Traders move online for share deals

Internet share dealing has overtaken traditional methods, such as telephone and face-to-face trading, research suggests.

While in 2001 only 28 per cent of traders placed deals online, the figure almost doubled to 54 per cent by 2005, according to a report from analyst Datamonitor.

Ingo Nachbaur, financial services analyst at Datamonitor said: "The advantages of online stockbroking are obvious. Anyone with access to the internet can benefit from the service. There is no more waiting in telephone queues, immediate access to one's portfolio is given and trades can be executed at the click of a button."

Online trading is cheaper than traditional trading methods. The report said a £1,000 trade over the telephone can cost 40 per cent more than the same trade over the internet, while a £2,500 trade can cost 80 per cent more than trading via the web.

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The analyst said investors are more frequently opting for contracts for difference (CFD). CFDs enable people to profit (or lose money) from changes in share prices while the shares themselves do not have to be bought.

Nachbaur said: "Spread betting and CFDs are proving very attractive to anyone interested in investment because of their apparent simplicity and the prospects of high gains. But the bottom line is that both involve higher risk than direct equity trading due to the investors' ability to leverage their investments."

The research says CFDs account for about 20 per cent of the London Stock Exchange's trading volume while the number of spread-betters in the UK is estimated to be around 100,000 - a figure that is increasing by 25 per cent per year.

Traders like these products because they are exempt from stamp duty but new European regulation could see the introduction of administration charges.

The Market in Financial Instruments Directive (MiFID) will mean that CFD companies have to ask customers how much knowledge they have of trading before they can buy.

Spending on technology for financial trading is set to exceed £3bn per year, as the demand for dealer applications has risen, research from Kimsey Consulting found.