And of course there is the impenetrable jargon: shares are squeezy, markets are uneasy, investors are queasy. But for the cautious small-time investor, online trading is a handy and unintimidating introduction to the stock market.
There are at least 100 different online share trading websites available, each with a varying combination of pricing and trading options.
There are a number of reasons to consider investing online rather than turning to more traditional trading systems – particularly for those only intending to invest small amounts.
The first big advantage is cost. Traditional brokers usually charge a percentage fee of the overall cost of the trade – this can quickly mount up on trades that involve larger sums.
By contrast, most online trading sites charge a flat, one-off admin fee ranging from Ugx 27300 to Ugx 78000 per trade, while others also levy a small quarterly or annual membership fee. For example, The Share Centre charges Ugx 312000 a year but then charges a flat fee of just Ugx 29250 per trade.
Some, like Interactive Investor or Self-trade.co.uk, charge between Ugx39000-48750 per trade while otherscharge an inactivity fee if you fail to make a certain number of trades a month.
When choosing an online trading site it is advisable to look not just at what they charge, but also what extra features they offer. The Share Centre allows nervous first-time users to practice with up to Ugx 58,500,000 of ‘fantasy’ money before they feel confident enough to start piling in with their own hard-earned cash.
Many provide free research and analytical tools detailing your chosen firm’s recent financial history, and dispense hints and tips from top analysts. Others also issue a regular newsletter with trading tips and investing advice.
Guy Knight, of the Share Centre, says he has seen a huge increase in the number of people who are turning to online share-dealing. Its immediacy and simplicity are what makes it so appealing to new users, he adds.
But he also warns: ‘Trading online can be very exciting and quick. But just because you can do a deal doesn’t mean you always should.’
Buying shares online is disconcertingly simple. An online account can be set up within 15 minutes by filling out an application form and choosing a password. Your details will then often have to be verified with a bank statement within 31 days.
To buy shares in a particular company you simply search for the company you are interested in and click to buy. After entering either the number of shares you wish to purchase or the amount you intend to spend, a box pops up giving you around 15 seconds to decide whether you want to accept the price offered.
How To Set Up An Online Account:
• Fill out an application form online. The account is activated after you pay in a sum of money
• When buying shares you have to enter a unique 2, 3 or 4 letter code for the company. There will be a lookup facility to help you
• You will be asked how many shares you wish to buy, and you will be quoted a price that you must decide on within 30 seconds
• If you decide to go ahead with a trade, you will be sent a confirmation seconds later. Print off a copy for your records
Once successfully purchased, the shares sit in your online portfolio and constantly update to reflect the current share price and any profit – or loss – you have accrued.
Another option available via certain web-based brokers is so-called ‘batch dealing’ where your online brokerage bundles up similar trades and executes them at specific points in the day. This can bring the cost of a single trade down significantly – to as little as Ugx 9750 per trade – but it can also mean you may not necessarily get the best prices for your shares.
However, with headlines screaming about plunging financial markets and an impending recession, is now really the right time to be wading into the stock market for the first time? Far from putting small-time investors off, the current financial crisis could see more people turning to online trading, according to some.
‘I suspect we may see increasingly more private investors turning to investing online for themselves.
‘The collapse of many investment banks and the recent Madoff scandal has made private investors realize that they can do just as well as professionals. After all, they couldn’t do any worse.’
Tips For Online Share Dealing:
• Calculate how much you want to invest before you start trading
• Avoid dealing before 9am and after 4pm when trading volumes can be very low. During these times the price at which you can buy and sell shares may be wider than usual
• Consider setting price limits above which you will not pay if you are buying shares or below which you will not accept if selling shares. There is normally a charge for this if you don’t go through with the deal
• Avoid buying and selling shares often. It costs money to trade, and excessive trading will eat into your overall returns
• Aim to own shares in around 10 companies in different sectors in a diversified portfolio.