Stockbrokers explained Share dealing with stockbrokers

Take into account all the fees and charges that apply

Once you’ve paid funds into your account, you can start dealing. Using an online service means you can make trades immediately within the London Stock Exchange trading hours of 8am to 4.30pm Monday to Friday.

Many services give you access to market information to help you decide what trades to make. Newspapers such as the Financial Times and specialist publications such as Investors Chronicle are reliable sources
of information about stocks and shares, as well as websites such as Advfn.com, Ft.com, Morningstar.co.uk (especially for funds), and Yahoo! Finance.

You can instruct your stockbroker over the phone, in person or by email, post or fax, depending on the service they offer. The methods you use will affect the charges you pay. Your instructions will usually be carried out as soon as your broker receives them if it’s within trading hours or, otherwise, on the next day of trading – but the price could change by the time the trade is made.

Relatively low rates of interest compared with conventional savings accounts – 0% to 0.5% gross in January 2010 – tend to be paid on any cash left in your account, depending on the broker and amount, so you should avoid keeping money in it if you don’t need to

Dividends

Share dividends – the regular income from your investments – can be paid as cash into your stockbroking account or nominated bank account, or reinvested.

You pay income tax on dividends at different rates than for other types of income. It’s 10% if your overall taxable income is below the basic-rate tax limit of £37,400 and 32.5% for anything above this. From April 2010 income above £150,000 is taxed at 42.5%.

Other taxes

You pay stamp duty reserve tax at 0.5% when you buy shares electronically. Stamp duty – also at 0.5% – is payable when you buy through a paper transaction, but the amount is rounded up to the nearest £5 and you don’t have to pay anything if the shares cost £1,000 or less.

You may have to pay capital gains tax on any profits above a certain level when you sell shares (£10,000 in 2009-10).

Protection should things go wrong 

All UK stockbrokers must be regulated by the Financial Services Authority (FSA), so are members of the Financial Services Compensation Scheme. This means you can get compensation of up to £50,000 if your broker goes bust owing you money and/or shares (this includes any money you have in savings accounts with the same institution). Many also have their own insurance schemes in place to protect clients.

Assets held in a nominee account should be ring-fenced so are not considered part of the stockbroker’s assets if it goes bust. Check with your broker to make sure that this is the case.

Beware of firms that cold call you to sell shares, even if they claim to be FSA-authorised. They could be carrying out ‘boiler room’ scams and take your money in exchange for worthless shares. Always hang up on cold callers and visit the FSA register to check that a firm is authorised before dealing with it. Visit www.moneymadeclear.fsa.gov.uk for more information.