FAQ 1: Where you can invest, and the different options available.

nesf

If you want to add to this, please post in the relevant thread in the forum.

Links for services are available in a seperate thread here

Where I can I invest my money, and what options are available to me?

I want to pick the stocks/whatever myself, what options are there for me:
Your basic options are traditional stock brokers, financial spread betting, and CFD's (Contracts for Difference).

Tradtional Stock Brokers
These are agents who purchase shares, stock etc, on your behalf. You physically own the share, so you must pay stamp duty on the purchase, and you must pay commission to the broker for each transaction carried out. They can also advise you on which shares to purchase, and if you want they can give you "stock picks". They can also work out a portfolio for you if you wish, they can meet with you and work out just how much risk you are willing to take on board, and based on that they can recommend shares to you that suit your particular taste for risk.

These are the best option if you want to invest for the long term (ie more than a month). If you are planning on doing many trades in a short period of time, then this is not the option for you. But since you physically buy shares, you are taxed on it. This is both a good and a bad thing, having physical investments can give better returns than a bank account, but it is a little bit more risky.

Financial Spread Betting
This is where you basically bet on the direction of movement of a share or instrument. You pick a direction, either up (go long/buy) or down (go short/sell). Now you are not charged any stamp duty or tax on this, but the company makes it's money through your handicap. Basically you open a position, and instead of it opening at the market level, it is opened a few (3-8) points up or down depending on whether you are long or short. You also get to choose an amount earned or lost per point, minimum generally 1 euro, no maximum. If the instrument moves in the direction you want, you will break even after it gets to the level you are handicapped by (either rises or falls by 3-8 points depending on the instrument). After it passes this point you start making a profit(the amount chosen earlier) per point it moves in the direction you chose. Conversly if you are wrong, you lose money at this rate. The company makes money, by the fact that you start at a handicap and if the instrument doesn't move much, you will lose a little money.

This is a good way to invest to catch very short trends or movements. You can close the position anytime you want and don't require somone to buy the postition off you (as you would if you physically owned the stock). So you are always guaranteed to be able to close the position regardless of what the market is like (sometimes the market can enter a free fall, where you would be unable to actually sell a stock if you wanted to, so you can end up losing alot). This is a very important advantage that cannot be underestimated!.

Contracts for difference

These are complicated. I'm going to direct you to a pdf by a company that was a ground breaker in this new form of investing.

Basically, CFD's are a contract between two parties, where when the position is closed, one party will pay the other party the difference between the original price and the present price. Now this is actually a very complicated contract. For legal reasons (amoung others), the CFD company basically loans you the money to "purchase" the shares, and charges you interest daily on it while you hold the position. You never actually hold the money or the shares though.

Now the CFD company makes it's money in two ways, from this interest that is charged daily, and from times when you are wrong about the position. The interest works out as being less than what you would pay in stamp duty, if you hold the position for less than 10 weeks.

Theres a far better explanation here (although you need to register to view the pdf)

I'll add more to this later, got to head out now.