How much it costs

Before starting to trade you need to be fully aware of what it will cost.

There are various charges involved:

Commission

Brokers normally charge a commission for each trade, although many offer cheap or free trades for a short period after you sign up with them.

The most important figure to ask about is the minimum commission you will be charged. This is particularly relevant for smaller trades, as it could eat up a large percentage of the profit on any transaction.

Commissions can vary depending on the size of the transaction. For larger transactions the cost of the trade may increase.

Each broker offers a different commission structure. Some offer straight flat fees, others offer a sliding scale of commissions, and it is worth studying the services available closely to find the right broker for you.

Stamp duty

As well as commission, UK shareholders also have to pay stamp duty.

This is applied when you buy shares but not when you sell. This is currently 0.5 per cent of the price of the shares (i.e. 5p for every £10).

This is a controversial tax and there are growing calls from the broking industry for it to be scrapped.

Other charges

You should also determine whether there are any other charges for holding and dealing shares before you start using an online broker. For example there may be extra charges for holding or dealing in paper share certificates (see Practicalities).

Tax

If you make a gain on your share investments, you may have to pay capital gains tax on your profits.

Capital gains arise as a result of the disposal of shares at a profit. The amount of tax you pay depends on your personal tax position.

You will not have to pay any tax if your total gains for the year are within the annual exemptions, currently £7,100 for each spouse. Gains beyond that level could be taxed at up to 40%.

Gain and losses can be transferred between spouses, to ensure that the capital gains tax bill is reduced.

And as a general rule of thumb if you have any choice whether to make a loss in one tax year and a gain in another then make sure that you make the loss in the earlier year - it can be carried forward and set against the next year's gain. It cannot be carried back and set against a gain in an earlier year.

Dividend income you receive from shareholdings may also be subject to income tax.

It may be worth seeking independent financial advice on how to minimise your tax bill.