Equity trading is buying and selling stocks in the stock market. Just like other investment approach the aim behind equity trading is to take advantage of the rise and fall of stock prices. Most investors prefer open and close short-term positions in equity trading.
In this guide, you will find everything you need to know about trading stocks in the UK. This guide not only explains how to approach equity trading as a beginner but also covers strategies that are best for equity trading in the UK. In this guide, we will also explain the top online brokers and how to initiate equity trading.
What is Equity Trading?
Stocks, shares, and Equities are three similar terms that are used mutually in the online investment space. Equity trading simply refers to the process of buying and selling the shares of publicly traded companies.
The goal of UK equity trading is to buy the shares at low prices and sell them at high prices. Equity trading can be done for a few minutes to a few weeks depending on your equity trading strategy. For example, if you think the price of HSBC stock is going to up then you can buy the shares at a low price and sell the stock as soon as the price goes up to make a profit.
You can also trade stocks when the price goes down. Selling a stock at a high price and then buying it back is called short selling. Short selling allows you to trade stocks in the UK whether the stock market goes up or down.
Cash Equity Trading
Cash equity trading is a term used to describe large financial institutions that buy and sell stocks on behalf of their customers. This works very similarly to the equity trading process discussed earlier. In other words, the role of financial institutions is to predict whether stock prices will rise or fall. If the prediction is correct, the lab will make money for that customer. It can be anything from individual investors to mutual funds. In return, companies that offer cash equity trading services receive a commission.
Method of Equity Trading
Currency trading can be carried out using a variety of financial investment instruments. This section covers the most convenient and popular ways to trade the stock market with an online broker.
Equity Trading via Shares
Most UK investors will simply choose to buy the underlying stock in the traditional sense. In other words, you are using an online stock broker that lists selected stocks. Then you need to decide how many stocks you want to buy. With this long-term strategy, investors typically hold the stock for several years. In the process, you may receive dividends, which you can reinvest in other investment companies.
The downside of equity trading is that there is no flexibility in trading. Small accounts cannot take advantage of limited purchasing power. Also, if you’re short selling, you’ll need to borrow money from a broker, which incurs an additional fee.
Equity Trading via CFDs
A CFD or contract for difference is a contract between a trader and a broker. CFD trading is a powerful way to trade stocks in the UK. A Contract for Difference (CFD) is a contract with a broker that allows you to guess the future price of a stock without actually owning it.
CFD buyers will charge or collect the difference between the CFD price at the time of sale and the purchase price. If the price at the point of sale is higher than the purchase, it means that the buyer has made a profit, and conversely if the prices are less then the buyer will suffer losses.
The advantage of trading CFDs on stocks is that you can buy or sell CFDs to bet on price movements in either direction. Another advantage is that you can leverage your CFD trading to double the effective size of your position.
Equity Trading via ETFs
ETFs or Exchange Traded Funds are a themed basket of stocks. While you can follow changes in stock indices like the CAC 40 or the S&P 500, there are also very broad thematic ETFs that you can invest in areas like biotech or real estate.
Some ETFs specialize in green companies and ETFs that specialize in dividends. Whatever your preference, there will be a tracker to suit your needs. So, like stock indices, diversification is one of the main advantages of ETFs.
Equity Trading via Options
Equity options, more commonly known as stock options offer a more sophisticated approach to trading. For those who don’t know, the option gives you access to the market of your choice by paying a small “premium”, usually in the 5-10% range of the contract value.
Each option contract typically consists of 100 shares. Instead of placing buy and sell orders to account for expected price movements, you must choose between a call option or a put option. Unlike futures, options provide a “right” to buy or sell stock on or before the contract’s expiry date, but not an obligation. In other words, if the prediction fails, you lose only the premium and nothing else.
Equity Trading Strategy
All UK-rated stock traders have multiple strategies they can trust. This way, you give yourself the best chance to receive lasting benefits. As a beginner, it is important to find the equity trading strategy that best fits your goals. There are several equity trading strategies are available you can select as per your risk exposure.
Buy and Hold strategy
If you are new to the world of equity trading, you may want to stick with a simple “buy and hold” strategy for now. This means buying a stock in the traditional sense and holding it for months or years. It is important to be able to avoid ups and downs in short-term price trends. Instead, they are more interested in the long-term prospects of the chosen company. In addition to this If the company pays dividends, a buy-and-hold strategy suggests reinvesting the funds into more stocks. That way you can compound your money faster.
A scalping strategy is a fast day trading strategy that opens and closes stock trades in minutes at a time. The basic concept of scalping is to take advantage of price movement when it is strongest and exit before conditions change. This trading strategy is designed to make a very small profit on each trade, but you will be executing tens to hundreds of trades every day.
There are several ways to approach scalping, but we recommend looking at moving averages first. A stock trade opens when the short-term 5-minute moving average crosses the long-term 20-minute moving average.
Swing Trading strategy
Swing trading is a multi-day trading strategy that aims to capitalize on changes in price dynamics. In swing trading, the goal is to start trading after a major event such as a breakout or reversal. Swing traders use the resulting momentum to generate returns of a few percent or more.
This is a short-term strategy where traders typically hold positions between a few days and 2-3 months. The idea of swing trading is to follow up and downtrends. For example, if IBM stock rises for 3-4 weeks, experienced swing traders will try to hold a long position as long as that trend continues. When the trend is likely to end, swing traders will attempt to catch the reversal by leaving the position and taking a short position.
Intraday Trading Strategy
Experienced equity investors often use intraday trading strategies. As the name suggests, traders open and close positions during trading days. Experienced day traders could only hold their positions for a few minutes.
This is intended to generate a very small but very constant profit. For example, a daily stock trader can place dozens of buy and sell orders per day. As long as you have more successful trades than you lost, you will most likely end the day with a profit. Intraday trading is best for those versed in technical analysis.
Range-based trading is an equity trading strategy that operates on multiple time scales. This type of trade is best when the price is sideways and fluctuates between high resistance levels and low support levels.
To trade a stock within a range, identify the support and resistance levels that define the range and trade the movement between them. Watch out for technical indicators like MACD and RSI, which can indicate sudden and explosive out-of-ranges.
Best Online Trading Platform
Now it’s time to discuss trading platforms. If you want to trade stocks online, you need to find a reliable stockbroker that best suits your investment goals. Choosing the right equity trading platform is very important. Brokers decide which stocks you can trade and whether you can trade stocks, CFDs, or options.
There are many metrics to consider before choosing a broker such as fees, commissions, tradable stocks, regulations, and customer service. Here we are presenting the best equity trading platforms that are currently serving the UK market.
eToro is an FCA-regulated trading platform that provides stock and equity trading services. At this platform, you can buy, sell and trade several stocks simultaneously, it offers more than 1,700 stocks and also provides exposure to 17 UK and international markets in one place. All stocks on the platform can be traded without fees with competitive spreads.
The eToro online broker has existed in the market since 2007. Now it has become one of the most popular trading platforms in the world with over 8 million users. eToro is regulated by CySEC, FCA, and ASIC and it also possesses a good reputation in the market. It also ensures security on commercial platforms with data encryption via SSL protocol and two-factor authentication (2FA) so all your investments and data are completely safe.
eToro is ideal for equity trading. This online broker offers more than 2000 stocks, stock indices, and ETFs from all over the world. CFD trading on stocks is also offered with zero fees, this makes it one of the cheapest exchange trading platforms.
Another unique advantage of eToro is that you can buy stocks with cash (and receive dividends) or CFDs of all the securities accounts. The top companies listed on this platform are Facebook, Netflix, Google, Airbus, Orange, etc.
Capital.com is a London-based FCA regulated broker established in 2016. This brokerage has quickly established itself as one of the best stock market brokers in the UK. The broker’s award-winning Forex trading platform has nearly 788,000 clients worldwide. You can trade almost 3,000 markets on Capital.com. It offers 2,733 stocks and 34 indices, commodities, currencies, and cryptocurrencies.
Capital.com provides easy-to-use software and offers a mobile trading application that allows you to trade anywhere. Another decisive advantage of this broker is that it does not require a minimum deposit. Minimum €5 may be enough to open an equity trading account.
Capital.com also excels in the education sector. In addition to providing access to a wealth of educational materials such as guides, tips, and market information, the platform also provides native training apps. In this way, you can develop your business knowledge wherever you are.
Plus500 is one of the cheapest equity trading platforms in the UK. All trades with this broker are 100% commission-free and the spreads on CFD trading are lower than other CFD brokers.
Plus500 doesn’t impose many fees and it is a very cheap platform. You can trade CFDs on hundreds of UK and US stocks or CFDs on options and dozens of ETFs. This broker also offers leverage up to 1:5 on equity trading; if we compare it with others then it is quite good.
Plus500 offers a user-friendly trading platform and it also offers free web and mobile applications. The equity trading platform also supports price alerts, which are useful to stay on your watch list during busy trading days. Apart from equities it also offers CFDs, bonds, commodities, cryptocurrencies, and other investment options.
AvaTrade is a popular online broker with a strict 0% commission policy. This means you can trade stocks in a very lucrative ecosystem. AvaTrade has very narrow spreads and all deposits and withdrawals are free. You have access to multiple markets including FTSE, NASDAQ, and NYSE.
It offers leverage up to 1:5 for stock CFDs. You can also trade stock options with AvaTrade, which is ideal for placing more sophisticated positions. AvaTrade is an online stock broker that is regulated by the Central Bank of Ireland. In addition to this, it has launched AvaTradeGo mobile app. This online broker offers its clients many advanced trading tools and various trading platforms including MetaTrader 4 and MetaTrader 5.
How to initiate equity trading the UK
We suggest our traders use eToro for equity trading. At this platform, you can buy, sell and trade several stocks simultaneously, it offers more than 1,700 stocks and also provides exposure to 17 UK and international markets in one place. Start trading stocks in minutes by following our step-by-step guide below-
Step 1: Open an equity trading account
First of all, visit the eToro website to start creating an account. You have to fill the subscription form to open the account. You will also need to provide your full name, email address, and phone number and then verify your email address and mobile phone number. Make a note of the username and password you choose, as you will need them every time you log in to access your account.
Traders are required to provide photo ID proof. The verification process also requires a copy of a recent bank statement or utility bill. eToro is FCA approved so it complies with statutory formalities of verification.
Step 2: Deposit the funds
To trade equity stocks you have to deposit funds in your respective account. If you are a beginner then you can first use the demo account for learning purposes. You can deposit the funds through bank transfer, wire transfer, e-wallets, and debit/credit cards.
You need to make the minimum deposit of $200. All GBP deposits are subject to a 0.5% conversion fee. This gives you access to 17 UK and international markets without worrying about exchange rates, especially since your eToro account is in US dollars.
Step 3: Start Equity Trading
Once your eToro account is funded, you can start trading stocks. Once you know what stocks you want to trade-in, simply enter the company name in the search box. Once the stock is appeared on the screen select it and click on “Start Trade” to begin the trading. You can define your risk exposure to limit the risk features.
Advantages of Equity Trading
Here are so many advantages of equity trading in the UK. These advantages persuade the investors to move to equity trading. The top-most advantages of trading are-
Trading on the stock market is undoubtedly the fastest investment and it generates the greatest return. It is also one of the best ways to make money in the long run. However, it should be remembered that the possibility of profit also implies the risk of loss.
Less initial investment
It is always advised to the traders to enter the market with minimum investment. An online broker like eToro allows you to open a Forex trading account for as little as $200. This may be enough to make a good return on leverage. Therefore, it is a very affordable form of investment.
Unlike other forms of investment, the stock market is a very liquid investment. You can immediately sell your stock and withdraw immediately.
Dividends are one of the great advantages of stocks over other markets. This is the percentage of the company’s profits that go back to stockholders each year. Stocks may fall, but still, they pay dividends, reducing the impact of price declines and generating stable earnings.
Tips for the beginners
If you are new to the stock market, there are a few basic rules you should know to avoid making too many mistakes when entering the market. Here are some of these important tips-
Use demo account
A trading plan is a set of written rules that define the entry, exit, and management criteria for each trading position on an exchange. Today’s technology makes it easy to test business ideas before putting real money at risk through a demo account. Several online brokers offer demo account before going live. This method allows you to apply a trading strategy based on historical data and decide if it is feasible. Once the plan is developed and backtesting on the demo account works well, the plan can be used for real-time trading.
Prefer copy trading
Copy Trading is a feature that is powered by eToro that allows you to copy the strategy of the experienced stock traders and then match your portfolio with that. This is the best thing to do when you know very little about how to do basic or technical analysis.
We recommend our readers to always continue learning from the market. Traders should always keep in mind that trading the stock market is continuing education. Traders should strive to learn more about buy shares and trading every day. It is important to remember that understanding the market and all its complexities is a lifelong process.
Invest only what you can lose
It is advised to the traders to always invest less initially and we advised our readers to invest only that you can lose. Before using real money, make sure all the money in your trading account is usable. Otherwise, if there is an urgent need, traders should keep saving until they have enough secure savings to risk losing their money in the stock market.
Always Use Stop Loss
A stop loss is a predetermined amount of risk that a trader can bear at the time of any market breakdown. A stop-loss can be a dollar amount or a percentage, but in all cases, it limits the trader’s risk during the trade.
Now we are at the finish of our guide, if you have gone through this whole guide then you have come across all the measures that are necessary for equity trading in the UK. We have reviewed the top strategies that are needed to consider while trading stocks properly and we have provided an overview of the best platforms and online top brokers. We suggest our traders use eToro for equity trading. At this platform, you can buy, sell and trade several stocks simultaneously, it offers more than 1,700 stocks and also provides the exposure of 17 UK and international markets in one place. All stocks on the platform can be traded without fees with competitive spreads.