What Is a Share Dealing Account & How Does It Work?
Understand what a share dealing account is and its role as your gateway to managing personal investments.
A share dealing account serves as a fundamental tool for individuals seeking to invest in financial markets. It provides a dedicated platform through which investors can buy and sell various financial instruments, aiming to grow their wealth over time. This type of account facilitates direct participation in the ownership of companies or other investment vehicles, making it a common choice for those looking to engage with the stock market.
Core Concepts of a Share Dealing Account
A share dealing account is essentially a type of brokerage account specifically designed for trading securities. Its primary function is to hold an investor’s cash and investment assets, acting as an intermediary between the investor and the broader financial markets. Through this account, individuals gain the ability to place orders to purchase or sell shares and other financial products.
The account provides the necessary infrastructure for executing trades, managing a portfolio of investments, and receiving distributions such as dividends. It serves as a centralized hub for all investment activities, offering a regulated environment for trading. This allows investors to access a wide range of investment opportunities.
Types of Assets Traded
Through a share dealing account, investors can typically trade a variety of financial assets. The most common assets include shares, also known as stocks, which represent ownership in publicly traded companies. These shares can be bought and sold on major stock exchanges.
Beyond individual company shares, investors also frequently trade exchange-traded funds (ETFs) through these accounts. ETFs are investment funds that hold a collection of assets, such as stocks, bonds, or commodities, and trade on stock exchanges like regular shares. Some accounts may also offer access to investment trusts, which are similar to ETFs.
How Transactions Work
When an investor decides to buy or sell an asset through their share dealing account, they place an order with their chosen broker. Orders can be of different types, such as a market order, which instructs the broker to execute the trade immediately at the best available price, or a limit order, which specifies a maximum buy price or a minimum sell price. Once an order is placed, the broker routes it to the relevant exchange for execution.
Upon successful execution, the trade enters a settlement period, which takes two business days for most stock and ETF transactions. During this period, ownership of securities transfers to the buyer, and funds transfer to the seller. The share dealing account updates to reflect the new holdings and cash balance, confirming the completion of the transaction.
Account Opening and Management
Opening a share dealing account requires individuals to provide specific personal and financial information to the brokerage firm. This typically includes proof of identity and address, such as a government-issued identification or utility bill. Investors also provide banking details for funding and withdrawals, along with their tax identification number.
After gathering documentation, the application process usually begins by completing an online form or submitting physical paperwork. The brokerage then reviews the application and verifies the information, which may involve identity checks to comply with regulatory requirements. Once approved, the account is activated, and the investor receives login credentials to begin trading.
Associated Costs and Regulatory Protections
Share dealing accounts typically involve various fees, including trading commissions charged per transaction. Some accounts may also have account maintenance fees, especially if inactive or below a certain balance threshold. Foreign exchange fees may apply if trading international securities.
Investor funds and securities held in share dealing accounts are generally protected by regulatory oversight. Financial institutions offering these accounts are regulated by bodies like the Securities and Exchange Commission (SEC) and the Financial Industry Regulatory Authority (FINRA). Additionally, most brokerage firms are members of the Securities Investor Protection Corporation (SIPC), which protects customers’ securities and cash up to $500,000, including $250,000 for cash claims, if the brokerage firm fails.