What to do before opening a trading account (UK)

[Nr1991]

Hi all,
Apologies if these questions have been posted before.
Google doesn't seem to bring up much of what I'm looking for, and Iv had a few condescending replies on other forums (MSE etc)
I have been doing a lot of research and I think with a bit more, I will be ready to begin trading, specifically day trading AIM companies/ small cap etc (penny stocks)

I have the money to dispose of (although that is obviously not my intention!), I understand the risks and I am a sensible, controlled person.


My first question is: Is there anything I need to consider (legally) before I begin trading? I know I need to declare profits to the tax man, but do I need to tell anyone else or declare anything to anyone before I open my account and get going?
Someone mentioned filing for a mergers and acquisitions? I don't know if they were being sarcastic? I know this is what companies do but does a trader need to do this or anything else along these lines?

My second question is: Which online broker do you recommend for a beginner/ someone with not a huge start up account? (£1000-£5000) I have been looking at Hargreaves Landsown, they seem reasonably priced for fees and I can live with the £12.50 per trade. I have been following Aim stocks on there for some time. Iv recently looked at IG which actually seem better than HL

And lastly: Will I need a spread betting account or a share dealing account? I don't wish to use leverage, just get in and out with my own money, avoiding shares with high spreads and low volume however I may wish to short sell in future (Way in the future, and obviously if I can get a certain stop). Do spread betting accounts let you select no leverage? On all the demos I have used the minimum is 1:1 which made me look into a share dealing account.


Any info appreciated
Thanks

 

[timsk]

Hi Nr1991,
Welcome to T2W.
I've added some answers in blue . . .

. . .I have been doing a lot of research and I think with a bit more, I will be ready to begin trading, specifically day trading AIM companies/ small cap etc (penny stocks).

Many people will tell you - including seasoned traders on T2W - that trading is akin to gambling. The line that divides them - such as it is - is very thin indeed. Trading penny stocks makes it even thinner. Day trading penny stocks pretty much removes any dividing line altogether. You could get lucky and double, triple or quadruple your money very quickly. But it would be luck - not skill. Almost certainly, you will lose your money. The only question really is how long that will take you. If you think playing Roulette would be better fun than trading - do that instead - as the outcome is likely to be the same.

. . . My first question is: Is there anything I need to consider (legally) before I begin trading? I know I need to declare profits to the tax man, but do I need to tell anyone else or declare anything to anyone before I open my account and get going?.

If you currently work for one of the companies you want to trade with - then there may be a clause in your employment contract preventing you from trading in those shares. Other than that, if you're an ordinary 'retail' trader - then there's nothing that I'm aware of.

. Someone mentioned filing for a mergers and acquisitions? I don't know if they were being sarcastic? I know this is what companies do but does a trader need to do this or anything else along these lines?

I don't think you need to worry about this just yet! Mergers & Acquisitions

. My second question is: Which online broker do you recommend for a beginner/ someone with not a huge start up account? (£1000-£5000) I have been looking at Hargreaves Landsown, they seem reasonably priced for fees and I can live with the £12.50 per trade. I have been following Aim stocks on there for some time. Iv recently looked at IG which actually seem better than HL.

This FAQ will provide the necessary guidelines to enable you to make your own choice: Can You Recommend a Data Feed, Charting Software & Broker?
If you trade penny stocks, you'll need to work out how far the price will have to move to:
A. to cover your £12.50 commissions and, thereafter . . .
B. how far it will have to move to cover the bid / ask spread - just to get you back to breakeven.

. And lastly: Will I need a spread betting account or a share dealing account? I don't wish to use leverage, just get in and out with my own money, avoiding shares with high spreads and low volume however I may wish to short sell in future (Way in the future, and obviously if I can get a certain stop). Do spread betting accounts let you select no leverage? On all the demos I have used the minimum is 1:1 which made me look into a share dealing account.

Shares with high spreads and low volume tend to characterise penny stocks so, if you want to avoid the problems associated with them, you might want to rethink your choice of instrument. I don't know for sure (so I may be wrong), but I doubt whether many spread betting companies offer penny stocks. Therefore, you'll probably need a share dealing account.

Regarding leverage, if you have a £5k account and you buy 5,000 shares at £1.00 each - that's 1:1. If you bought 10,000 shares, then you're utilizing leverage at 2:1. If you bought 50,000 shares, then you're utilizing leverage at 10:1 etc. The amount of leverage you use is your choice. All that brokers do is to limit the top end - so you can't buy a million shares at £1.00 each when you've only got 50p in your account.

I wish you luck - you're gonna need it!

Tim.

 

[Hoggums]

Have a look at X-O.co.uk - they only charge £5.95 per trade. I use them fairly infrequently - but no issues with them.

 

[Nr1991]

That's great thank you very much!
So am I right in saying that in your leverage example (have £5000, buy £5000 worth or less) I will not be using any leverage and it will be impossible to lose more than my £5000? / be in debt to my broker.
Other than transaction fee etc

I have recently been following Andalas energy on the Aim market. Now it is literally pennies. Less than a penny, the cap is 3.5m. However I was interested in following it. A couple days ago it was at 0.10 and they announced they had had a successful study in supplying energy in Indonesia for 20 years. (If it gets approved)
Because the study was successful and it's looking likely it could get approved. The price has rose in the past couple of days from 0.10 to currently 0.16 with a spread of 0.01. Today's volume is 200m so it seems pretty safe to get in and out and get a good price on it?
Say I were to have bought when I read the announcement at 0.10. I would not want to ride it for the next few weeks. I would want to get out today on the 60% profit at 0.16 just incase it doesn't get approved, or if lots of people start taking there profits too


This is the type of thing I am looking at doing. Just making hypothetical trades atm and if I have a lot of good predictions I may start to do it for real.
Would you have more detail on spread betting vs share trading?

Thanks again for the help!

 

[counter_violent]

That's great thank you very much!
So am I right in saying that in your leverage example (have £5000, buy £5000 worth or less) I will not be using any leverage and it will be impossible to lose more than my £5000? / be in debt to my broker.
Other than transaction fee etc

I have recently been following Andalas energy on the Aim market. Now it is literally pennies. Less than a penny, the cap is 3.5m. However I was interested in following it. A couple days ago it was at 0.10 and they announced they had had a successful study in supplying energy in Indonesia for 20 years. (If it gets approved)
Because the study was successful and it's looking likely it could get approved. The price has rose in the past couple of days from 0.10 to currently 0.16 with a spread of 0.01. Today's volume is 200m so it seems pretty safe to get in and out and get a good price on it?
Say I were to have bought when I read the announcement at 0.10. I would not want to ride it for the next few weeks. I would want to get out today on the 60% profit at 0.16 just incase it doesn't get approved, or if lots of people start taking there profits too


This is the type of thing I am looking at doing. Just making hypothetical trades atm and if I have a lot of good predictions I may start to do it for real.
Would you have more detail on spread betting vs share trading?

Thanks again for the help!

You need to have a complete re-think about penny shares.
They are penny shares for a reason.
Worthless junk mainly.
Less than 12 month history.
Share price at start 30p, now down to 12p. Like most AIM companies...cash burn...not theirs but yours.

http://www.londonstockexchange.com/...ry/company-summary/IM00B1FPZP63JEGBXASQ1.html

 

[timsk]

Hi Nr1991,

. . . So am I right in saying that in your leverage example (have £5000, buy £5000 worth or less) I will not be using any leverage and it will be impossible to lose more than my £5000? / be in debt to my broker. Other than transaction fee etc

If you're buying (i.e. long) then yes, that's correct because the worst case scenario is that the company goes belly up and the 5,000 shares you bought for £1.00 each go to zero. However, theoretically, the same does not apply if you're selling (i.e. short), because the share price could more than double in price. So, if you go short at £1.00 your account would be wiped out if the price rose to £2.00. If it goes higher than that, then you'll be making the tea for your broker, polishing his/her shoes and cleaning their car etc.

I have recently been following Andalas energy on the Aim market. Now it is literally pennies. Less than a penny, the cap is 3.5m. However I was interested in following it. A couple days ago it was at 0.10 and they announced they had had a successful study in supplying energy in Indonesia for 20 years. (If it gets approved)
Because the study was successful and it's looking likely it could get approved. The price has rose in the past couple of days from 0.10 to currently 0.16 with a spread of 0.01. Today's volume is 200m so it seems pretty safe to get in and out and get a good price on it?
Say I were to have bought when I read the announcement at 0.10. I would not want to ride it for the next few weeks. I would want to get out today on the 60% profit at 0.16 just incase it doesn't get approved, or if lots of people start taking there profits too

Volume of 200m sounds huge - but its actually quite small given the price of the shares. In all probability, the people who bought them were the directors of the company and others with a vested interest. In other words, they'll hang on to them - they are not day traders like you. This means that when you want to sell yours for a profit - there won't be any buyers because they all got in early like you. This is known as liquidity and is one of the main reasons you'd be well advised to steer clear of penny shares. The seemingly tight spread is meaningless in an illiquid market. The chances of you getting in and out with a quick profit of £0.05p per share is very slim indeed. I'm not saying it's impossible - but it's not as easy in reality as the theory may appear to be to you now. To put it another way, if you pull it off repeatedly and make a good consistent profit doing this then, to the best of my knowledge, you'll be the first T2W member in its 15+ year history to do it!

This is the type of thing I am looking at doing. Just making hypothetical trades atm and if I have a lot of good predictions I may start to do it for real.
Would you have more detail on spread betting vs share trading?

As I said before - you'll have to check to see if there are any spread betting companies who offer penny stocks like Andalas. If they don't list the instruments you want to trade - there's no point considering them. If they do - you'll have to weigh up the pros and cons of using them against a direct market access broker. I can't advise on this because I've never looked into it - so I simply don't know.
Tim.