If you’re investing online for the first time, you need to know what’s involved. Here, we outline the basics.
Opening an account
The process for opening an online investment account varies between brokerages, but usually involves providing personal details such as your name, date of birth and address, before funding the account via bank transfer.
Once open, you can log into the account to view your investments and buy or sell assets at any time.
Fees are usually taken from your uninvested cash balance automatically each month. If your balance does not cover the cost, the provider may raise funds by selling off some of your investments.
Some providers pay interest on cash balances – more on this below.
Buying and selling investments
Once your account is open and funded, you can buy and sell investments. Depending on your provider, you can do this online via a computer, through an app, or both.
Generally, you can search for a specific company share or fund using your provider’s search bar, or browse a selection of assets organised by category. When you’ve navigated to your chosen investment, you can tap or click the ‘invest’ button. You should then be prompted to enter the amount you would like to invest, and to confirm the transaction.
Depending on the provider, you can build your own portfolio from the ground up, or choose from a handful of ready-made portfolios.
Using ‘stop loss’ and ‘limit’ orders
Certain providers allow users to automate some of their buying and selling through ‘stop loss’ and ‘limit’ orders.
A stop loss order is an instruction to your broker to sell your holdings of a particular asset if its value falls below a pre-specified threshold. This can help investors minimise losses.
Meanwhile, limit orders are instructions to either buy or sell your holdings of an asset if it reaches a predetermined price.
For instance, you could set up a limit order to buy a certain asset automatically if its price reached £1 or lower. Conversely, you could set up a limit order to automatically sell an asset if its price climbed to a certain threshold.
A limit order can help investors sell their assets for a good price without the need to constantly watch the market.
Investing in overseas shares
Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, may have other tax implications and may not provide the same, or any, regulatory protection as in the UK.
Some providers enable users to invest in overseas shares. If you choose to invest in foreign companies, you might pay higher trading fees than you would when buying equivalent UK shares.
Fluctuations in foreign exchange rates could also impact your returns. If the pound strengthens against the dollar, for instance, your investments will be worth less in sterling terms.
If you purchase shares in a US company, you will also be asked to fill in a W-8BEN form, which allows UK investors to claim a tax discount on any dividends or interest they earn from holding US shares.
Once submitted, the form is valid for three years, and your provider will remind you when it’s about to expire.
