The British stock markets are highly volatile, with hundreds of companies to invest in spread across a wide range of sectors. It provides excellent opportunities for people who want to start stock trading, but it also presents some challenges that new investors should be aware of before making their first trades.
Of all the countries in Europe, the United Kingdom has one of the largest stock markets. The FTSE 100 consists of just under 100 companies listed on their index, making it a pretty high number. It is also a market with over 5,000 different shares to choose from, which can confuse a lot of investors who wish to put their money into stocks and shares.
The first thing to know is the difference between the London Stock Exchange (LSE) and the FTSE 100 index. The former is where most individual investors begin, as nearly all blue-chip companies are present on it.
The latter contains only Britain’s top 100 companies by market capitalization – a term best defined as its total value on the market, calculated from its share price multiplied by several shares issued – or about 80 per cent of all LSE stocks.
Therefore, investing in British stocks can be a rewarding experience if done correctly, and so here is a list of tips below regarding this:
Play it safe with big companies
The FTSE 100 is a list of the top 100 British companies by market capitalization, and so these are some of the largest in the country, what I would call ‘blue chips’. These are names that you will likely be familiar with, such as HSBC Holdings plc (HSBA), BP Plc (BP/), Vodafone Group plc (VOD) and Royal Dutch Shell plc (RDSB).
Now, they may all be large companies but what they do have in common is that their stock prices can be somewhat volatile at times, and so if you wish to invest your money into shares, then this may not be the best option for you. It’s because they often swing one way or the other, and there is not always a lot of news to move their share price either.
Be aware that small does not mean good
On the flip side of things, you could choose to invest your money into some of the smaller companies on the FTSE 250 index, but I would advise you to be very careful with doing so. While it may seem like a more leisurely ride when it comes to watching their share prices go up and down, this is because there are fewer people who look at them each day compared with blue chips.
Therefore, if any bad news is announced about them, it will have a much more significant effect on their stock price than others, which means you could lose more money when selling them on.
Do your research thoroughly
It’s the essential part of investing in any stock market. If you are to do it properly, you must look at each company that you are thinking about putting your hard-earned cash into and have a thorough read about their financial results, how much debt they hold, what markets they operate in and so forth. All of this information is available online these days anyway.
Still, if you can get someone who already invests in stocks to help you, that would be even better as they will have gained invaluable knowledge with time which can save you from making mistakes yourself.
Don’t invest every penny
While ‘pound cost averaging’ may not work for everyone when it comes to investing in stocks and shares, I would certainly recommend that you at least try it out. It means that if you have saved £100, then don’t just go for one of the most expensive companies on the market because your share price will likely drop with time. Instead, buy ten different shares of 10 different companies whose stock prices are around £5, so if one or two falls, it won’t matter too much to you financially.