Equity Trading UK Guide 2020

Equity trading is one of the most common ways for individuals in the UK to enter the market. Equities are simply stocks, or shares of publicly traded companies. So, equity trading in the UK involves buying and selling shares of companies to make a profit.

If you’re interested in trading equity, this guide is for you. We’ll explain how equity trading works in the UK and cover top strategies for trading on equity. We’ll also highlight five of the best UK equity brokers you can start trading with today.

What is Equity Trading?

Equity Trading UKEquity trading involves buying and selling stocks to try to make a profit. In many ways, it’s very similar to stock trading.

In fact, the terms stocks, shares, and equities are often used interchangeably. All three refer to shares of publicly traded companies. The main difference is that equity trading includes not just stock trading, but also ETF trading.

The goal of UK equity trading is to buy low and sell high. Equity trades can last anywhere from a few minutes to a few weeks depending on your equity trading strategy. If you think the price of, say, Tesco shares will go up, you can buy shares and sell them once the price appreciates to realize a profit.

In addition, it’s possible to trade equities when prices are falling. This is known as short selling, and it involves selling shares at a high price and then buying them back at a lower price. Thanks to short selling, you can trade on equities in the UK regardless of whether the stock market is going up or going down.

Cash Equity Trading

Cash equity trading is a specific term used to refer to trading by large financial institutions like banks and investment firms. These firms may buy and sell equities using their own money or on behalf of clients like mutual funds and investment trusts.

When large financial institutions buy shares of a company, they often purchase millions of pounds worth of shares at a single time. In some cases, cash equity trading orders are big enough that they drive up the price of the shares being purchased as the trades are happening.

It’s important to note that cash equity trading isn’t a specific type of trading that individuals can do. All equities are bought and sold using cash from your trading account.

Ways of Trading Equity

There are three main ways to trade equity in the UK: by trading shares or ETFs outright, through CFD trading, and by trading options. It’s important to understand how each of these financial instruments work and why you might want to choose one over the others.

UK Equity Trading with Shares

Buying and selling shares outright is a simple way to start trading equity. With this type of trading, you own any equities you purchase for as long as you hold them.

The downside to trading on equity with shares is that it doesn’t give you much flexibility for trading. You cannot leverage your trades, which limits your buying power with a small account. In addition, short selling requires borrowing money from your broker, which comes with additional fees.

UK Equity Trading with CFDs

CFD trading is a powerful way to trade equities in the UK. CFDs (contracts for difference) are contracts with your broker that allow you to speculate on the future price of a stock without actually owning it.

What’s nice about equity CFD trading is that you can buy or sell CFDs to bet on price movements in either direction. Another benefit is that you can apply leverage to your trades with CFDs, which multiplies the effective size of your position. For example, if you trade £100 of AstraZeneca share CFDs with 10:1 leverage, you are actually trading £1,000 worth of shares.

UK Equity Trading with Options

Options trading is significantly more complex than trading shares or CFDs. With equity options, you buy a contract that gives you the right to buy or sell a stock at a predetermined price on a specific date. In effect, you are speculating on not just the direction of a price movement, but also the magnitude and timing of that movement.

Trading equity with options gives traders a lot of strategy flexibility and purchasing power. However, options are best suited for more advanced traders.

Advantages of Equity Trading UK

There are several major benefits to equity trading in the UK, especially compared to traditional stock investing.

Profit Potential

First, your potential for profit is higher. When you invest in stocks for the long-term, you are exposed to all of the ups and downs in the share price. While the market might eventually move higher, it can take a while to get there.

With equity trading, you can profit repeatedly from trading all the ups and downs in a share’s price. With every profitable trade, you add more money to your trading account – which can then be used to increase your buying power for your next trade. Compounding your account balance through repeated winning trades can yield extremely high returns over the long-term.

Short Selling

Another benefit to trading on equity as opposed to investing is that you can profit not only when the price of a stock drops, but also when it falls. This is thanks to short selling, which is much easier when trading with CFDs rather than buying shares outright.

Short selling is important because it means that you can find trading opportunities regardless of which direction the market is trending. It also allows you to hedge your trades to some extent, which is important for reducing risk.

Leveraged Trades

When trading equity in the UK, it’s also possible to leverage your trades. As we noted, leverage allows you to increase the effective size of your equity position.

That’s important for two reasons. First, it means that you don’t need to have a huge amount of money in your trading account to make real profits with equity trading. With just £100 in your trading account, you can apply 10:1 leverage to open equity positions worth up to £1,000. If the price of the underlying share moves by 5%, you would earn £50 instead of just £5.

Second, since you only need to commit a small amount of money to each trade when using leverage, you can easily open more equity trades. This allows you to take advantage of multiple simultaneous trading opportunities and to diversify your trading portfolio, which reduces risk.

Market Access

One more benefit to equity trading in the UK is that you’re not limited to trading UK equities. Many top equity brokers allow you to buy shares in the UK, US, Europe, and beyond.

This is particularly true for CFD brokers, since they don’t actually need to go out and buy shares from a foreign stock exchange. Instead, they can simply issue a CFD contract that tracks the price of an equity, regardless of what exchange it trades on.

Risks of Equity Trading

Equity trading carries risks just like all types of trading. If you buy an equity through shares, CFDs, or options and the price falls, you could be forced to sell the equity for a loss. Losses are okay and inevitable when trading, but it’s important to keep them as small as possible so that they don’t wipe out profits from all of your successful trades.

Another thing to keep in mind is that trading with leverage increases your risk. Just as using leverage multiplies you potential return, it also multiplies your potential loss. We recommend using stop losses with every trade, and especially with leveraged trades, to limit the amount that you can lose if the trade goes against you.

Equity Trading Strategies

The key to success with UK equity trading is to approach the market with a clear trading strategy in mind. Many advanced traders will craft custom strategies that have been honed over years of use. But you can also get started trading equities right away using these popular and easy to understand strategies:

Scalping

Scalping trading is a fast-paced day trading strategy that involves opening and closing equity trades in just a few minutes each. The idea behind scalping is to profit from a price movement when it is at its strongest, and then to get out before conditions can change. This trading strategy is meant to yield very small profits from each trade, but you will place dozens to hundreds of trades each day.scalping trading

There are multiple ways to approach scalping, but a good place to start is to look at moving averages. When a short-term 5-minute moving average crosses above the longer-term 20-minute moving average, open an equity trade. Sell your position at the first sign of weakness in the price.

Swing Trading

Swing trading is a multi-day trading strategy that seeks to capitalize on changes in price momentum. With swing trading, the goal is to open a trade after a big event like a breakout or reversal. Swing traders will then ride the ensuing momentum to return profits of several percent or more.swing trading

Swing trading equity successfully requires being able to recognize breakouts and reversals. Use technical indicators like MACD (moving average convergence-divergence) to spot shifts in momentum and RSI (relative strength index) to identify overbought or oversold levels.

Range-based Trading

Range-based trading is an equity trading strategy that works across multiple timescales. This type of trading is best when prices are moving sideways and bouncing between an upper resistance level and a lower support level.Range-bound trading ETFs

To trade on equity in a range, identify the support and resistance levels defining the range and trade the movements between them. Keep an eye on technical indicators like MACD and RSI that could indicate a breakout from the range, which can happen suddenly and explosively.

Best Equity Trading Platforms

Choosing the right equity trading platform is incredibly important. Your broker will determine what equities you’re able to trade and whether you’re able to trade shares, CFDs, or options. Different equity trading platforms also have different fees, which can impact the profitability of your trading.

With that in mind, let’s take a look at five of the best UK equity brokers you can start trading with today:

1. eToro – Trade Shares or CFDs with 0% Commissions

etoro logoeToro is one of the top equity brokers in the UK. With this trading platform, you can trade more than 800 shares and more than 450 ETFs from exchanges around the world. eToro allows you to buy shares outright or trade CFDs, so you can take advantage of the financial instrument that best suits your trading style and goals.

One of the best things about eToro is that it offers a social trading network where you can interact with equity traders from around the world. The network allows you to quickly see what other traders think of a particular stock or ETF to aid in making trading decisions. Plus, you can take advantage of copy trading to benefit from the knowledge and skills of more experienced traders.

All trading at eToro is completely commission-free. The broker is regulated by the UK’s Financial Conduct Authority, so it’s held to the highest standards in the industry. We also like that eToro offers a capable mobile trading app that offers all the same features as the web platform.

Pros:

  • Large selection of global shares and ETFs
  • 0% commission trading
  • Trade equities outright or through CFDs
  • Includes social trading network
  • Regulated by UK authority

Cons:

  • Doesn’t offer options trading

75% of retail investor accounts lose money when trading CFDs with this provider.

2. Capital.com – Equity CFD Trading with an AI Assistant

Capital.com logoCapital.com doesn’t have the widest selection of equities, especially compared to brokers like eToro. But this broker offers something that few competitors have: a capable, interactive artificial intelligence assistant.

Capital.com’s AI assistant automatically analyzes your trades to identify patterns and help you boost your win rate. The assistant might suggest trading during hours when you’ve historically seen greater success, for example, or restricting your trading to a specific market sector. This equity trading platform’s algorithm can also point out potential setups, which makes it easier to find trading opportunities in real time.

All trading at Capital.com is commission-free and the spreads on CFD trades are well below the industry average. The broker only offers CFD trading, but you can access leverage of up to 5:1 for any stock or ETF.

Pros:

  • AI assistant suggests trading improvements
  • Automatically identifies trade setups
  • Commission-free trading with low spreads
  • Leverage up to 5:1 for all equities

Cons:

  • Relatively limited share and ETF selection

80.5% of retail investor accounts lose money when trading CFDs with this provider.

3. Plus500 – Low-cost Equity CFDs and Options Trading

Plus500 LogoPlus500 is one of the lowest-cost equity trading platforms in the UK. All trades with this broker are 100% commission-free, and spreads on CFD trading are lower than almost any other CFD broker.

Despite being inexpensive, Plus500 doesn’t skimp on assets. You can trade CFDs or options for hundreds of UK and US shares, as well as CFDs for dozens of ETFs. The broker also stands out for offering leverage of up to 20:1 for equity trading, compared to just 5:1 at most other UK brokers.

Plus500’s trading platform is straightforward to use, offering complimentary web and mobile apps. You can access nearly 100 built-in technical indicators and drawing tools. The equity trading platform also supports price alerts, which are helpful for staying on top of your watchlists during busy trading days.

Pros:

  • Extremely low CFD spreads
  • Offers CFDs for shares, ETFs, and options
  • Leverage of up to 20:1
  • User-friendly trading platform with mobile app

Cons:

  • Limited selection of ETFs

There is no guarantee you will make money when trading CFDs with this provider.

4. Hargreaves Lansdown – Share Dealing with a Wide ETF Selection

Hargreaves Lansdown offers share dealing accounts, ISA accounts, and CFD trading. This broker has a massive selection of assets, including more than 3,000 ETFs from the UK, US, and Europe. It also offers account holders a chance to invest in UK IPOs, which can create exciting opportunities for equity traders.

Hargreaves Lansdown’s trading platform is built for investing more than trading, but it does have some handy features. You can access capable charts with a variety of popular technical indicators on both web and mobile platforms. Plus, the broker offers insight into popular equities by releasing frequent analyst reports.

The downside to Hargreaves Lansdown for equity trading in the UK is that buying and selling can be expensive. The broker charges commissions based on how many trades you place in the prior month, and they can be up to £11.95 per trade. These commissions don’t apply to ETF trades, but you will have to deal with an account management fee of around 0.45% if you buy funds.

Pros:

  • More than 3,000 ETFs to trade
  • Invest in UK IPOs
  • Good technical charting platform
  • No commissions for ETF trades

Cons:

  • High per-trade commissions for share trades

There is no guarantee you will make money when trading CFDs with this provider.

5. IG – Advanced Platform for Seamless Equity Trading

IG logoIG is an excellent broker for equity traders who want to take their trading to the next level. This broker offers clients access to the ProRealTime trading platform, which includes chart trading, strategy backtesting, and custom indicators. It has a bit of a learning curve when you start out, but ProRealTime is one of the most powerful trading platforms on the market.

IG is also a good choice if you want a very wide range of assets to trade. The broker offers thousands of shares and ETFs from markets around the world, and you can trade either through share dealing or through CFDs. In addition, IG supports options trading through CFDs.

All trading at IG is commission-free, but you’ll want to watch out for the CFD spreads at this broker. They can be much higher than at many other UK CFD brokers, although this is somewhat justified by the fact that you get such a powerful equity trading platform.

Pros:

  • Includes ProRealTime trading platform
  • Supports custom indicators and backtesting
  • Huge selection of shares and ETFs
  • Offers options trading through CFDs

Cons:

  • Somewhat expensive spreads

There is no guarantee you will make money when trading CFDs with this provider.

Equity Trading Platform Commission Deposit Fee Inactivity Fee Withdrawal Fee
eToro £0 if buying and selling, variable spread for CFDs) £0 (0.5% currency conversion fee) £8 after 1 year £4
Capital.com Variable spread £0 £11.50 after 1 year £0
Plus500 Variable spread £0 £8 after 3 months £0
Hargreaves Lansdown £5.95 to £11.95 £0 £0 £0
IG £0-£10 if buying and selling, variable spread for CFDs £0 (0.5% on credit cards) £9 after 2 years £0

Tips for Equity Trading

To help you get started with equity trading, here are a few of our favourite tips:

  1. Start with a Demo Account

Developing a successful equity trading strategy takes practice. Rather than risk real money to practice, you can use a paper trading account. These demo accounts let you trade on live market data with simulated money, so there’s no risk if you make a bad trade.

  1. Use Stop Losses

Stop loss orders tell your broker to automatically sell your position if the price drops below a certain level. Placing a stop loss with every trade can help limit the maximum amount you can lose if a trade goes against you.

  1. Keep an Eye on Volume

The number of shares of an equity being traded is an important indicator of what the price will do next. Often, price movements that are accompanied by strong trading volume are more reliable than price movements that happen when few people are trading. Volume is particularly important if you are price action trading.

Equity Trading UK Pros & Cons

Pros:

  • Access equity markets around the world
  • Trade through shares, CFDs, or options
  • Apply leverage to your trades
  • Profit regardless of the market’s direction
  • Wide variety of trading strategies available
  • Compound your account with winning trades

Cons:

  • Riskier than long-term equity investing
  • Trading equity options can be complex

How to Start Equity Trading – Tutorial

Ready to dive into equity trading in the UK? We’ll show you how to get started with eToro, which lets you trade hundreds of global shares and ETFs outright or through CFDs.

Step 1: Open an Equity Trading Account

To open a new account with eToro, head to the broker’s home page and click ‘Join Now.’ Then just enter a new username and password for your trading account along with some personal details like your name, email, and phone number.Click Join Now to open a new eToro account

eToro complies with regulations from the UK’s Financial Conduct Authority, which requires you to verify your identity to start trading on equity. You can complete the verification step online by uploading a copy of your passport or driver’s license and a copy of a recent utility bill or financial statement.

Step 2: Fund Your Account
To finish opening your new trading account, you need to make a deposit. eToro requires a minimum deposit of £140. You can pay using multiple convenient methods, including by credit or debit card, Neteller or Skrill, or bank transfer.

Step 3: Place Your First UK Equity Trade

To find equities to trade, select ‘Top Markets’ and then ‘Stocks.’ This will open a dashboard where you can find the most popular equities trading on eToro right now. You can also search for equities by name using the search bar at the top of the dashboard.eToro Stock Dashboard

Once you’ve found an equity to trade, select ‘Trade’ to open a new order form. Enter how much you want to trade. You can also specify a stop loss level or take profit level, and select the amount of leverage you want to apply if you are trading CFDs. When your order is ready, click ‘Open Trade’ to complete your first UK equity trade.

Conclusion

Equity trading in the UK involves trading stocks and ETFs to make a profit. In contrast to traditional equity investing, equity trading offers potentially higher rewards in exchange for greater risk. You can hold equity trades for as short as a few minutes or as long as a few weeks, depending on your trading strategy.

Ready to dive into equity trading in the UK? Get started today with eToro!

eToro – Best UK Equity Trading Platform with 0% Commissions

75% of retail investor accounts lose money when trading CFDs with this provider.

FAQs

What is equity derivatives trading?

Equities derivatives trading includes CFD trading and options trading. With equity derivatives, you are not trading shares or ETFs outright, but rather trading other financial instruments whose value depends on the value of the underlying equity.

Is equity trading the same as stock trading?

For the most part, equity trading is the same thing as stock trading in the UK. The most important distinction is that equity trading also includes ETF trading.

Can I trade international equities from the UK?

Yes, many top UK equity brokers allow you to trade international equities. You can buy shares or trade CFDs for equities from the US, Europe, Japan, and more depending on your broker’s offerings.

How much money do I need to start equity trading?

Equity trading doesn’t require a large investment since you can apply leverage to your trades. We recommend starting with a few hundred pounds. Just make sure you are able to meet your broker’s minimum deposit requirements.

Are bonds considered equities?

Bonds are not considered equities. They are part of the debt market and do not trade on equity exchanges.

What is the best mobile equity trading app?

The best equity trading app for you depends on what features we need. We recommend eToro’s app since it comes with a user-friendly charting interface and access to the broker’s social trading network.

All trading carries risk. Views expressed are those of the writers only. Past performance is no guarantee of future results. The opinions expressed in this Site do not constitute investment advice and independent financial advice should be sought where appropriate. This website is free for you to use but we may receive commission from the companies we feature on this site.
Michael Graw

About Michael Graw

Michael Graw is a freelance journalist based in Bellingham, Washington. He covers finance, trading, and technology. His work has been published on numerous high-profile websites that cover the intersection of markets, global news, and emerging tech. In addition to covering financial markets, Michael’s work focuses on science, the environment, and global change. He holds a Ph.D. in Oceanography from Oregon State University and worked with environmental non-profits across the US to bridge the gap between scientific research and coastal communities. Michael’s science journalism has been featured in high-profile online publications such as Salon and Pacific Standard as well as numerous print magazines over the course of his six-year career as a writer. He has also won accolades as a photographer and videographer for his work covering communities on both coasts of the US. Michael has been a member of the LearnBonds team since March 2020.