How much money I make trading shares on Trading 212?

The profit so far:

I have now been trading for about 5 months and at the time of writing, I have made £450 as a profit or return on my investment.  And this amount does not include the dividends that I have or will receive as owing the shares of various companies. This may not seem the best or huge return on investment of £4000, but so far the investment has yielded a return rate of around 25% which I think is quite a good number when compared to the interest the amount could have had had it was kept in a bank account.

When did I start?

I started in October 2020 with an initial deposit of £800 but as the profit started to build up, I increased the total amount to £4000. This is the amount I would ever going to invest and if it all goes bottom-up, then this is the total amount that I am going to lose.

Which shares, FX, or CFD do I buy or invest in?

I don’t do CFD or Foreign Exchange (FX) as I don’t understand them or find it too volatile for my liking. When it comes to shares, I only invest in FTSE100 or 250 or SNP 100. These stocks can often make you wait for weeks to see any return on them, but they are also less volatile and less unlikely to vanish your money altogether.

Which stocks do I invest in?

I normally go for stocks of companies that have had good quarterly, half-yearly or annual results, pay dividends and are part of FTSE 350. Just to make sure that the money I am investing in has a good chance of protection. Currently, I hold all four big UK banks as they all have had their annual results for 2020 in and they all had profit, albeit less than the previous year, and have resumed dividends. Miners such as Fresnillo, Glencore, and Ferrexpo are some of the stocks that have given me profit and dividends. And I have also bought and sold stocks of Amazon, Google, and Tesla, etc. Just for the same reason that they have more chances of not going out of business overnight or have more strength of withstanding a financial blow.

When do I sell the stock?

I never wait for or expect a big return on my investment. Sometimes I sell my stock even if the profit is in pennies. There are two reasons for it, 1, a tiny profit is better than a loss, and, 2, it protects my initial investment. Moreover, even a profit in pennies is a good return if you can generate it more often. A profit of 79p on investment of £67 over a 3 day period means that the return is 0.39% a day or 143% over a year. And it also frees up the money so I can reinvest it.

Not paying a commission does help.

Thankfully more and more free trading apps are coming up into the market and one does not have to pay a fee every time he sells or buys stocks. Currently the cheapest fee-paying share dealing account in the UK charges you about £6 a go. Even as a beginner if I bought and sold 10 times a month, that is £60 that I was never going to see. However, trading without a fee does help to make a profit or at least mitigate losses. I have been using Trading 212 for a few months now and if I was using any fee paying service, I don’t think I would have made any profit.

Tax on dividends – How much do you pay?

If you earn over a certain amount of money as dividends, you may have to pay tax on it. How much tax you will pay would depend on –
1. How much dividends you have received.
2. Your total income (as a salary or self-employment).
3. Rate of dividends tax: The tax is charged at different rates depending upon how much dividends and other incomes you have received.

No Tax to pay!

Currently, for the financial year 20-21, you won’t pay any tax on dividends if the total dividends you received in a tax year was under £2000. Even if your yearly income from other sources was substantially high.

You won’t pay any dividends tax if your income is under £12500!

You don’t pay any dividends tax if your annual total income (including the income from dividends) is less than £12500. It is because any amount up to £12500 will be free from any tax as your personal tax allowance.

What if you have to pay dividends tax on them?

How much you will pay will depend on the tax rate: For the financial year 20-21, there are three tax bands that decide how much dividends tax one has to pay.

1. Basic rate of 7.5%,
2. Higher rate of 32.5%
3. Additional rate of 38.1%.

The above rates are charged based upon your income tax bands. Basically, if you are a low earner, your dividends tax rate will be charged at a lower rate, and if your income is higher, a higher tax rate will apply.
Seems complicated? Let’s try to clarify it through examples;

Example 1. Roger earned £12000 in wages working as a carpenter, and £1500 in dividends. How much tax will he pay on the dividends?
Since the dividends Roger received were less than the tax-free dividends threshold (currently £2000), he will not have to pay any tax on it.

Example 2. Sanya earned £35000 as her salary and £2000 in dividends, how much will she pay as dividends tax?
Again the total dividend amount was less than the dividends tax-free allowance of £2000 and therefore she would not have to pay any tax on it.

Example 3. Andrew earned £7000 as a self-employed person and £7000 as dividends, how much tax will he be paying?
Andrew’s total income is £14000 which is over the threshold of personal tax allowance of £12500. However, the first £2000 of his dividends earning is tax-free which brings his total earning to below £12000. As this amount is exempt under the tax-free allowance, he will not pay any tax on it.

Example 4. And lastly, an accountant earned a salary of £35000 plus £9500 as an income from dividends. How much tax will he pay on the dividends?
The combined income from the salary and dividends totals £44500. However, the £2000 dividends tax-free amount brings the total income down to £42500. As the overall income falls under the basic rate income tax £42500 – £12500 = £30000), the dividend tax will be charged at 7.5% resulting in £562 as dividend tax.

If you are still not sure how much tax you will pay on the income from dividends, head to Which? website which has a handy dividend calculator to work it out for you

What are fractional shares and how to buy them?

What are fractional shares?

A fractional share is a part of a full share. It is like dividing a pizza into 5 pieces where each piece represents 1/5th
of the pizza.

How to buy fractional shares?

Many stock brokerage companies offer fractional shares to buy for their clients. But with the help of share buying apps such as Trading 212 or Freetrade, buying them now is becoming easier every day.

Buying a fractional share on Trading 212

One of the best features that the Trading 212 app has that it lets you buy fractional shares. And as the title suggests, you can buy a fraction of a share of a company. Handy if you don’t have $3000 to buy just one share of Amazon but still willing to invest by buying the 100th part of it by paying just $30. And even if that feels expensive to invest, you can buy the 200th part of an Amazon share by paying just $15. Trading 212 lets you invest any amount or buy any fraction of a share as far as your buying price is not below £1.

How to buy a fractional share?

On the Trading 212 app, select the company you want to buy the share of and click on Buy. Now type the desired quantity of a share such as 0.1, 0.01, or 0.001, and so on. Once you are happy with the amount and the share quantity, review the order and buy it.

buy-fractional-share-trading-212

100th-fractional-share-trading-212

 

Can I buy a fractional share of any company?

The majority of companies on Trading 212 (Including FTSE 350, AIM, European, Swiss, and American) allow you to buy fractional shares except a few. At the time of writing two American companies that I found which do not allow fractional shares are Energizer and Wills Towers. Trading 212 app also allows you to pre-indicate if a share is fractional or not by going to Setting > Trading preference and enabling Fractional shares indicator.

fractional-shares-settings

fractional-shares-ok

Do I pay stamp duty on fractional shares?

If the share is listed under FTSE 350 then the majority of shares will incur stamp duty. However, the UK AIM market shares are exempt from stamp duty. But if you are buying shares listed on any foreign exchange, you will not have to pay UK stamp duty on them.

Dividend on fractional shares

If you have fractional shares of a company, you will receive dividends on them provided you held them on the eligible dates (Ex-dividend and Record Date). However, the amount you will receive will be proportionate to the fractional quantity of the shares. For example, if the company paid a dividend of $1.00 per share, and you held a 0.25 share, your dividend amount will be $0.25 or 1/4th.

dividend-on-fractional-shares

 

Trading 212 Review : From a newbie’s perspective.

In the beginning:

I download Trading 212 in September 2020 after watching a brief advertisement on the telly. Though I had seen its adverts a few times before, I never gave it any serious thought as I did not believe that you could trade stocks without paying any fees. To be honest, when I first heard about it, I thought it was a scam or a trick app that claims to be free but once you have started to use it, it bombards you with hidden costs and fees.

Even after downloading it to my mobile, for the first few weeks, I trod very carefully in terms of depositing money and buying and selling stocks. I have now been using it for about one and half months and here is my review (Please note my review is only related to the share dealing account as I have not used the other features of the Trading 212 app namely ISA and CFD):

1. No Fee:

Yes, it does not charge you any fees for selling or buying stocks: However, there are some other fees that you would be paying such as stamp duty (charged at 0.5% of the total cost). But this is a government levy and everyone has to pay it if buying UK stocks.

2. You Don’t Have to Have an App Only:

You can download the app from Google Play Store but Trading 212 also has a website https://www.trading212.com where you can trade stocks and shares if a mobile app is not your cup of tea.

3. I Wish I Had Downloaded It Sooner:

I have been buying and selling, in the hope of making a living as a day trader, for around 10 years. And in that period I have not made much money to call myself a day trader, but I have paid a significant amount of money during the last 10 years to online brokers. And this is why I like apps like Trading 212 as I don’t have to pay anything for fees when I trade. There is also no fee or commission if you transfer money to or from Trading 212 to your bank account. Neither there is any management fee for the stock you hold on it.

4. You Pay the Spread Anyway:

Many people say that Trading 212 is not free as you are paying indirectly as the spread (the difference between the price of selling and buying). So basically the argument is that Trading 212 charges higher prices when you are buying and gives you lower prices when you are selling the stocks. But, Trading212 is not the only brokerage company that does so. No matter whichever broker you choose, they all have the spread – even if you are paying a fee for your stocks or not. The spread is always there.

5. It Is a Popular App:

Trading 212 started in Bulgaria and entered the UK in 2016 and it started to offer no-fee online share dealing in 2017. At the time of writing Trading 212 app has had 15 million downloads.

6. Is Trading212 authorised?

Yes. Trading212 is regulated by the FCA (Financial Conduct Authority) UK. Trading 212 has an FCA Firm Reference Number 609146 (https://register.fca.org.uk/s/firm?id=001b000000NMi1QAAT).

7. Is My Money Safe With Trading 212?

In the event that Trading 212 goes bust, a user’s money is protected up to the value of £85,000, the same way as a bank account in the UK is protected by the FSCS for up to £85,000.

8. How to Get Started?

If you want to check out how the app works or how to trade on it, you can do so by first trying out using a practice account where you are allowed to deal up to £50000 in virtual money.

9. Trading 212’s Reviews on Other Sites:

At the time of writing, Trading 212 has the following scores on the review sites:
Trustpilot UK: 7242 reviews with an average score of 4.4 out of 5
Google Play: 73506 reviews with an average score of 4+ out of 5
For reviews and group discussions on Reddit: visit: https://www.reddit.com/r/trading212/
https://www.reddit.com/r/UKInvesting/comments/7g3boz/trading_212_yay_or_nay/

10. If It Is Free Then How Does Trading 212 Make Money?

Trading 212 makes money by selling the stock at a higher price and buying them at a lower rate (the difference is called the spread). Spread is the difference between buying and selling price. For example, if a share costs 5p, then the price the broker might be showing you may be 5.25p when you buy it. And when you sell it, it might be 4.98p and so in both cases, you are buying expensive and selling cheap giving the broker an opportunity to make a profit by the spread.

11. Trading 212 Free Shares:

Currently, if you sign up for Trading 212 by using an invitation code from someone who is already a Trading 212 account holder, both you and the invitee will get free shares up to the value of £100 or $100 or 100 Euros. One user can invite up to 20 people and therefore can get free shares of up to 2000. The accounts are credited within 3 working days with free shares once your friend or invitee has signed up for a new account and has deposited the minimum amount of £1. However, there is a limit of 20 signups per account for which the inviter will receive free shares.

12. Over 2950 Stocks from Germany, UK, USA, Holland, France, Spain, and Switzerland:

The heading says it all!

My personal experience:

So far, I like it. In the past, I have paid out hundreds of pounds just to be able to buy or sell stocks. Even if you trade just 20 times a month, that can amount to £160 (£8 per go, on the cheap side) just for the brokers’ fees. At least I am not paying that now. And even if Trading 212 is making money by the spread, buying and selling the stocks for me are still way cheaper than before.

I can start investing from £1.

The minimum amount of stock that I have to buy on Trading 212 is £1 (for the majority of fee-charging brokers the minimum amount is £50).

I can buy fractional shares:

One of the best features of Trading 212 is that one can buy fractional shares. Quite handy when you don’t want to or have that sort of money to invest in a very expensive share such as Amazon ($3219 apiece), or Alphabet inc. ($1795) but would rather invest a little money to own a fraction of the whole share.fractional-share-trading-212

No foreign exchange fee:

When buying the US, or European shares, Trading 212 has no foreign exchange fee. The buyer pays the converted amount in his local currency.no-foreign-exchange-fee-trading-212

Live chat:

Contacting customer support through live chat is handy when there is a problem. I have contacted them a few times and 4 out of 5 times they were able to resolve the issue over the chat.

My Only Qualm:

Probably the biggest disappointment with Trading 212 is that occasionally there are times when there is a delay in share buying and selling execution as it goes in the pending mode. The delays sometimes can be up to 2 minutes and longer and if the price moves up or down in the meanwhile, there is a good chance that you won’t be getting the price of your choice.pending-order-trading-212

Conclusion:

Overall I have found Trading 212 cheap, user-friendly, and easy to buy and sell shares and stocks. And I do hope that it remains this way as there are very few alternatives apps that can deliver the same features and cost. The issue of pending orders, fortunately, does not occur frequently and so far it has not made a big difference in price. But there is certainly a need to fix this issue up.

UK shares without stamp duty

Stamp duty is payable on the majority of stocks on FTSE 100 or FTSE 250.

You pay stamp duty when you buy shares listed on the FTSE market and it is charged at 0.5% of the total value of the stock (excluding any broker fee etc) you are buying. And that means any profit you may make on the stock will already be reduced by the amount you pay as stamp duty. And if you make a loss, the stamp duty will make it bigger.

For example, buying 1000 shares of a particular company at a price of £2.50 each will actually cost more because you will be paying £2500 (£2.50 x 1000) for the stock + £12.50 in stamp duty (£2500 x 0.5%) pushing the overall cost to £2522.50. And if you have to pay any broker’s fee, the final amount will even be bigger. So not paying stamp duty can push up your total profit and bring down your expenses.

Not all UK shares or shares bought in the UK have stamp duty.

The good news is that there are some stocks listed on the UK market which do not incur any stamp duty. For example, from 28 April 2014 shares bought of an AIM-listed company do not have stamp duty to pay. The AIM market is made up of companies that are smaller in size and have been categorized as “growing companies”.

List of UK shares without stamp duty

These are some of the companies that are listed under the London Stock Exchange and are exempt from stamp duty.

Glencore Ticker: Glen

Experian plc Ticker: EXPN

International Consolidated Airlines Grp Ticker: IAG

Petrofac Ticker: PFC

Polymetal International Ticker: POLY

Genel Energy Ticker: GENL

Playtech PLC Ticker: PTEC

Phoenix Group Holdings Ticker: PHNX

3i Infrastructure PLC Ticker: 3IN

Hiscox Ltd Ticker: HSX

Lancashire Holdings Ticker: LRE

BH Macro Ltd Ticker: BHMG

UK Commercial Property Trust Limited Ticker: UKCM

Ferguson Plc Ticker: FERG

IWG PLC Ticker: IWG

Centamin PLC Ticker: CEY

Newriver Reit PLC Ticker: NRR

Why some stocks do not have stamp duty on them?

Stamp duty is only payable if the company that one is buying shares from is incorporated or based in the UK. Basically, a foreign company is exempt from stamp duty as it does not maintains its shareholders register in the UK.

How do I know if a company is exempt from stamp duty?

Usually, if you are paying stamp duty on a particular stock, the amount of stamp duty will be shown to you at the time of purchase.

How to avoid stamp duty on shares?

A little bit of research online can show plenty of results of shares that are exempt from UK stamp duty. As well as the UK AIM market, if you are buying shares from any foreign exchanges such as the US, or Europe, the stamp duty will not be payable.

Is there stamp duty on selling shares?

No. Stamp duty on the UK shares is only payable when you are buying them.

 

Dividend on shares: why is it paid and how often is it paid?

What is a dividend?

A dividend is a profit that a shareholder receives as a return on his investment in the company. When someone buys shares in a company, he becomes one of the owners of that company (however tiny that ownership might be). And if the company does well (in terms of profit, etc), it pays the shareholder with a portion of the profit in the form of dividends.

How much dividend is paid?

It depends on the factors such as the number of shares the investor holds, frequency of dividend payments, amounts of dividend, etc.

Do all companies pay dividends?

No. Some companies pay and some not. It all depends on profitability and affordability. Paying dividends is not compulsory.

Whether a company will pay dividends or not depends on if the company has a healthy financial standing (i.e. is making a profit), or has the means to pay. A company running into heavy debt (such as Lloyds Banking Group which had to be bailed out by the UK government in the recent recession) is very unlikely to pay dividends until it comes back in profit.

How many times a year companies pay dividends?

Some companies pay dividends just once a year and some pay up to four times. Admiral Group Plc, which is a UK insurance company listed on FTSE 100 market, has paid 3 dividends amount totalling 73.8 pence per share so far at the time of writing this article (Sep 2014) whereas Lloyds Banking Group has not paid any dividend at all in 2014. 

What is the ex-dividend date? 

It is the date on which, if you hold the shares, you will become eligible to receive dividends. However, if you buy shares on this date, you WILL NOT be entitled to dividends (hence the name “ex-dividend”). 

To simplify it, let’s say a company called ABC Inc is going to pay a 30p dividend per share and the ex-dividend date is 22 October 2019. “A” has held shares in ABC Inc for a while but sells them on 21 October 2014; he will NOT be entitled to dividends as he sells them one day before the shares become eligible for dividends. 

But “B” who buys on 21 October 2014 and keeps them past 22 October 2014 and sells them on 27 October 2014 (25 and 26 are weekend), will be eligible for dividend as he held the company’s shares on the ex-dividend date. So it is important that an investor does not sell his holding before the ex-dividend date has passed. It is equally important that the holding is not sold before the Record date either.

Record date:

It is the date when the dividend-paying company “records” the names of shareholders who are entitled to the dividend payment. The record date is normally a day after the ex-dividend date and a holder must hold shares on the record date to receive the dividend.

Tax on dividends:

There is an allowance of £2000 for the tax year 2020-2021 which means you don’t pay any tax on income from dividend if the amount is less than £2000. Any dividend income above £2000 will incur a tax rate ranging from 7.5% to 38.1% depending upon your total income. For further details see Tax on dividends

 

Compare share dealing accounts for UK online trading

A snapshot of some share dealing accounts and their cost per trade and other charges. It is important to note that there can be additional charges which may incur when buying or selling shares..

Company name SVS Security (done a runner) WTF

Fee per dealing:: £5.75

Admin fee: None

Minimum amount to buy shares: £50

Can I transfer money to my share dealing account by online banking? Yes

Buying shares over the phone: Yes (£20 per trade)

Adding fund to your account by telephone: £5

Any restriction on number of trades or maximum amount to invest: None

Mode of access: Online, phone

Available stock markets: UK

Payments can be made by: Debit cards, online banking, cheque

More details on charges: SVS

 

Company name: Interactive Investor

Fee per dealing:: £5 to £10

Fee per dealing when buying non UK listed shares: £10

Admin fee:£20 every quarter

Minimum amount to buy shares: £50

Can I transfer money to my share dealing account by online banking? Yes

Buying shares over the phone: Yes (No additional fee)

Any restriction on the number of trades or maximum amount to invest: None

Mode of access: Online, phone and mobile app

Available stock markets: UK, Canada, US and European

Payments can be made by: Debit cards, online banking, cheque

More details on charges:Interactive Investors

 

Company name: TD Direct Investing zzzzxxxx

Fee per dealing:: £5.95 to £12.50

Admin fee: None to £10.00 + VAT per quarter on UK shares

Non UK shares trading: £10.95 to £17.50

Minimum amount to buy shares: £50

Can I transfer money to my share dealing account by online banking? Yes

Buying shares over the phone: Yes £40 + £5.95 to £12.50

Any restriction on number of trades or maximum amount to invest: None

Mode of access: Online, post, phone and mobile app

Available stock markets: UK, US, Australia, Hong Kong, Singapore, Canada, and European

Payments can be made by: Debit cards, online banking, cheque

More details on charges:TD Direct Investing

 

Company name: Hargreaves Lansdown

Fee per dealing:: £5.95 to £11.95

Admin fee: None

Minimum amount to buy shares: £50

Can I transfer money to my share dealing account by online banking? Yes

Buying shares over the phone: Yes £20 to £50

Any restriction on number of trades or maximum amount to invest: None

Mode of access: Online, post, phone and mobile app

Available stock markets: UK, US and European

Payments can be made by: Debit cards, online banking, cheque

More details on charges:Hargreaves Lansdown

 

Company name: Share Centre

Fee per dealing:: 1% per deal (£7.50 minimum)

Admin fee:£1.50 + VAT per month

Minimum amount to buy shares: £50

Can I transfer money to my share dealing account by online banking? Yes

Buying shares over the phone: Yes £40 + £5.95 to £12.50

Any restriction on the number of trades or maximum amount to invest: None

Mode of access: Online, post, phone, and mobile app

Available stock markets: UK, US and European

Payments can be made by: Debit cards, online banking, cheque

More details on charges:The Share Centre

 

Company name: You Invest

Fee per dealing:: £4.95 – £9.95

International dealing: 1%

Admin fee:None

Minimum amount to buy shares: £50

Can I transfer money to my share dealing account by online banking? Yes

Buying shares over the phone: Yes £29.95 per trade

Any restriction on the number of trades or maximum amount to invest: None

Mode of access: Online, post, phone, and mobile app

Available stock markets: UK and Irish and 21 major securities markets

Payments can be made by Debit cards, cheques, Direct Debit

More details on charges:You Invest