Ways to trade stocks
Before we move on with how to buy shares UK, it is really important that you fully understand the difference between these two ways to trade stocks.
When you invest in real stocks, you are buying shares in a business that has been listed on the stock market. You own the shares, together with any entitlements that go with them, such as annual dividend payments or company voting rights.
Trading stock CFDs is an entirely different approach. A ‘Contract for Difference’ is a contract (with a broker) that enables you to speculate on whether the price of a given stock will rise or fall, over a certain period of time. CFDs are a derivative product, based on the underlying asset, therefore you do not gain ownership of the stock or any privileges associated with it.
A quick guide to brokers
You cannot buy stocks without engaging the services of a stockbroker to act as your intermediary. Traditionally, you would pay quarterly or annual fees to your broker and he would do everything on your behalf.
This type of full-service is still available, at a substantial cost, but modern stockbrokers are moving more towards free stock trading UK based and with a self-service online platform. This means you will avoid paying commissions, but there will always be some costs involved, which you need to determine in advance.
Finding a brokerage that offers stock CFDs is a far easier task, but there are a lot to choose from and some are considerably better than others. We always recommend that you opt for a UK-based, FCA (Financial Conduct Authority) regulated broker to give you peace of mind and financial protection.
Exchanges to note
The London Stock Exchange (LSE) is the primary target for most UK stockbrokers and their clients. However, there are certainly opportunities to diversify to European, US or Asian markets if that is your preference and your broker offers them.
The Financial Times Stock Exchange 100 is more commonly known as the FTSE 100 or colloquially, as the ‘Footsie’. It is a stock index comprising the top 100 companies on the London Stock Exchange. The FTSE 100 is considered to benchmark the prosperity of UK-based businesses.
If you were to consult the FTSE 100 today, you would see that the best shares to buy in UK now are those of Unilever (ULVR). This is a UK/Dutch-owned company that has operated from the UK since 1870. Unilever markets around 400 household brands as well as operating a number of scientific research centres scattered across the UK.
Just as a point to note, companies listed on any stock exchange are appointed a ‘ticker symbol’ for global identification purposes, which is basically an abbreviation of the company name and is always portrayed capitalised. For example, Unilever is ULVR, AstraZeneca is AZN and Tesco is TSCO. Not all of them are entirely intuitive, so it does help to know the ticker symbol for any stocks that interest you.
Best stocks to buy UK as CFDs
For those traders without the capital available to invest in real stocks, CFDs provide a realistic and viable alternative. Instead of buying and owning shares, you are instead speculating on whether the share value will rise or fall. This also means that you can profit from either a buy (long) or sell (short) position.
Here is a quick example for you. To buy Apple shares, UK CFD brokers are currently showing the price at $133 per share and you take a long position. If your prediction was correct and the stock goes up to $134 per share, you can close the trade with a profit. Not all CFD brokers use the stock ticker, but for reference, it is featured on NASDAQ as AAPL.
Because you are trading a contract based on the underlying asset, this does mean you will forego the privileges of share ownership like dividend payments. However, trading CFDs requires far less capital to get started and they are available from a vast number of UK brokers.
Another advantage of trading CFDs, rather than investing in the assets themselves, is the availability of leverage, which allows you to enter a trade with a relatively small deposit but take a bigger trading position by ‘borrowing’ capital from your broker.
Stock sectors – the way different types of business are classified on the stock market
The stock market is divided into eleven sectors, which defined under the Global Industry Classification Standard (GICS):
- Health care
- Consumer discretionary
- Consumer staples
- Information technology
- Communication services
- Real estate
This makes it easier to compare companies that have the same overall business interests. Within each sector, there are further divisions, which include 24 industry groups, 69 industries, and 158 sub-industries.
Stock market sectors are important because they can give you an overall picture of how certain types of business or specific industries are performing, rather than following just one example. No single sector is better than any other in investment terms and the top five routinely exchange places in the list.
If we take Tesla as an example, it belongs to the consumer discretionary sector, although some experts claim the stock patterns are more akin to the IT sector. Either way, it is an interesting one and if you want to buy Tesla shares, UK brokers will have it listed with the ticker 0R0X on the LSE, but you will also see it on the NASDAQ-GS index with the ticker TSLA.