Whether you are a veteran trader or a novice investor, due diligence must be practiced in order to be successful in trading. Below are four “need to know” aspects that traders and investors must be aware to be able to successfully trade.

1. Taxes

A good number of investment analysts agree that all investors must have background knowledge of capital gains tax (CGT), which all investors are primarily liable for when they sell different shares and commodities for a profit and dividend tax. Investors can better protect themselves from capital gains tax by using shares ISA and stocks as well as higher-rate. Additional-rate tax payers can also benefit from not paying further taxes on dividends.

2. Charges

Investing definitely comes with the added costs associated with share dealing and other relevant aspects related to trading. The annual charges linked with trading can have an off-putting effect on returns should they be larger than what it needs to be. Therefore it is worth investigating for other potential solutions that might work for your advantage.

Basically if you are trading on a regular basis it is best to look at brokers that offer lower charges for higher frequency trading. If you don’t trade very often then make sure your broker should not compel charges due to inactivity.

3. Drip-feeding and standardising the “pound” cost

Customary savings religiously require discipline but a lump-sum investment seems to be much more enticing. But there are certainly more advantages to the former. First of all, drip-feeding your investments into a share over time can help safeguard your portfolio from high volatility. If you place all your capital in one position at once, you are basically purchasing all your shares in the company at a single price which is very susceptible to an unpredicted price fall.

This approach of buying more shares when the prices are low, it can lighten the burden of investors to better reach an average price across their total holdings as they increase their investments.

4. Compound interest

With the lowest record base rate, investing for profit is specifically the fad as of the moment and undoubtedly receiving dividends from existing shares is definitely a hailing addition to one’s back account. It is seriously worth undertaking the reinvestment of dividends since the effects of the compounding can give a dramatic uplift in returns.

However, payments if a larger dividend should not be the main concluding factor to concentrate one’s effort whether or not to invest in a share or not. An existing dividend can still signal a flaw in a company as often as it does have its strength. However, stocks that produce an income tend to be relatively large and established companies have the advantage of distributing a greater proportion of their profits.

Last Updated: May 17th, 2013