things to look out for when choosing the best UK stock trading site for your needs are:
- Customer Service - Opening hours and support channels (live chat, etc.)
- Reputation - How the broker is rating by the UK trading community
- User-Friendliness - Check whether or not the platform is suited for newbie traders
- Leverage - Explore whether the broker offers leverage and at what limits
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Stock Trading UK Guide: The Bottom Line
This Stock Trading UK Guide has outlined each and every metric that you need to consider before risking your own capital. Although super-extensive and somewhat long in nature, we have ensured that no stone has been left unturned.
As such - whether that’s with regards to placing orders, understanding risk management, deploying a strategy or performing technical research - you now stand the best chance possible of starting your UK stock trading career off on the right foot.
If you’re ready to start trading stocks in the UK right now, eToro is by far the best platform to sign up with. This FCA-regulated broker is home to over 13 million investors, not least because it offers a safe and low-cost way to access the markets.
Most importantly, your capital is protected by the FSCS, so there should be no concern about the security of your funds.
eToro – Top Stock Broker In The UK
eToro have proven themselves trustworthy within the stock market industry over many years – we recommend you try them out.
Your capital is at risk. Other fees apply.