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Stock Market - Beginners Advice

Discussion in 'Money, Accounts & Finance' started by uhafmail, Jun 4, 2010.

  1. uhafmail

    uhafmail

    Joined:
    Aug 25, 2008
    Messages:
    6,469
    Not really sure where the correct place to post this is so i have decided to write it here.

    I have been asked in the past by quite a few members on here for advice when it comes to the stock market and dealing in shares (have made a few of you quite a bit with my tips too!) so have decided this is the time to give out some basic advice for all.

    Which Stockbroker?

    Before you can buy shares you first need to have a share dealing account with one of the many stockbrokers. This is completely down to personal opinion, i am with Barclays and have never had a problem with them in the last 3 years of trading (touch wood). Below are a few links to the most well known brokers:

    http://www.stockbrokers.barclays.co.uk/

    http://www.natweststockbrokers.com/nw/products-and-services.ashx

    http://www.halifax.co.uk/sharedealing/share_dealing_home.asp

    All brokers charge different amounts but most range between £10 and £20 for each trade. However, there are companies that offer very low trading costs. They call them "Portfolio Builders". They basically work by collecting thousands of orders and placing them on a few select dates per month, this has the benefits of very low commission costs but if it is a fast moving share then they may not be appropriate. Prices for Portfolio Builiders start at about £1.50:

    http://www.iii.co.uk/sharedealing/?type=portfolio


    Which Market?

    Now you have your share account set up you can start researching in the companies you want to invest in. There are a few different markets to choose from; FTSE 100, FTSE 350, AIM, etc. Each market is good for different things.

    If you want a share that will slowly rise in value over a number of years paying dividends (a proportion of the years profits that gets paid out to it's shareholders) then investing in a FTSE 100 company is your best bet, investing in high street companies that everyone has heard of. However, for me the FTSE is too boring and performs especially poorly during economic uncertainty.

    All my trades are on the AIM (Alternative Investment Market). Companies are smaller and in their infancy. This provides huge profit potential but of course has a higher risk associated with them. Most companies you will never have heard of yet but have the potential to become market leaders.

    Research

    The number one tool to an investor is research!

    First you need a company to research. There are various tip websites, these are not something i use but there are a few shares i hold that have been tipped by a few of them but you should always do your own research! These tipsters have their own agenda! They buy the shares just before they release their report and can very easily make a quick buck after all the private investors (thats me and you) jump on board pushing the price up.

    Sites like:

    http://www.growthcompany.co.uk/

    http://www.redhotpennyshares.co.uk/

    Some charge some don't but most offer free trials!

    One of the biggest sources of information are internet message boards. Both III and ADVFN offer this service coupled with basic share information. I use www.iii.com but www.advfn.com is well worth a look and it is just up to personal opinion.

    News gets released via an "RNS" anything that is price sensitive information will be released via this. An RNS can cause a price to plummet or sky rocket so it is very important to keep an eye out on these! there are services that can text you when a company you are invested in receives an RNS, these texts cost £0.25 per message but are well worth it as an RNS can come out at anytime during the day (Markets open at 8AM and close at 4:kiss:0PM).

    www.RNSZone.com

    However, all RNS' can be read online via iii.com or advfn.com for free.


    Buying and Selling

    The two terms you will need to understand are the bid and ask.

    The bid is the price at which buyers are willing to purchase a share for.

    The ask is the price the seller is "asking" for the share.

    When you buy a share in a company an important thing to consider is the "spread" which is the difference between the buying price and selling price. It is very easy to ignore this when making a decision but with AIM companies the spread can be huge and can very quickly set you at a sizeable loss from the off.

    Example:

    ViaLogy (VIY) is a company i am currently invested in. The bid is currently 4.5p and the ask price is 3.75. Although 0.75p does not sound like a great deal it means that the share price has to rise 20% before you even break even - that ignored the broker fees applicable to buying and selling the shares too!

    I don't reccommend people buying any less than £500 as the buying and selling costs will mean the rise in share price needed just to break even is too much.

    I use http://www.shareprice.co.uk/ to get LIVE free share prices, most prices you see are 15 minute delayed so it can be beneficial to have live prices.

    Buying and Selling Orders

    When you are looking to buy or sell a share there are various tools that Stockbrokers give you that you can use to your benefit.

    If you are looking to buy a share that you think is currently overvalued but at X price would be a good buy you can place a Limit Order that guarantees the price you buy the share but not it's execution. These orders can also be done for selling shares when the prices reaches a certain point and locking in your profit.

    Then we have Stop Losses or Stop Order these basically try and protect you from losing too much money or if the share price has risen, it can help lock in your profit. basically a Stop Loss will be set at below the current price and is executed when the price reaches or falls below this level.

    HOWEVER, all these tools have their negative sides. Limit Orders are not guarenteed even if your criteria is met, if the price moves quickly then your order may not be made. We then have the possibility of bad news being released in a share and your Limit Buy Order being met and you purchasing shares in a company whos share price is falling quickly.

    Stop Losses can catch a lot of people out, if the price is falling quickly your exit price is not gaurenteed and normally it only gets executed when it's reached the bottom and better prices could have been achieved by doing the deal manually. You also have the chance that a small fall in share price during the day triggers your Stop Loss and then the next day the share price has a huge rise and you have lost out. this actual sceneiro happened to a lot of people invested in Rockhopper (RKH) on wednesday falling from 270p to 240p and then on friday rising from 240p to 375p at one point.

    My personal advice is do not use these tools if you are an investor rather than a trader. If you are looking to buy and sell the shares in a day or a few days then they can help but if you believe in the companies fundamentals then a few percent either way shouldn't make much of a difference!

    TAX

    Every time you PURCHASE shares you are required to pay Stamp Duty and this charge is added on to the purchase cost when you buy the share, it is set currently at a flat rate of 0.5% of the purchase cost.

    Capital Gains Tax (CGT) allowance is currently set at £10,100 and then 18% there after, CGT is only payable once you SELL your shares and you can offset any profit you make on one share against a loss in another.

    I hope this guide has helped a few of you, i am sure i have left things out and i will add more information about more specific things if and when people ask for it.


    My Current Portfolio and Top 10 Watch list:

    AFC Energy (AFC)

    Blinx (BLNX)

    BPC (BPC)

    Corac Group (CRA)

    Desire Petroleum (DES)

    Forum Energy (FEP)

    Kea Petroleum (KEA)

    ReNeuron (RENE)

    Rockhopper (RKH)

    ViaLogy (VIY)

    Good Luck with your investment!
    laprepair likes this.
  2. Andy777

    Andy777

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    23,419
    Great Article! :welldone:
  3. conrad

    conrad

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    very good.
  4. uhafmail

    uhafmail

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    Thanks :) Hope it can be of benefit to a few people :)
  5. jayjrc

    jayjrc

    Joined:
    Jul 11, 2008
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    thanks, i'm going to subsribe to this thread! something im interested in, is the minimum amount you can spend £1000 on shares? i thought i heard this but wasnt sure, fingers in many pies and all that, this will be good if your making a bit of profit i supposze
  6. uhafmail

    uhafmail

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    There is absolutely no minimum spend. If you wanted to you could buy one 1p share - obviously you would still have to pay for making the trade but there is no minimum spend.

    I would always recommend spending at least £500 per trade though, if only because it minimises the significance of the spread and transaction fees.

    There is plenty of profit to be made on the market at the moment. I have just sold one share for a just shy of 900% profit in 6 weeks. However, research is key!
  7. Hugh Hardiman

    Hugh Hardiman

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    Thanks uhafmail :)
  8. lordan

    lordan

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    Uhafmail, thank you for getting this together so soon. Have a nice holiday btw.
  9. lordan

    lordan

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    Could anyone recommend a good recent book/guide to read for the beginner in stocks & shares?
  10. idsellmenan

    idsellmenan

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    Thank you for this really great info :Clap:always been intrested in shares but have always found the process confusing so cheers for making it simple . :)
  11. weeman69

    weeman69

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    Mar 2, 2009
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    Haha, I too have been invested in this company for just over 18months or so now. Bought 25,000 at an average of 1.83p ! :p

    Sorry to super Ramp here but I acnt resist... Lol

    Another one to possibly look at, at the moment in BMR...

    They are a mining company, that has basically just found out it is sitting on around 7.5million tonnes of HIGH GRADE lead and zinc!!

    Currently hugely undervalued at 2.35p when the fair value is around 8p!!

    Possibly because they will be taking a 30m placing soon to raise the cash so they can start getting this out of the ground! As soon as the rns release says that all is well... I rekon this will soar! all IMHO (in my honest opinion) and do you own research etc etc.
  12. woodleyB

    woodleyB

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    The first book I read about shares was by a guy called Robbie Burns and is called 'The naked Trader'.
    http://www.amazon.co.uk/Naked-Trade...=sr_1_2?ie=UTF8&s=books&qid=1275686688&sr=1-2
    The book came out in 2007 I believe, and is a pretty laid back book/guide on trading and gives a few tips.
    Maybe start with that as there isnt tonnes of jargon, and then maybe buy a more 'advanced' book afterwards.
  13. Gary

    Gary

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    Aug 22, 2009
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    Thanks for the time taken to write this, not something I am looking at immediately but something I have always wanted to do so this will definately come in handy for future reference.
  14. stowenterprises

    stowenterprises

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    May 27, 2010
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    Great thread, been planning for a while to invest.

    Thanks for sharing your knowledge.
  15. 0754ben84

    0754ben84

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    I personally use ADVFN for my research.

    It has some excellent research tools.

    When I first stared trading my biggest problem was that I didnt know where to start in finding a share to invest in.

    But the top 10 gainers option in their tools is an excellent place to start (also top 10 losers if you're going short)

    For the beginners, going short on a share means selling a share which you do not own, in the hope that the share price will fall so you can buy it back at a lower price - keeping the profit in between. (a perfectly legal tactic)

    It sounds complex but in practice is very easy. I have had great success with this tactic recently with BP:Clap: - the share price has fallen through the floor since the 23rd of April when their oil pipe burst!!!

    Something I personally think is very important for beginners, or someone like me who works and cant be in front of the computer all day, is the use of a STOP LOSS.

    This is an excellent tool that will put you into, or take you out of a share when it hits a certain price set by yourself. (most trading platforms allow you to do this)

    For example:

    XYZ company's share price is £1.52 but I want to buy it if it rises to £1.60. So instead of looking at the screen all day and pressing the buy button when the share price reaches £1.60, I place a BUY ORDER at £1.60. That means that when I am out walking the dogs or sat on the loo, I am AUTOMATICALLY buying the share when it reaches £1.60.

    It also works the other way for example:

    I bought XYZ company for £1.60 a share and the share price has gone up to £4.50 but I want to sell the share if it goes down to £4.40. So again, intead of waiting in front of the computer for the share price to fall (which it might not do, it may go to £7.00).
    I place a SELL ORDER so it sells that share if it falls to £1.40. No matter what I am doing.

    Buy orders and sell orders are referred to as STOP LOSSES, they can be an excellent insurance policy for beginners or people who dont spend all their time at the computer. Some people dont like to use them but I do.

    I recommend the book, 'The Naked Trader' by Robbie Burns. It is written in PLAIN ENGLISH so even a monkey can understand it. It is also quite funny.

    He also does seminars from time to time. I went to one with him last year. £500 for the day but it was worth every penny. He has a nack of making a complex subject very easy to understand.

    I hope my input has helped.:welldone:
  16. uhafmail

    uhafmail

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    I didn't originally mention shorting because it is much more complex than normal trading and it is a very easy way for a beginner to lose a lot of money.

    I also didn't mention buy orders, sell orders, limit orders, stop losses etc. I probably should have done and will add a section now.
  17. 0754ben84

    0754ben84

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    If you spend most of your time in the AIM market, I take it you trade rather than in invest?

    I have a Self Invested Personal Pension and trade the odd AIM share but they can be a bit too volatile for my liking to be invested heavily. I invest in fundamentals for my pension mostly.

    I have also done quite well reacting to the news recently as I mentioned BP.

    I have actually spread betted that since the 23rd April and the returns have been awesome!!!:Clap:

    And..........no tax to pay:D
  18. lordan

    lordan

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    Just bought The Naked Trader of Amazon, seems like one of the better reads for the beginner plus I also purchased Rich dad Poor Dad, as I have been meaning to read this from it was published....
  19. woodleyB

    woodleyB

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    I found it a really useful book for beginners, very easy read and easily understood.
    Its a good book, I'm always reading bits again when I need to quickly find a simple answer to something.
  20. Rala Clothing

    Rala Clothing

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    May 27, 2009
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    1,058
    I would love to get into buying/selling shares, is there any way for under 18s to trade?
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