The internet has made it easier than ever to trade stocks and shares online. Not only stock brokers, but banks as well now offer online trading accounts, letting you buy and sell listed shares. Many shares can also be traded using spread betting or CFD accounts. If you are UK resident you can hold shares free of capital gains tax or stamp duty within an Individual Savings Account structure. Shares can also be held in a SIPP (Self Invested Personal Pension).
There are thousands of shares available to trade. Investors tend to prefer to buy and sell shares in their home country, but many now trade the big share markets like the US, UK, and Japan. Increasingly we’re seeing the emergence of massive international companies with a global presence which, although they may be listed on a specific market, have operations – and exposure – around the world. Just because a company is listed in the UK does not mean it is a UK company.
Take a look at the FTSE 100, the benchmark UK stock index, and you will see many companies that are not even British. The choice of market by the listing company may be dictated by the company’s ability to raise money on that market – via an IPO (Initial Public Offering) – rather than the country in which it does business. Companies can be listed on multiple exchanges as a result.
Investors in shares own a stake in a company. This entitles them to a dividend from the company’s profits, if any are paid out – which can be taken as income, or re-invested in more shares. However, if the company goes bankrupt, they are always the last to be compensated.
Companies are often classified according to their size. Large cap, or ‘blue chip’ companies are considered to be the biggest and most secure, usually with a market capitalisation (the value of their total listed shares) in excess of $5 billion. Below these are the mid cap companies, worth between $2 billion and $5 billion. Below $2 billion and you’re in the world of small cap firms, the potential giants of tomorrow, potential acquisition targets, or tomorrow’s bankruptcy headline.
Small cap investing is a riskier business than buying blue chip shares, but the possible gains can also be larger. Small caps are also rarely tracked by analysts, which means the price is more likely to change suddenly on company news.
It is possible to trade foreign shares online as well, but this can be more expensive. In addition, you take on the additional currency risk – the change between your investing currency and the currency of the market you are trading. This can cut both ways, sometimes enhancing the value of your foreign shares, and sometimes eroding it.Advertisement