In turbulent markets, investors often ask themselves whether the best advice is to not get any advice at all. Execution-only sharedealing services give you the opportunity to do just that – rely solely on yourself.

As Richard Lock, head of execution-only dealing at Charles Stanley stockbrokers, explains, ‘As an execution-only broker, we carry out the dealing on behalf of the investor, but we don’t offer any advice at all. They do their own research and make their own investment decisions.’

And with discretionary or advisory services having a price tag that can reach hundreds of pounds per year, and the commission on many investment products taking up to five per cent of the initial investment, it is not surprising that more people are turning their attention to execution-only services.

Backing your convictions
‘If you are dealing online, you’re looking at around £10 to £15 for each transaction, although the charging structure differs slightly from broker to broker,’ Lock points out.

‘Generally, investors have to have funds in their online account and stock in custody with the online broker, and for that the broker is able to offer a very competitive commission fee.’

When it comes to making investment decisions, more than half of investors like to make their own choices and one in ten want to be more involved than they are, according to research compiled by Barclays Wealth.

And even in the current volatile market, investors remain confident in their actions. Active traders and bullish investors are seizing the opportunity to benefit from falling share prices, with 52 per cent planning to buy in the current market conditions and a further 37 per cent opting to hold on to their stocks.

Catherine Penney, director at Barclays Stockbrokers, enthuses, ‘It is an optimistic sign to see investors so confident in the present market climate and taking advantage of cheaper stocks.’

Anyone can play
Although it goes without saying that the execution-only approach is ideally suited to more experienced investors, that doesn’t, by any means, rule these services out
for the inexperienced investor.

If you have carried out substantial research and have a strong idea of what sector you want to invest in, then the execution-only approach can be an ideal way to invest in funds. You can also open an individual savings account (ISA) or set up a self-invested personal pension (SIPP) and invest your carefully selected stocks or funds through an execution-only broker.

However, as with most aspects of investment, there is a downside. Because your investments are made on the back of research that you have carried out, they aren’t covered by the regulatory framework that covers financial advice, so if you make a bad choice the blame lies at your feet.

‘Execution-only is particularly suitable for people who are experienced in trading and don’t necessarily want to spend money to have someone else recommend stocks when they can follow their own recommendations and advice,’ explains James Daly, Investor Centre representative at online brokerage TD Waterhouse.

‘It can be suitable for complete novice traders, but in this case it is important that you work to the level of knowledge that you have. For example, if you don’t know very much about individual companies then you may consider an index tracker fund, which
is more diversified and you are less exposed to an individual company’s ups and downs.’

Making a dummy run
But if you are a novice trader and want to invest in individual companies, there are ways for you to build up your knowledge base in the form of ‘dummy accounts’.

Most online brokerage firms offer some form of practice account that allows you to buy and sell shares of individual companies with ‘pretend money’. Guy Knight, group sales and marketing director at The Share Centre, is a firm believer that practice makes perfect. ‘There is a fear among novice investors that they’ll end up dealing with someone who speaks “broker-ese” and not  understand what they are talking about.’

He says ‘The great thing about the practice account is that you can use all the functions, buy and sell shares online and try out a particular service without committing any money to that broker. You need to know, before opening an account with them, that they are the sort of people you can deal with and that the service will be efficient for you.’

And Catherine Penney agrees, suggesting these accounts aren’t reserved for the inexperienced. ‘Investors can run a dummy portfolio and also run multiple versions, testing strategies and how they might have performed in the past, and monitor what
may happen in the future.

‘We also run an external competition with The Daily Telegraph that enables investment clubs to compete with each other via an online account. They can see how each club is performing and also monitor different companies, strategies and ideas on an ongoing basis.’

The next step
Once you are ready to move on from the practice account, you can register with a broker and start trading. This can be done via the telephone and in some cases through the post, but the internet has made execution-only sharedealing much more accessible for investors.

The What Investment website, for example, has developed its online service by teaming up with Trustnet to offer users a portfolio tool. By logging into the Company Portfolio, located in the tools section, you can check and complete trades through your chosen broker and receive regular updates on specific topics that could benefit your portfolio.

You also have the added advantage of being able to track investments in unit trusts, OEICs, investment trusts, alternatives, equities and many other types of asset.

The internet has also allowed the evolution of alternative forms of trading, such as contracts for difference (CFDs) and spread betting. Lock points out that, ‘When it comes to execution-only, there are those that simply like to buy and sell very quickly and then there are those that know what they are doing, and just don’t need any advice. Both of these types of trader are very fond of the internet, and the advent of CFDs, and spread betting offers an alternative for those that like to “punt or trade”.’

But this way of trading isn’t suitable for everyone, Guy Knight suggests: ‘CFDs and spread betting, without a shadow of a doubt, have become more popular. Unfortunately, because it is very easy with these products to get in and execute a transaction with a small amount of money, which can be leveraged, we are seeing a lot of very novice investors “punting” on the markets without carrying out the appropriate research. I have seen many young lads in their 20s that have lost thousands of pounds just trying it on with very little knowledge because it appears an easy way to make money.’