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www.InvestmentGuide.co.uk Other types of direct
investment in shares
How best to invest in
stocks and shares
SHARES
(Also known as CFD)
Instead of buying shares, you buy a contract for
difference. You don't own the shares, just the right to make a profit or
loss if the share price changes from your original order. With contracts for
difference you can also sell short shares you don't own (if you
expect them to fall). With contracts for difference you always buy on
margin i.e. you only pay for 20% of what you are buying and the broker
lends you the rest.
You can buy and sell contracts for
difference for UK, US and European shares as well as around 14 stock market
indice.
You can take your profit or cut your loss at any time.
However if your trade shows a loss which is as great as your original 20%
stake, either your contract is closed or you are asked to increase your
margin deposit. Contracts for difference are suited to short term
trading; if you hold the investment for more than two or three months the
interest charges on the margin account mount up and may significantly eat into
your profits.
Who can invest Anyone 18 or over who is an 'experienced investor'.
How worthwhile Alleged to be good value if you like to speculate. You can lose money very quickly if you predict share prices wrongly. If you are right you can double or treble your money in a short time too. Contracts for difference needs regular attention and to deal effectively you probably need access to up-to-date share prices on a screen. Compare with options and spread betting. Don't go in to this on the basis of following someone else's advice: The Investors Chronicle reported in November 2006 that an investor had lost 96% of his investment in a few weeks by following the advice of a so called expert: he had no come back because you have to declare you are an "experienced" investor nefore you are allowed to trade.
Minimum Before you start your broker will expect you to send him a deposit of at least £5,000. This will be used as margin to cover some or all of your contracts.
Maximum None.
Suitable Lump sums.
Money back When you close the contract.
Interest You pay interest on the 80% of your contract value while it remains open.
Interest paid Not applicable.
Tax Any profits you make are liable to capital gains tax and losses can be set against other taxable capital gains.
Fees to pay Included in the spread. The brokers claims these are lower than with spread betting . There is no stamp duty on the transactions.
Passbook You receive a note giving details of each transaction together with a statement of your loss or gain.
Children Unsuitable.
Risk High.
How to invest Get details from one of the brokers which specialise in this. You might consider buying and reading a book about strategies of spread betting before you start.
Where from Check the Internet.
Other types of direct investment
in shares
How best to invest in stocks and
shares
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Last updated 24 November 2006