Don’t let the broker break you
There are loads of online brokers to choose from offering a whole host of different sorts of trading products, but beware, choose your weapon carefully. As a virgin share trader like myself, I would suggest a basic share dealing account and a self-selecting ISA account. Plain and simple. Leave the more exciting and dangerous trading activities for further down the road to market trading wisdom.
There are two main types of broker: ‘advisory‘ and ‘execution only‘ brokers. As the names suggest an advisory broker will give you advice on what stocks to acquire and sell, an execution only broker gives you no advice but will execute the buy and sell order on your behalf. I chose the ‘execution only’ route for my share-trading journey.
At first glance they all seemed to offer the same sort of service, the only real difference was price. However beware! It is important to check for any hidden costs. Several had trade commission offers, but on closer inspection these depended on a minimum number trades per quarter.
Most of the brokers I came across had annual management fees, and account inactivity charges. Dealing fees were usually between £10.00 and £12.50 per trade whether it is a buy or a sell. There is also stamp duty to pay on trades at (0.5%).
A couple of online brokers had sign up deals such as ‘your first 10 trades free‘, but as we all know, or should, free does not infact mean free at all. Free usually means until we get your direct debit setup and start sucking the money from your account then what a surprise it is not free anymore.
E*TRADE were particularly expensive on additional hidden extras. Although the dealing fees were £11.50 they also had management charges, inactivity fees, as well as minimum monthly trade allocations. It all adds up to an unnecessary overhead to have to cover on each trade just to break even. (www.etrade.co.uk)
The Share Centre was very reasonable at £7.50 per deal with no inactivity fee. They did have a £2.50 quarterly administration fee. (www.share.co.uk)
For example if you buy 500 shares of company A at £1.00, your costs for this deal would be:
| Cost of the shares |
£500
|
| Dealing commission (1%, or minimum charge of £7.50) |
£7.50
|
| Stamp Duty (0.5%) |
£2.50
|
| Total cost |
£510
|
