Investing in UK stocks

If you’re fairly new to investing, or have invested in funds and bonds but are considering expanding into stocks and shares, the UK stock market is a logical place to start. Read on to find out the key things you need to know about investing in UK stocks.

What stock exchanges can I trade on in the UK?

The main exchange for trading stocks in UK is the London Stock Exchange (LSE). It comprises two key markets: the “Main Market” and AIM.

LSE Main Market

LSE’s Main Market lists more than 1,000 stocks from the UK and around 100 other countries worldwide, including (according to its website) “many of the world’s largest, most successful and dynamic companies.” As well as stocks in individual companies, the Main Market includes a range of Exchange Traded Funds (ETFs).

LSE AIM market

AIM is the London Stock Exchange’s home for small and medium-sized growth companies. AIM stands for alternative investment market, and is designed (typically) for business that wanted to raise capital but either couldn’t afford the costs required or didn’t meet the requirements necessary to list on the London Stock Exchange’s Main Market. Investing in AIM companies usually means investing in early-stage companies with a higher risk of failing. But with this increased risk may also come a chance of higher reward if the companies take off, which some regard as a trade-off worth making.

What are the main stock indices that are listed in the UK?

A stock market index is a virtual portfolio of assets that measures and tracks the performance of the included assets as a whole. It gives a good indication of how a stock market, or sub-sections of the stock market, are doing. You can replicate an index either by buying shares in each individual company contained in the index, or by buying a fund that includes all of the assets in the index.

There are around 20 different indices. Some of the key ones you may encounter include:

• The FTSE 100 index. This is made up of the 100 largest companies on the London Stock Exchange by market capitalisation. It includes companies such as Barclays, BP, HSBC and Sainsbury’s. It’s made up largely of companies that have been around a while and have a proven track record, so tends to be regarded as lower risk than some indices (though, of course, no investment is ever risk-free).
• The FTSE 250 index. This comprises the companies in positions 101-350 on the London Stock Exchange by market capitalisation, so tends to include a lot of medium-sized rather than very large companies. They may be a bit less stable than FTSE 100 companies, but may have more potential for growth. Between them, the FTSE 100 and FTSE 250 make up a third index – the FTSE 350.
• The FTSE All-Share index. This represents 98-99% of UK stocks by market capitalisation. It includes all the companies in the FTSE 100 and FTSE 250, plus companies on the dedicated ‘Small Cap‘ index, which comprises companies on the LSE Main Market that fall outside of the FTSE 100 and 250.

There are also indices that represent the AIM stock exchange, or sub-sections of it.

How to invest in the UK stock market

• Open an investment account. The vast majority of UK investment platforms and brokers will allow you to trade shares and ETFs on the London Stock Exchange. Compare features, tools and fees carefully before making your choice.
• Add funds. You need to put money in your account to buy shares or invest in a fund, usually either by bank transfer or using a debit card.
• Choose your investments. Make sure you do some research into the funds or companies you’re considering before buying. Once you know what you want, find the stocks on your platform.
• Hit buy. Once your account is funded, you’ll be able to buy and sell shares and ETFs.

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How much does it cost to invest in UK stocks?

There are a few main charges you’ll come across if you want to invest in UK stocks. These may include:

• A platform fee levied by the platform to cover the cost of administering your account. Not all investment platforms charge this fee, but if they don’t they may compensate in other ways, such as through higher trading fees.
• Trading fees, which are usually charged every time you buy or sell stocks (and sometimes ETFs). This may be a set amount per trade or a percentage of the transaction amount.
• Fund charges, which may apply if you invest in ETFs, to cover fund managers’ costs. Such charges are often lower for ETFs than other types of investment fund, however. And they may work out substantially cheaper than trying to replicate an index by buying individual shares and incurring multiple trading fees for doing so.

How can I find the best performing UK stocks?

There are a few ways to check the performance of UK stocks.

1. Head directly to the London Stock Exchange’s website. It has a list of all the assets in its market, including stocks. Clicking on a stock brings up detailed information about its historic performance, including a graph. If you already have a shortlist of stocks that you’re considering, it could be a good way to find out how they’ve performed.
2. Use investment research and analysis websites, such as Morningstar. These sites publish regular news and updates about investment performance.
3. Use the tools on offer from your investment platform. Many online brokers publish tools and information to help you decide what stocks to invest in. Or if you work with your broker in person, ask them for advice.

Bear in mind when you’re checking what returns a stock has delivered in the past, that past performance is not necessarily an indicator of future success. More volatile stocks in particular may be riding high one week, and crash the next. So performance should only be one of the factors you consider when putting together a balanced investment portfolio.

How do UK stocks perform?

The FTSE 100 is made up of the UK’s 100 biggest companies. Here are some of the best performing FTSE 100 funds according to JustETF:

Icon	Fund	5-year performance (to February 2024)	1-year performance (to February 2024)	Link to invest
	iShares Core FTSE 100 (CUKX)	30.38%	1.94%	Invest with eToroCapital at risk
	Vanguard FTSE 100 (VUKE)	30.29%	1.83%	Invest with XTBCapital at risk
	Xtrackers FTSE 100 (XDUK)	30.05%	1.82%	Capital at risk
	Lyxor FTSE 100 (100D)	29.51%	1.76%	Capital at risk
	Invesco FTSE 100 (S100)	29.48%	1.83%	Capital at risk
	HSBC FTSE 100 (HUKX)	28.63%	0.43%	Capital at risk

FTSE 100 chart

Best UK stocks to invest in

	FTSE 250			FTSE 100
	Centrica			AstraZeneca
	Tritax			Unilever
	Unite Group			HSBC Holdings
	Harbour Energy			Diageo
	Convatec			GlaxoSmithKline

What are the alternatives to buying UK stocks directly?

If, for whatever reason, you don’t want to buy shares in individual UK companies – perhaps because you don’t have the time to dedicate to research, the funds to diversify properly by investing in this way, or you don’t feel confident about choosing the best stocks for you – you could instead consider investing in funds. Funds that include a wide range of UK stocks are widely available from UK brokers and investment platforms. Many track the performance of UK stock market indices such as the FTSE 100. Funds can be a good way to ensure a more diverse portfolio in a single hit, and are typically regarded as lower risk than buying individual stocks.

Or, if you’re a more experienced investor, you could try derivatives trading. Rather than buying and owning shares or funds, this involves speculating on the movements of underlying assets (such as specific UK shares, or a stock market index) through spread betting or CFDs (contracts for difference). This isn’t an approach for beginners though, as it’s high-risk and lots of people lose money doing so. Find out more in our guide to CFDs vs spread betting.

What should I consider when investing in UK stocks?

As we’ve outlined above, one of the key things to think about is building a diverse portfolio. This will help you manage risk and minimise the chance of unsustainable losses.

When building your stock portfolio, it’s also important to consider your life stage and your goals. For example, a younger person, investing for retirement in 30+ years time, can likely afford to buy higher-risk (and potentially higher-reward) stocks than someone saving for an event that’s only 5 years away. If in doubt, consult a professional financial adviser.

Think too about whether you’d be better off investing directly in individual company stocks, which requires more time, effort and potentially higher fees, or whether an ETF that gives you exposure to multiple UK stocks in one go would be a better bet.

If you decide to go for stocks, do your due diligence into the companies on your shortlist by looking into their overall financial health and future prospects; don’t rely purely on how it’s performed recently.

Pros and cons of investing in UK stocks

Bottom line

Investing in a wide range of UK stocks can help diversify your portfolio, and is an obvious first step for those considering investing in shares for the first time. As with any investments, research the companies you’re considering buying stocks in ahead of time. Assess their past performance, the robustness of their accounts, their future prospects, and whether their ethos is in line with yours (for example if you want to invest in ethical businesses). Compare share dealing platforms too, for the competitiveness of their fees, their ease of use, and the tools and information available.

Frequently asked questions

• What is the best way to invest in the UK stock market?

  It isn’t really a case of better or worse, but the most straightforward way for most people to invest in the UK stock market is through a fund that includes a wide range of UK stocks, such as one that tracks the FTSE 100 or another major index. Not only does investing in a fund automatically create diversification in your portfolio, but it’s likely to be cheaper than paying trading fees to invest in multiple individual stocks.

• What tax do I need to pay on UK stocks?

  There are a few key taxes you may be liable for on UK stocks. Firstly, stamp duty reserve tax of 0.5%. This is deducted automatically when you buy shares digitally. Secondly, when you sell your shares and make a profit, you may be liable for capital gains tax (CGT). This only applies if the gain you make exceeds your annual CGT-free allowance. Last but not least, if your stocks pay dividends, you may need to pay dividend tax. Again, this only applies if your dividend income exceeds your annual allowance. You can find out more in our full guide to investment tax.

• Is investing in UK stocks risky?

  All investments carry a certain level of risk – it’s in the nature of investments that their value can fall as well as rise. But how risky depends on the specific investment. On the risk scale, stocks are typically regarded as more risky than bonds or funds, but less risky than alternative investments such as art or fine wine. The risk level also depends on the specific stocks you buy though. While there are no guarantees, stocks in big companies that have been around a while, such as those on the FTSE 100, are typically regarded as more stable and less risky than stocks in smaller start-ups, such those listed on the AIM market. But with higher risk also (usually) comes the potential for higher reward. Balancing your portfolio between higher-risk stocks and lower risk investments is likely to be the best way forward.

• Can I trade UK stocks from outside of the UK?

  Almost certainly. If you’re not resident in the UK, you won’t be able to open a stocks and shares ISA, as that requires you to be a UK resident. However you should be able to open a general investment account without too much of an issue. If it’s on a UK investment platform you may need a UK bank account to fund it. Alternatively you can look for a broker or investment platform in your country of residence that gives you access to the London Stock Exchange.