Do your homework when buying shares on the Net.
As we have seen in the last month alone, buying and selling shares over the Internet has become all the rage (see page 1). But how should the private investor approach this new marketplace?

The net has become an excellent source of up-to-date information. With many stockbrokers and financial institutions maintaining high-quality websites there is a wealth of free information available, from real-time share prices to sophisticated portfolio management systems. Online services are fast becoming the way forward for managing your finances; several high street banks offer an online service to manage your bank account, allowing you to check balances, pay bills and transfer money direct from your PC.

What do you need?

You need a PC with at least a 486 chip, a modem and an Internet Service Provider to access the Web. To search the Internet, you need special browser software.

What to look for:

Company websites

More and more publicly quoted companies are realising the value of having their own website. It is an ideal way to communicate news and financial information and answers the private investor's complaint that he does not have the same privileges as City professionals. Most FTSE 100 companies now have sites and the proportion of companies in the rest of the stockmarket going online grows daily, though the standard of information and presentation varies enormously.

Portfolio management/ analysis systems

Many sites offer portfolio management systems to private investors. It is worth spending some time researching these sites to find out which one best suits your needs. Many of these sites are free of charge. Watch out for how often they update information, whether they offer a news summary and customer support, and whether they offer more complex services like tax and transaction summaries and share analysis data programmes.

Share data

Prices quoted online are often real-time; which means they are the current market price. If prices are not real-time, an on-screen disclosure will advise users of the last time the price was updated. Other prices may be listed as delayed (usually by about 15 minutes), end of day, or historical (going back several months or more).

Online trading

In the US, online share trading currently accounts for over 18 per cent of share trades, but the service is still in its infancy in the UK. However, with 40 per cent of UK private investors now connected to the Internet, that figure looks set to grow rapidly and there are now several online brokerage services available. Online trading removes the need to speak to your broker, and allows you to buy shares directly from your PC. By accessing the relevant Web address and keying in a password and security code (unique to each customer), you are able to buy or sell shares yourself. In reality the brokerage firm still trades on your behalf. The difference is that the transaction takes place electronically, and the whole process happens in a fraction of the normal time. This is not to be confused with online share ordering which is carried out via e-mail. In this instance the private investor does not know the exact buying price when ordering, and will wait for the broker to contact him with these details, before confirming the trade.

The costs

As the services offered by online brokers all differ slightly, so there are a variety of different charges. Most charge an annual fee plus an additional fee for each online trade. This charge differs from broker to broker but is often a percentage of the value of the trade, usually 1 to 1.5 per cent for amounts of up to pounds 12,500. Alternatively it may be incurred as a flat rate payment. With an increasing number of firms competing for your business these charges are likely to reduce further.

Avoid the pitfalls

Before you choose an online broker, make sure you are completely happy with the services you are buying into, and clear about the charges you will incur. Check the account conditions; some online brokers require a minimum balance, or a minimum initial deposit, before you can use their services.

You need to be careful when you are actually trading online. Before you click on the on-screen "trade" instruction, read through the order carefully to make sure it is exactly what you want. Once a trade has been submitted online it is very difficult to change it as there is no delay in processing your order. If you have any concerns about a trade, call your broker to confirm the order. Also make sure you don't click the "trade" instruction twice. Duplicate ordering is the single greatest mistake made when trading online.

How to search for online services

The internet provides powerful tools for searching for services and information; and the best place to start any search is at an internet directory. There are a number of directories to choose from, including Yahoo, Lycos, and Excite. An internet directory is an attempt to categorise services under meaningful topics. Subjects such as entertainment, motoring, and the media are covered, as well as business, finance and investment.

Once you have selected your directory (and chosen the topic) type a word or phrase that describes what you are looking for, and click "search" with your mouse. If you are looking for online brokerage firms try typing "online stockbrokers" or "online trading" and see what the search brings up. If you have no success, alter the word or phrase you are searching under, or try a different Internet directory. A broad search such as this will probably bring up many useful sites and, rather than struggling to find one that is of use, you may be spoilt for choice.

For more, free information from ProShare, the organisation which promotes wider share ownership, go to