London Stock Exchange (LSE) is the leading stock exchange market in the United Kingdom. Based in London, the exchange is owned by the London Stock Exchange Group. The LSE group was established in 1571 and is one of the oldest stock exchanges globally. As of September 1 2021, the London Stock Exchange has a market capitalisation of $56.08 billion. The LSE merged with Milan Stock Exchange in October 2007 and created the London Stock Exchange Group. The group with being a stock exchange is also a financial information company. They own FTSE International, MillenniumIT, Russell Indexes and Exactpro. With the majority of its shares in LCH and MTS, the group operates in North America, Italy, Sri Lanka, and France.
London Stock Exchange is the stock exchange in the U.K. and has been in financial services for a long period of time. Therefore, traders prefer investing with the London Stock Exchange.
London Stock Exchange Markets
The London Stock Exchange Group has a primary market trading in equity. Companies of various sizes can list on the group and raise their capital, thus, increasing their profile in the financial market. The companies can increase their capital in various ways with the London Stock Exchange. As the company operates in several countries, many international companies are listed with the LSE group.
The London stock exchange group has markets such as:
- Premium Listed Main Market
- Alternative Investment Market
- Depository Receipt Scheme
- Specialised Markets
Premium Listed Main Markets are structured for large companies with the Super Equivalence method. The method states that companies should match the LSE and UK Listing Authority’s criteria and conditions, respectively.
Alternative Investment Market (AIM) is for small and medium-sized companies. The market provides the companies with growth capital. Not only this, AIM has an easy and simple admission process that attracts companies to be publicly listed. AIM is classified as the Multilateral Trading Facility.
The depository receipts are the negotiable certificates that are allotted by the stock exchange. They show the ownership of the company’s shares and are available for trading from the underlying securities. These could be listed as well with the stock exchange. The depository bank issues the receipt certificates. Many international companies outside of the European Union can use this scheme. The certifications aid the companies to buy shares in the foreign companies and secure the exchange.
Specialised Markets have two types of markets in them. The professional securities market and the specialist fund market. Below are the functions that the two specialised markets perform.
The professional securities market works as a Recognised Investment Exchange that raises capital by issuing the debt securities and depositary receipts to the traders.
The specialist fund market being the E.U regulated market is designed for institutions and highly skilled investors. Under this, the securities that are admitted to the market are entitled to investor directives.
The secondary market of LSE involves all the other types of stock-related trading assets, including stocks, ETFs, bonds, debt securities, derivatives, depository receipts, gilt-edged securities, structured products and covered warrants. The main characteristic of the market is that investors deal among themselves. There is no involvement of the issuing company of the shares. Instead, traders invest in previously issued companies securities.
The secondary market further has auction markets and dealer markets.
How does the Main Market of the LSE Work?
Companies willing to trade can list with the London Stock Exchange Group as they help companies to grow and have a good profile in the market. The company that wants to list its shares with the stock exchange has to first value their business. After that, they have to decide the percentage of shares they are willing to sell worth the value of the business in the stock market.
The London Stock Exchange Group offers units or units of the business to promising investors. Mostly, these are in the form of securities. LSE has many securities listed, such as investment entities, shares, debt securities and depository receipts.
Trading on the London Stock Exchange Group
The London Stock Exchange Group has a rich history in the trading of stocks. Companies have been listing with the exchange for years. Therefore, the LSE is a trustworthy stock exchange of the U.K. From large to small, every firm has its shares listed with the LSE. But, how do they trade? It is a question that we want to know the answer to. So, here we have tried to sum up the trade process of the LSE in some steps:
Step1: Account opening with a broker
The initial step of LSE trading is to have an account with an international broker. The international broker must be represented by the London Stock Exchange. Along with this, the broker must be well-versed with the online trade execution on behalf of the customers. The account opening is simple and could be accessed from any corner of the world. The only requirement for the first step is the minimum deposit; investors should have the funds available for trade.
There are many international brokers that help traders with the trade with the use of amazing trading tools and platforms. The brokers have low commissions, an easy payment process, leverage and spreads, and more facilities to benefit traders. In addition, traders are provided with access to global depository receipts to trade with LSE stocks.
Traders can go for any broker that regulates and furnishes traders with their requirements of the trade.
We would recommend the ROinvesting brokerage firm. They have all the facilities that a trader would need for investing. The broker is well equipped with trading platforms, analysis tools, technical and fundamental analysis, various accounts, demo account features, professional customer support, and educational stuff for beginners. In all, a perfect broker for trade, serving the clients with the best.
Step 2: Getting a Foreign stock broker
Many U.K. based brokers are available for stock trading on LSE. If the trader is not a resident of the U.K., they can choose any foreign stock broker that would initiate the trade. Brokers have contact with such foreign brokers and could be helpful for a beginner of the trade. So with the help of brokers, a trader can connect with a foreign stockbroker to get listed with the LSE. Foreign stockbrokers are beneficial for enhancing the portfolio of the trader with diversified investments.
As we discussed, the broker chosen must have a tie-up with a foreign stockbroker or the trader can choose one. Then they can easily invest with the LSE.
Step 3: Buying of the shares
The next step is to decide over the shares of the company that the trader wants to invest in. Traders must take suggestions from brokers or analyse the market before investing in the shares. The decision must be studied and a well strategic one. It could be not a sudden trade as the market is volatile and needs understanding before investing; however, if a trader is sure about investment and companies stability in the financial market. Then, traders can invest accordingly.
Step 4: Trading in LSE shares through CFDs
The fourth step is an optional step; traders can trade in the London Stock Exchange with CFDs. Contract of Difference is a good option to trade in shares. Being a derivative, CFDs allow traders to invest in the stocks without having ownership of the underlying securities. Traders can even hold short and long positions with CFDs. It is an advantageous offer that is available with most online brokers. Traders can choose to go for CFD trading with automated trading.
Step 5: Monitoring
The last step of the trade is monitoring. Traders can invest and then monitor the market fluctuations and accordingly decide their further trade. Investors of the financial market can wait for the opportunities with their monitoring and even forecast their trade. A good trader with skills in stock trade would take full advantage of the market changes, whereas novice traders can take the help of brokers and invest in the shares.
To trade in the main market of the London Stock Exchange Group, traders have to be aware of the regulatory frameworks that it follows. The London Stock Exchange’s Admission and Disclosure Standards tell about the rules and regulations that a company must adhere to in order to trade in the main market of LSE.
The London Stock Exchange Group has two types of listings for joining the main market. These are Premium and Standard; the Premium listings requires traders to be obedient with the European Union and an additional body named, Super-Equivalent.
Whereas, Standard listing needs traders compliance with only European Union’s minimum standards.
There is another way for traders who are not eligible for the above-mentioned listings; they can go for High Growth Segment (HGS). The HGS allows traders to gain access to capital, where investors have the opportunity to fund their growth while preparing for the listing.
The traders can choose listings as per their requirements; they have to consider the following factors:
Listing Rules: This includes rules of admission of the market.
Prospectus Rules: It has details of the occasions and necessary contents.
Disclosure and Transparency Rules: Market details and information.
The Big Bang
London stock has suffered a major setback with the big bang of October 27, 1986. The U.K. government deregulated the London Stock Exchange, which was termed the big bang. The changes in trading methods from traditional open outcry to electronic trading deregulated the traditional method of trading of the London Stock Exchange Group. The new system of trading was better and more efficient than the older one. The fast execution of trade and increase in the volume of trade allowed LSE to compete with the rival stock exchanges in the market.
It was a reform program that was introduced by the government of the U.K. The motive of this sudden change was to encourage market competition and eliminate over regulations of the trade. Many other changes took place under the big bang, where the minimum commissions were removed and changes in the companies trading rules.
Thus, increasing the competition among brokerage firms and many other significant trading changes in the brokers.
Functions of the London Stock Exchange Markets
London exchange has four main functions to offer; we have discussed the functions and how they help in trading at the UK Stock Exchange.
- The London Stock Exchange market’s basic function is to raise capital and increase the profile of the investor. This is done through Initial Public Offering (IPO) and the secondary issue of shares in the market.
- LSE offers the traders excellent trading services. The basic duty of any stock exchange. Traders can invest in any financial instrument and trade easily with LSE. Traders can invest via brokers or electronic trading systems.
- With trading services, LSE also has another function of information. It provides the traders with financial information through Regulatory News Service (RNS). The information or news is generally about the London Stock Exchange prices and markets, shares, companies and news relating to the economy and finance.
- The fourth function of LSE is providing a derivatives market like CFDs through the EDX services.
London Stock Exchange Application
The application is a free stock app that is offered by LSE. It easily tracks the London Stocks Exchange stocks and manages the portfolio of the traders. The app is designed as per the needs of traders and is a handy tool for daily trading. Through mobiles and other devices, investors can get updates on the London Stock Exchange Group. Traders can monitor the growth and company price fluctuations and even can forecast with the trading tools. The application is easily downloaded through brokers or electronic trading.
Advantages of trading in LSE
The London Stock Exchange Group is an important stock exchange in the U.K. market. It has some potential advantages to furnish for the investors.
The company investing in the London Stock Exchange enjoys access to capital as the investors are financed with an increase in capital in the financial market. It is a great benefit that traders can enjoy with LSE. The raised capital could be used for further development and expansion of the company. Thus, a good source of capital and development.
Profile development in the market is the second benefit that trading companies or investors can have with LSE. The stock exchange helps in increasing the profile of the company with capital and other developments. Moreover, as the share value of the company increases, so does the company’s liquidity. Thus, more traders invest and purchase the shares of the company.
London Stock Exchange helps in increasing the company’s acquisition capability. For this, the listed shares are used as the currency.
For trading and listing with the London Stock Exchange, companies have to independently value their worth in the market. Therefore, it helps in knowing the valuation of the company.
Creates a Market
LSE helps its traders with the creation of a market for shares thus, broadening the shareholder base.
LSE helps the investors by using the shares as an employee incentive. Thus, encouraging long term trade motivation in the investors.
Disadvantages of trading in LSE
London Stock Exchange Group has few drawbacks that are listed below:
The main problem with the stock market is the market fluctuations; the trader may not be able to control the sudden changes. LSE is operating as per the stock market, and if there are changes, even the stock exchange cannot help the traders. Therefore, investors should think twice before stock trading or any other trade.
The cost of trading with LSE is high, as traders need to pay commission and fees. Other than this, they have to also pay brokers and if not a local resident from the U.K., they have to pay charges of foreign brokers. There may be some hidden charges as well—a costly affair of stock trading.
London Stock Exchange is a significant name in the U.K. financial trade. It is one of the largest stock exchanges that have years of experience in this field. A trader won’t get disappointed with the services and market offerings of the London Stock Exchange group. But before investing, traders should be friendly with the terms of LSE. The regulatory framework of the main markets, types of markets, and how investors are supposed to trade are questions that traders must answer. It also has an application to ease the process of trading, downloadable and full of market updates.
However, traders with numerous advantages also have to face some drawbacks of the stock exchange. Still, I would say that LSE has come a long way with the big bang and technology. It has managed every change and is one of the best in the stock trade.