Share Dealing And Stock Market Trading: An Introduction

Share dealing is complex and requires confidence and patience

. But it needn't be the exclusive domain of professional traders. With a little practice and a lot of research, anyone can deal in an arena that potentially delivers a greater return on investment than bricks and mortar right now. Before you start though, you should consider how stable your financial position is.

The returns are potentially large, but for every winner there has to be a loser so you've got to figure out how you would cope with possible losses. You can limit your risks, especially if you choose online share dealing services, in a number of ways. You can set a limit on the price at which you buy or sell shares. These limit orders are free to set up with many brokers and some run for up to 90-days or you can instigate a stop loss order which triggers an automatic sale if the share price drops below a specified level and your shares are then sold at the next available price.

Share dealing could be for you if you are free of debt (aside from a mortgage), you have life insurance to protect any dependants, you are in your employer's pension scheme or have your own pension plan and are covered by an income protection policy should you suffer from a long-term illness. Ideally, you should also have between three and six months' savings available to cover in the event of redundancy or job loss.

Even if you do have all these in place, you still need to be aware that share dealing on your own is riskier than buying shares through unit trusts and investment trusts because these mechanisms 'pool' your savings with other savers in many companies, spreading the reward but equally spreading the risk. Share dealing for yourself means you're the one making the decisions and you must have the confidence and judgment to invest your own money.

If you feel confident about making the decisions, then look at execution-only dealing, where a broker carries out your instructions without giving advice. This is the cheapest type of dealing and you know the price you're getting when you do the deal, but costs vary among brokers. Other broker services will offer advice or take decisions for you, but they tend to be more expensive. Online dealing is proving popular and is the most common channel for execution-only dealing and most brokers offering this online service also provide research tools so you can make informed decisions and supply online services that allow you check your portfolio whenever you like.

The other common method of electronic dealing is through nominee accounts, where you have an account with a broker who is listed as the legal owner when shares are bought for you, but holds the shares in trust for you. An alternative, more suited to experienced investors, is to become a sponsored member of Crest (an electronic share-settlement system that charges GBP10 per year membership) that allows you to hold shares in your own name in electronic form.

by: Tom Hawkins

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