Investing in Stock [First Attempt - Low £]

Spadez

Hi guys,

Im 20 and im looking into investing in stock for the first time. Im going to invest around £500 in three different companies. I know im not going to make a fortunue, in fact Ill be pleased if I can break even, but Im going to use it as a learning curve for the future.

I want to use a execution only broker to save costs. Can anyone recommend a good broker for these low investment deals? I dont really want to be paying for any "special" services like 24 hour support, I want it to be cheap and simple. Im based in the UK.

I really have no experience of this so im not sure what I should be looking for. Ive been reading up on how to invest, but I would still appreciate some insight from users of this forum.

Thanks!

James

ses6jwg

I'm 21 and started back in May.

I use Interactive Investor. £10.50 per trade or £1.50 as part of portfolio builder.

£500 each or £500 per share?

TBH its not really worth investing any less than £500, or even £1000, in any one share, as the costs add up.

If you want to learn the ropes, I would suggest setting up a fantasy trading account with a "fake" 10k and trading that for a couple of months.

Spadez

Hi Ses6jwg, thanks for the reply.

When you say £10.5 per trade, does that mean that if I invested £500 into shares in a company, there would be a one off charge of £10.50? Is there any change to convert the stocks to pounds?

I have played about with fantasy trading accounts for a while, but unfortunatly this doesnt teach me about the process of investing real money. I was thinking of splitting the £500 over the three companies. I really dont have the kind of money to invest £1000's currently, I know im not going to make money this way, but as long as I dont lose much and learn how the system works im happy.

Do I really have to use a broker. If im going to use an execution only broker (i.e no advice / support), couldnt I just buy the stocks direct from the company and fill out the paper work myselfto save money.

Sorry if these questions are basic, but I really appreciate the help.

Blah99

Spadez, you don't have enough money to buy a diversified position, or to run a reasonable chance of making a profit in the shares you're buying. If you are doing this just to learn, then set up a portfolio with any of the websties (iii, ADVFN, Digital Look, Google FInance etc) and make some dummy trades - in other words, decide on which shares you'd like to "buy" and add them to your portfolio without actually buying them. That will let you test your decision making skills without risking your cash.

The problem you'll run into with that low capital is twofold. First, puting £500 into a single company means you'll need a big rise in the share price just to break even. Remember you pay £10 - £15 per purchase in broker fees, stamp duty, then another £10-£15 per purchase in sale fees. Here's an example:

http://www.iii.co.uk/investment/detail?units=400&ask=135.90&buy_com=10.00&stamp_duty=0.5&sell_com=10.00&code=cotn%3ABT-A.L&display=prospector

Here you can see that buying 400 BT shares will cost you £543 for the shares, but when you add on the purchase, stamp and sell fees they actually cost you £566. So, if you look in the table on that page, you can see that your profit point is 4.26% away - your shares must move 4.26% before you even break even, let alone make some money. Keep looking down the table and you can see how larger volumes need smaller moves to make bigger profits.

When you say £10.5 per trade, does that mean that if I invested £500 into shares in a company, there would be a one off charge of £10.50? Is there any change to convert the stocks to pounds?

There's a purchase fee, government stamp duty tax, then a sale fee. As above.

Your questions really show you don't understand how share dealing works. The best thing you can do is do a lot of reading. Start by buying a book called "The Naked Trader 2" by Robbie Burns, then you'll have a much better grasp of investing.

Spadez

Blah99, thank you for your detailed reply. I'm obviously over my head at the moment! I've ordered the book on amazon for a bit of night time reading.

Regards,

James

JoeCrystal

:beer: Welcome to ugly yet beautiful world of stock trading.

I for myself invested about £1,200 into five companies by using Halifax Sharebuilder/Interactive Investor Portfolio Builder which only charge £1.50 trade fee as well stamp duty. The disadvantage is of course is that you can only buy shares on certain days of the month. (Basically, in order to buy £240 worth of share come with stamp duty of £1.20 & fee of £1.50 thus total cost of £242.70. The share would need to go up only by 1.11% just to break even... I think)

I am also starting out and for now, it is only really to understand the whole system and understanding words and so on for one day when I will do the serious investing.

But basically, do lot of research and only do investing when you can clearly can afford to.

Spadez

Thank you for the advice. It seems a little daunting but im sure I can get my head around it eventually.

Aside from the previously suggested book, are there any other good sources of information to help me on my way?

ses6jwg

I am probably going to be shot down for this but you could try spreadbetting!

Basically you dont actually hold the stock you "bet" on it to go up, say £2 per point.

You dont pay any fees or tax, you have a "spread"

Say for example GoodCorp is trading at £2.50

You think GoodCorp will do well up to Xmas so you go "long" and buy it at £2 per point. The buy price is £2.55.

On the other hand BadCorp is having a rough time, so you "short" the stock i.e. bet on it to go down!

However this form of investing is very risky as you can lose more than you put in but its better for those with less from the outset!

I.e. GoodCorp goes bankrupt and the shares plummet to 5p!

The spreadbet company rings you and wants their money!

ricll

Blah99 wrote: »

(...)The problem you'll run into with that low capital is twofold. First, puting £500 into a single company means you'll need a big rise in the share price just to break even. Remember you pay £10 - £15 per purchase in broker fees, stamp duty, then another £10-£15 per purchase in sale fees. (...)

Besides the costs above Spaldez, there's the spread cost too. Spread being the difference between sell and buy price. So if a company has a buy price (offer) of 50p and a sell price (bid) of 49p it means that if you buy 1000 shares at 50p (£500) you are already losing £10, as you would get only £490 if you were to sell immediately after the buy.

ricll

ses6jwg wrote: »

I am probably going to be shot down for this but you could try spreadbetting!

Basically you dont actually hold the stock you "bet" on it to go up, say £2 per point.

You dont pay any fees or tax, you have a "spread"

Say for example GoodCorp is trading at £2.50

You think GoodCorp will do well up to Xmas so you go "long" and buy it at £2 per point. The buy price is £2.55.

On the other hand BadCorp is having a rough time, so you "short" the stock i.e. bet on it to go down!

However this form of investing is very risky as you can lose more than you put in but its better for those with less from the outset!

I.e. GoodCorp goes bankrupt and the shares plummet to 5p!

The spreadbet company rings you and wants their money!

Not sure one can open a spread betting account with £500? Anyway I tend to think of spread betting as gambling rather than anything else.

wornoutmumoftwo

I don't have a lot of money to spare so I buy shares via my bank and pay 1.50 per transaction, it's a monthly portfolio and I believe they buy everyone's in bulk on a set day so the costs are lower. I only buy shares with what I can afford to lose (which isn't much but i'm slowly building up a nice little portfolio).