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Getting to grips with the basics


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Hi Everyone, 

I hope this message finds all readers well amidst the current mess we find ourselves in. 

I have decided like many others recently to get into the world of 'trading', however I am trying to be smart and spend a good few months researching and understanding further before I even consider parting with my hard-saved cash. 

My first question, and it is probably the most stupid, however I can't find a definitive, simple answer anywhere!

Why, when I want to open a trade with lets say BT Group, it doesn't allow me in input a certain amount of money/request a number of shares, which then totals up to a certain amount? Why is it based on a 'points' system? 

I hope you understand my reasoning here, from a basic understanding of the stock market, I thought that the way it ususally works is you put in say £100 for x amount of shares, and then the valuation of those shares increases/decreases. 

Where did this 'point' system come from? 

If someone could send me some documentation explaining that would be greatly appreciated. 

Hope to hear from you soon. 

Kind regards, 

Sam.

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17 hours ago, Scrawford said:

Hi Everyone, 

I hope this message finds all readers well amidst the current mess we find ourselves in. 

I have decided like many others recently to get into the world of 'trading', however I am trying to be smart and spend a good few months researching and understanding further before I even consider parting with my hard-saved cash. 

My first question, and it is probably the most stupid, however I can't find a definitive, simple answer anywhere!

Why, when I want to open a trade with lets say BT Group, it doesn't allow me in input a certain amount of money/request a number of shares, which then totals up to a certain amount? Why is it based on a 'points' system? 

I hope you understand my reasoning here, from a basic understanding of the stock market, I thought that the way it ususally works is you put in say £100 for x amount of shares, and then the valuation of those shares increases/decreases. 

Where did this 'point' system come from? 

If someone could send me some documentation explaining that would be greatly appreciated. 

Hope to hear from you soon. 

Kind regards, 

Sam.

Hey Sam, 

I hope you're well. 

With CFD and spread betting you're trading on a leveraged product which means you only put down a percentage of the market value when placing the trades. Then the profit/ loss moves and changes your balance depending on the market moving in your favor or against you. 

When you place the order on a CFD account you can see the margin you're putting down on the deal ticket: 

image.png

With spread betting we use points. If the number to the left of the decimal place moved from 1 to 2 that's a one point movement. If your position size on spread betting was £5 per point each one point movement of BT's price in your favour means you will be +£5. If you want to work out the amount of shares to trade with a margin of £100 you have to do the following calculation backwards:

Price x size x margin % = margin

127 x X x  20% (margin factor can be found in the get info section) = £100

Although the size is in points we do offer stop losses/ limit gains in GBP profit/ GBP loss. 

image.png

 

You may also find this useful: https://www.ig.com/uk/learn-to-trade/ig-academy/orders-execution-and-leverage

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Hi Charlotte, 

 

Thank you!

This makes so much sense, and I can't believe I didn't realise this right at the start. 

If possible, can I ask one more question?

In your experience, would you recommend that I operate on the CFD platform (especially at the start of my investment 'career'). 

It seems more understandable to laymen such as I. 

What are the advantages / disadvantages of CFD vs Spreadbetting?

Thank you again, and kind regards. 

Sam.

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Sam, if you are new to trading/ investing please dont start off spread betting, why don’t you buy and sell, shares first,  either with ig. trading 212, hargreaves lansdown etc to gain some experience. ..the warning that over 70% of spread betters lose money is there for a reason....It would be a shame if you did end up losing money....

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Hi, 

Thank you for your reply. 

Greatly appreciated. 

Yes after looking into it a bit more, I will definitely be starting out with CFD. 

In your opinion what is a good platform to start off with? I have a demo account that i've been using with IG for a couple of weeks now, and I quite like it. 

But are there any others out there more suited to a beginner?

 

Thank you!

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In my first post, I was suggesting buying or selling shares to gain some investment experience (if you haven’t traded or invested before) using an investment platform rather going straight into spreadbets/ cfd (where you don’t actually own the underlying shares) . I have only used cfds in the demo as I dont want to pay tax on any profits. I only trade options with ig spreadbets ( rather than trades based on individual shares). 

Most of my investments are in a stocks and shares isa

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To echo Gezmond, unless you absolutely know what you are doing, then my advice would be to avoid spreadbetting and CFDs. If you feel you really want to try them out, then at the very least, open a demo CFD/spreadbetting account and try them out for a few months (or preferably even years) using pretend money before you risk your own cash.

Trading using spreadbets and CFDs is a world apart from investing in shares.

 

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Thank you both for your comments, it's massively appreciated. 

I apologise for sounding very inexperienced, but I thought using the CFD Platform on IG was the way to buy shares. 

A question directed at both of you, on what platform can I buy shares? IG has only CFD and IG? 

What online platforms do you recommend I look at?

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you can buy shares with IG on their sharedealing or isa account,( this is totally different from the cfd/spreadbetting account with ig)..also as i posted earlier , trading 212, hargreaves lansdown , freetrade etc there are many others...if you are dealing very small amounts, freetrade and trading 212 have no commission so maybe more cost effective , If you are dealing in maybe £1000 + amounts maybe ig would be ok...(i think its £5 commission) other investment platforms cost maybe £10 to £12 commission to buy and sell shares. I have only experience of using hargreaves lansdown and ajbell...

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Nothing much to add to what Gezmond has said - I use an ISA share dealing account on IG, and I find it reasonable. You have to bear in mind that IG probably makes most of it's money from spreadbetting and CFD accounts, so the share dealing service is probably not their main focus and as such it is more basic than some of the other providers. Saying that, it does everything I need it to do, and short of the free providers, IG's commission charges are probably about the lowest out there, especially if you trade more than three times every month (regular trade commission is £3 per deal for UK shares and nothing for US shares (though there is a 0.5% charge for currency conversion). Fortunately, I've never really had the need to use IG's customer services, but you don't have to search far on these forums to find reports of how bad it is. So, if you think you might have to make use of their customer service regularly, then IG might not be the best option.

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Following on from this topic, I’m in the same situation and definitely don’t want to be playing spreads or cfd’s. Can someone confirm that if I process this order, I am not liable for any more than the price of the order and that I am actually owning the shares?

Also as an addition question the shares in question are a SPAC am I right in thinking, these cannot drop below a $10 threshold or have  I misunderstood 

6029006D-196A-4E3F-BE6B-61501804A3B4.png

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Hi both, 

Thank you for your comments, greatly appreciated as always. 

I understand a lot more which way I need to take in terms of getting started. 

I will look into Freetrade's Share Dealing Platform, ideally I'd like to work with a 'cheap' share dealing platform that offers a demo account, as one of my main concerns is not understanding the platform well enough before I start putting my money down. 

My final question to you both, (as I'm sure at this point I am becoming an annoyance) @gezmond I know you have already stated a couple of different share-dealing platforms, but do either of you know of any decent 'cheap' share-dealing platforms that offer a demo account also?

 

Hope to hear from you soon!

Kind regards, 

Sam.

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The reason for trading in "points" rather than direct shares is to avoid UK taxes: If you trade in points HMRC classifies it as gambling, and the winnings are not taxed.

At the end of the day it works out approximately the same as dealing in direct shares you just have to do a bit of multiplication/division to work out the exact number of shares.

 

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Can't say I've used any of the free brokers, but I did look at Freetrade recently with a view to trying them out at some point in time, and I'm pretty sure that they don't offer a demo account. However, they do offer fractional shares, and I think their premium (charged) accounts pay 3% interest on cash reserves, which I thought was somewhat unusual. Though to be honest, I rarely have much actual cash sitting in my shares account as I usually reinvest it relatively quickly, so although the idea was attractive, the reality is that it wouldn't be of massive benefit to me.

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    • Maybe IG have decided that with such exceptional demand, they don't need to worry about long term clients.  The exceptional mob will not be around for the long haul.  As a result of what IG have done, long term clients may not be around for the long haul either.
    • Charlotte, we keep seeing the message that's it's small caps that have been withdrawn. It isn't.  For example, Hikma has a market cap of £5.2bn and is in the FTSE100. How do we know which other companies IG might decide to do the same to? We are also told that it's due to exceptional client demand. In that case, limit new opening positions (buy and sell). Why should we long-term clients suffer due to this?
    • Hey,  I completely understand your frustration and I will pass it onto our senior team as well as the exposure desk.  The decisions has been made but I'm so sorry for how it's impacting your trading. With exceptional client demand in the equity space, we have reviewed our 12000 leveraged markets and decided to withdraw less than 1000 small cap equities, after a review of associated returns on these markets. We will continue to support these markets for Share Dealing, where that product is available. Sorry again for this inconvenience.  All the best 
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