The U.K’s capital is a global hub for finance and a centre for fintech, or financial technology. It means there are many investment opportunities in the U.K., including the London Stock Exchange (LSE). The LSE is one of the oldest stock exchanges globally and has been operating since 1801! In this article, we will discuss what you need to know about buying shares on the LSE, from choosing a broker to the rules of trading.
A significant advantage of using brokers who operate on an online platform such as XTB is that they often have reduced fees compared to other brokers, so it’s essential to consider your fee structure before opening a trading account with an investment firm and starting your stocks trading journey.
When you’re ready to start buying shares on the LSE, there are a few things you need to know.
Market order/limit order
The first is that there are two ways to trade: a market order or a limit order. With a market order, you buy or sell at the best available price when your order is placed. On the other hand, a limit order allows you to specify the maximum price you are willing to pay or sell for, and your order will only be executed if the stock hits that price.
Another thing to be aware of is the ‘spread’. It’s simply the difference between the buying and selling prices of a stock, and it’s how brokers make their money. The wider the spread, the more likely you will be charged a brokerage fee. However, brokers which offer low-cost trading may have spread as low as 1p per share, so this should always be factored in before choosing a broker.
Furthermore, there are several buying strategies to consider when making your purchase. The first is ‘market timing’. This strategy uses simple buy and sells rules, which can be subjective or objective. For example, a market timer might choose to buy shares if they’re available at a price lower than their target price. Another method is called ‘scaling’, where investors gradually increase their position over time.
Place an order
After you’ve decided which stock to invest in and opened an account with an LSE approved broker, it’s time to place your order.
When you’re ready to buy your first stock, there are a few things you need to consider:
The number of shares and the price you want to pay. You can use those parameters to make several orders, such as market orders or limit orders. A market order is an instruction from investors to buy or sell a security at current market prices, which means they’ll be executed immediately and completed instead of limited orders.
With a limit order, you can specify the price you wish to trade at, and if that value is met, you will go through with the transaction – but if it isn’t completed, then no sale will take place. The other strategy for placing trades is known as ‘stop-loss orders. A stop-loss order is an instruction to your broker to execute a transaction on any security you specify if it falls below (or above) a specific price. It helps traders minimise their losses if a stock rapidly declines in value.
As well as placing market and limit orders, there are several conditional trades available on the LSE. The first is called a One Cancels Other (OCO) order, which allows investors to place two different simultaneous transactions with the knowledge that only one will be executed. If one order does not run before another, it will be automatically cancelled.
Stop loss order
Another strategy for beginners is the well-known Stop Loss Order, where you instruct your broker to sell the stock if it reaches a specific price. It’s used to minimise potential losses, but investors using this strategy should be aware that if the stock doesn’t hit the Stop Loss Price, their order will never be executed.