Market consolidation and volatility, competitive pressures, globalization and new technology are all driving structural shifts in the financial services sector. Financial institutions increasingly compete on a single global stage and transact business outside traditional core markets.

What are stocks and shares?

Shares are exactly what the name implies, that is to say they are shares in the ownership of the business. As a shareholder you are a part-owner of the company and can expect to share in its profits but should also be prepared to share in its losses.

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Ordinary shares are known as equity and are the risk-sharing portion of a company's funds, as distinct from stocks, which represent long-term loans and do not necessarily confer any rights of ownership. The ordinary share holders own the company, they can vote on company policy, appoint and dismiss directors and, if the company makes a profit, they can expect to share in that profit in the form of a dividend.

Companies may issue many different types of shares and stocks and you should make sure that you understand exactly what kind of investment you are making and what kind of return you may get and in what form it will come.

How do I decide whether stockmarket investment is for me?

Sometimes it is easy to be overwhelmed by the image of the City and forget the fact that stockbrokers are really no different to anyone else buying and selling goods and services. You might prefer to think of them as pin-striped barrow boys! Remember that the primary function of a market-place for shares is actually to provide companies with a place for them to raise money to invest in their businesses.

Of course, for there to be a ready market for such new shares, there has to be a ready market for second-hand shares. Nobody is going to want to invest in something that they are not going to be able to sell when they want to do so.

The vast majority of trading on the world's equity markets is secondary trading. That is to say it is the trading of shares previously held by one or more other investor. To succeed in attracting companies, the market must also be attractive to investors.

Stockmarket investment offers you the potential for greater returns than could ordinarily be achieved by leaving your money on deposit in a bank or a building society. However, that potentially greater return comes with a concomitantly greater risk. You may feel lured into the market by the bright lights of the City and the prospect of juicy capital growth as your share prices soar and a nice income from fat dividend cheques. Just remember you can also see your investment evaporate as share prices fall and companies can cut or fail to pay dividends just as easily as they can increase them.

Broadly speaking, the higher the potential return from any investment, the greater the risk of loss. Funds committed to the stock market need to be invested for (say) between two and five years. Money that you may need back in a hurry should never go into equity investments.


Could I use a stockbroker to manage my investments?

Most stockbrokers dealing in shares offer their clients three basic types of service. There is the no-frills execution-only; advisory, in which the broker will proffer advice to the client on a deal if requested; and discretionary, where the broker will manage a portfolio of shares at his own discretion on the investor's behalf in order to maximize capital growth or income, or any mix of the two, based on initial instruction from the client.

A private client stockbroker offering a full portfolio service will probably expect you to have a portfolio worth at least �100,000. That being said, some brokers will accept clients with half this amount, while others will be happy with as little as �20,000 although with such a relatively modest amount, pooled investments such as unit trusts and investment trusts are most likely to be recommended. If you have a portfolio which is towards the smaller end of these figures you should check what charges you are likely to face as they could take a big bite out of your potential returns.

Execution-only is the type of service that all online share dealing stockbrokers offer. It describes the service offered by stockbrokers where you make the buying and selling decisions on your own. Execution-only dealing over the internet has steadily gained market share over other execution-only channels (mainly telephone). Analysis by market research group Datamonitor shows that online transactions now account for 54% of all individual investors� execution-only business, up from 28% in 2001. (Source: Datamonitor 23/08/06).

Online stockbroking is cheaper than traditional trading methods such as telephone share dealing, says Datamonitor. A �1000 trade over the telephone costs on average 40% more than the same trade over the Internet, while a �2500 trade costs 80% more.