How to Trade on the London Stock Exchange (LSE)

SHORT ANSWER: Open an account with an international brokerage firm to trade on the LSE.

The London Stock Exchange is the 6^th largest globally and has a market cap of $4.38 trillion. Depending on your physical location, there’s a good chance that you can trade on the London Stock Exchange if you choose the right online broker.

When you buy foreign stocks, knowing how to trade is just as important as choosing the right broker. 

Overview: Trading on the LSE

One of the world’s first stock exchanges, the London Stock Exchange has a rich history that dates back to 1571 — the Royal Exchange.

In 1986, deregulation of financial markets occurred in the U.K. Commonly called the “Big Bang,” this shift abolished fixed commissions and the Exchange switched over to electronic screen trading, thereby doing away with the traditional “open outcry” system. In 2004, the Royal Exchange moved into a new building after the old Exchange Tower facility became obsolete due to the Big Bang. In 2007, the London Stock Exchange Group was born after the merger of the LSE with the Borsa Italiana. 

The LSE’s divisions include:

• Main Market: This is where the U.K.’s largest and best-known companies’ stocks trade. As of June 2023, the Main Market consists of 1,908 companies with a total capitalization of £4.4 trillion. 
• Alternative Investment Market (AIM): Launched in 1995, AIM has become the world’s most successful growth market, with more than 3,500 companies listed. This international market for smaller and growing companies includes businesses ranging from early stage to venture capital financing as well as more established companies.  
• Professional Securities Market: This market enables firms to raise capital by listing specialist securities such as depositary and debt receipts.

The LSE’s Turquoise Derivatives (TQ) platform allows you to trade equities and debt instruments, as well as derivatives on Norwegian stocks and indices, short term interest rate (STIR) futures like three-month Euribor and Sterling futures. Long-term interest rate (LTIR) futures, such as the Bund and Long Gilt contracts, are also available for trading. 

How Does LSE Work?

The London Stock Exchange ( LSE) is crucial for investment and trading in securities. It has different divisions tailored to company needs. The Main Market caters to larger, established companies. These companies must follow strict regulations and financial criteria to raise significant capital. On the other hand, the Alternative Investment Market (AIM) is for smaller, growing businesses. It offers a flexible regulatory framework, which is ideal for startups looking for investments. Investors on the LSE usually work with international brokers. These brokers give access to various financial instruments listed on the exchange. Investors can buy and sell shares and trade American Depositary Receipts (ADRs). ADRs are shares in foreign companies that are available on U.S. exchanges. This access allows investors to diversify their portfolios and capitalize on opportunities in the diverse LSE market. Overall, the LSE is a vital global hub for capital markets and investment activities.

4 Ways to Trade on the London Stock Exchange

The London Stock Exchange (LSE) is one of the oldest stock markets in the world. It provides many trading opportunities for investors. Its history and global status can provide rewards for both experienced and new traders. To get the most from your investments, understanding different trading methods is crucial. This guide will cover four effective ways to trade on the LSE: direct market access, trading through a broker, using exchange-traded funds (ETFs), and derivatives trading. Each method has its own benefits and considerations. These options suit various investment strategies and risk levels. By understanding these methods, you can make better decisions on the LSE.

Open an Account with an International Broker 

The easiest way to access stocks traded on the London Stock Exchange involves getting an international broker with representation on the LSE and the ability to execute trades for its customers on the Exchange.

Several online international brokers hold membership on the LSE and maintain offices in the U.K. These firms offer investors access to some of the industry's most advanced trading platforms, coupled with competitive margin rates and low commission structure. Through the LSE’s International Order Book (IOB), these brokers give traders around the world access to trade global depositary receipts (GDRs) secured on LSE stocks.

Check out a few of our favorites.

Get a Foreign Stock Broker

Many excellent online brokers have their base in the U.K. and have full memberships at the LSE. If you live outside of the United States, you probably won’t have a problem finding a U.K.-based stockbroker to buy shares on the LSE. However, if you’re a U.S. resident, finding a foreign-based stockbroker with access to the LSE that will accept you as a client might be a bit more challenging. 

The U.S. government only currently prohibits U.S. citizens from sending money to Cuba, North Korea, Syria and Iran, so as long as you declare foreign accounts and pay taxes, the U.S. government doesn’t really care where you send your money. The problem arises with stockbrokers based outside of the U.S. that refuse to take U.S. clients, often due to the costs and regulatory requirements involved. 

Due to the U.S. Securities and Exchange Commission’s (SEC) Securities Act of 1933, financial institutions not registered or regulated by the SEC are prohibited from contacting U.S. investors and soliciting investment from them. 

Rather than registering with the SEC and submitting to its strict regulation requirements, the vast majority of online brokers and foreign banks take the easier approach of simply prohibiting U.S. residents from opening accounts. A few exceptions can be found, however, such as Denmark-based Saxo Bank and Switzerland-based Swissquote. 

Buy LSE Stocks with U.S. ADRs

While U.K. residents can deal LSE stocks via their local stockbrokers, U.S. residents can get LSE stocks that involve using your regular U.S. broker to buy LSE shares traded as ADRs; they’re foreign shares held in trust by a U.S. based bank. 

This method lets you basically trade most large-cap LSE shares, like Lloyds Bank, BP or GlaxoSmithKline, which are considered “sponsored” due to their listing on a major exchange like the NYSE or NASDAQ. 

The U.S. over-the-counter (OTC) market also allows for trading in lower-priced LSE shares. LSE stocks that don’t trade as ADRs on a major exchange, generally trade over the counter and are considered “unsponsored.” These stocks can be found on what used to be known as the “pink sheets,” which can be accessed through the Over the Counter Bulletin Board (OTCQX). 

LSE stock ADRs can be traded just like any listed or over the counter stock and can be accessed through any reputable U.S.-based stockbroker, including brokers that offer free stock trading such as Robinhood.      

Trade LSE Shares Through CFDs

A contract for difference (CFD) is a derivative product that lets you trade financial instruments without having to own the underlying assets or shares. CFDs can also allow you to go long or short a stock index, such as the Financial Times Stock Exchange (FTSE) index, or a particular company’s shares listed on the LSE.  

CFDs offer certain advantages to traders through the popular MetaTrader 4 trading platform that supports automated trading. Also, if you are based in the U.K., another advantage of CFD trading is that you aren’t liable for the usual stamp duty of 0.5%, which you would incur if you purchased traditional shares. Also, you can access a wide variety of tradable assets through CFDs that are not available through traditional stock brokers. U.K. brokers that offer CFD trading include IG, AVA Trade, City Index and Plus500. 

The SEC requires that trading in instruments like CFDs only be done on a regulated exchange, although no U.S. exchange currently lists CFDs. Some foreign brokers that accept U.S.-based clients offer CFD trading. 

For example, social trading platform Zulutrade allows U.S. traders access to CFD trading through 4 U.S.-based forex brokers: FXCM, FXDD, FOREX.com and FXSolutions. Other international brokers that may accept U.S. clients for CFD trading include Oanda, EasyForex and Global Futures. 

Why Should You Trade on LSE?

The London Stock Exchange (LSE) stands as one of the world's preeminent financial markets, providing a robust platform for traders and investors alike. With its rich history dating back to 1801, the LSE is renowned for its diverse range of listed companies, including some of the largest and most influential corporations globally. Its international reach attracts investment from around the world, making it an ideal venue for capital raising and trading. In addition to the sheer volume and variety of financial instruments available, the LSE boasts high liquidity, advanced trading technologies, and a strong regulatory framework that ensures investor protection. This combination of factors not only enhances trading opportunities but also supports strategic portfolio diversification. As we delve deeper into the numerous advantages of trading on the LSE, it becomes clear why this marketplace is a top choice for seasoned traders and investors seeking growth and stability.

Global Access and Diverse Markets

The LSE offers various investment opportunities by linking investors with companies from different industries and regions. This variety supports a balanced investment portfolio, including both large, well-established international companies and emerging markets. Investors can look into sectors such as technology, finance, and healthcare, taking advantage of the exchange's global access and the potential for growth in different markets.

Liquidity and Stability

The LSE is one of the largest stock exchanges in the world. It has high liquidity, which allows for smoother transactions and better price discovery. Traders can buy and sell shares more easily without greatly affecting the market price. The LSE operates under a strong regulatory framework in the UK. This framework ensures transparency and fairness in trading practices. Such stability is important for investors. It provides a secure environment for their capital and builds long-term confidence in the marketplace.

Innovative Financial Products

The LSE is known for its diverse selection of financial instruments, such as ETFs, bonds, and derivatives. These products help traders diversify their investments and develop hedging strategies to mitigate risk. By providing various investment options, the LSE enables investors to customize their portfolios according to their financial objectives and market perspectives, improving their investment experience.

Considerations Before Trading on LSE

Trading on the London Stock Exchange (LSE) gives investors access to a large financial market. Before starting to trade, there are important factors to consider. Understanding market dynamics is key. Conducting thorough research on individual stocks is also essential. It is important to be aware of regulatory requirements. Additionally, assess your financial goals and risk tolerance. Global economic conditions can impact trading strategies. Whether you are an experienced investor or new to the market, considering these factors will help you navigate LSE trading.

Currency Risk

Currency risk is an important factor for international investors trading on the LSE. Transactions on this exchange are mainly in British pounds (GBP). Investors using other currencies may face fluctuations in exchange rates. These fluctuations can result in unexpected changes in investment values and affect returns. For example, if the GBP weakens against an investor's home currency after a trade, the returns may become less favorable upon conversion. Therefore, investors should assess their currency risk exposure. They can consider strategies to mitigate this risk, such as hedging techniques or trading currency pairs.

Regulatory and Taxation Differences

The UK has specific regulations and tax implications for traders. For example, trading on the London Stock Exchange (LSE) might require paying stamp duty on share purchases. Additionally, capital gains tax is applicable to profits from the sale of investments. These financial obligations can influence overall profitability and may differ from the investor's home country's regulations. Understanding these requirements is important for legal compliance and optimizing investment returns. It is wise for investors to consult financial advisors or tax professionals who understand UK regulations to navigate these complexities effectively.

Market Hours and Volatility

Trading hours on the London Stock Exchange (LSE) are different from those of other exchanges. This difference can impact the timing of trades and overall trading strategies. The LSE operates from 8:00 AM to 4:30 PM (GMT). Investors should be aware of these hours when executing trades. The market can experience significant volatility, especially during economic uncertainty or political events, such as Brexit negotiations. High volatility may lead to rapid price changes. This situation creates both opportunities and risks for traders. Understanding market dynamics is crucial. It helps traders make informed decisions and manage risk effectively.

Final Thoughts on Trading on the LSE

Though U.K. traders should have no problem buying LSE listed stocks via a local broker, that might present a challenge if you’re based in the United States. Using a broker such as Interactive Brokers or a Charles Schwab Global Account might offer the best solution for U.S.-based traders. 

Coming up with Interactive Brokers’ $10,000 minimum deposit might be difficult for less affluent traders. Charles Schwab requires an even larger minimum deposit of $25,000 for a Schwab One International Account that would allow you to buy shares directly from the LSE at a high commission cost. 

Although opening an account with a foreign or CFD broker may be available to you, a better option for U.S. investors usually involves buying ADRs on LSE stocks through a regular brokerage account. Buying ADRs would only cost you the amount of the price of the shares and a $4.95 commission using a Schwab account. 

You might even be able to use a commission-free account like Webull or Robinhood to purchase ADRs. Keep in mind that not all LSE stocks are available as ADRs. 

Frequently Asked Questions