Online stock trading first arrived in Britain 15 years ago this year. Looking back, it's no exaggeration to say that those 15 years have utterly revolutionised the opportunities available to the average private investor.

Back then, placing a trade meant calling up your broker at the time, mine was some long-since rebranded arm of Barclays and paying at least £25£30 in commission for even the simplest trades.

Afterwards there was the messy process of receiving and sending paper contract notes and share certificates, which occasionally got lost in transit, causing all sorts of hassle.

No wonder we embraced the low costs and greater efficiency of the pioneer online brokers in my case IMIWeb, which later became iWeb, now owned by Halifax.

Despite some very rudimentary dealing platforms and widespread fears about the safety of making financial transactions online in the early days of the internet, online trading gradually became the method of choice for most British investors.

Over that time, competition and technology have seen services become ever cheaper and more sophisticated. If your goal is simply to minimise costs, anyone can now deal in UK shares from as little as £5 per trade and you can reduce that even further to as low as £1 if you're happy to give up control of exactly when the trade is executed.

If you want to diversify your portfolio, you can now trade in more than 20 international markets just as easily as buying shares on the London Stock Exchange and at a comparable cost.

Meanwhile, the online data and research services that have grown up alongside the brokerages allow us to analyse financial information in a way that was unimaginable in the days when everything came printed in vast books or piles of company reference sheets.

For more active traders, recent years have also seen the growth of online spread betting, CFD trading, FX trading and options and covered warrants. All of these products existed in one form or another before the internet, but online providers have helped to bring them into the mainstream.

By giving us the ability to sell stocks short, use leverage, and trade markets and instruments that we would otherwise not be able to access, they have opened up a huge range of new investment strategies to retail investors. Overall, there's no question that online trading has delivered huge benefits.

However, if you've considered opening a new account or branching out into an area such as spread betting for the first time, there is one cautionary note to bear in mind.

Trading too frequently is one of the most common mistakes for retail investors and online trading has made this far easier than it used to be at least, telephone calls, paper certificates and contract notes forced us to slow down and think more carefully.

Make sure you avoid falling into this trap. In particular, don't be tempted to trade more often because your broker offers discounted rates for frequent traders.

And if you're trying spread betting or foreign exchange trading for the first time, trade with the demo accounts that all providers offer for several weeks to get an idea how everything works before risking any real money.

If you're looking for an online broker to trade UK stocks, you may feel spoiled for choice. But despite having all these options available, many investors still use brokers who are not suited to their needs and are paying too high a price, or getting inferior service as a result. Here are some of the main points to consider when deciding where to open an account.

Compare all costs

Investors tend to focus on dealing commissions when comparing brokers, perhaps because firms advertise these more clearly than other fees. Standard dealing commissions for UK shares are typically between £5 a share and £15 a share, with some firms offering lower rates if you place a certain number of trades every month or quarter. However, while important, trading costs are only part of the package.

Many brokers also charge account administration fees. These may be waived if you trade a minimum number of times (in which case they are usually known as “inactivity” fees). These vary from nonexistent to over £100 per year for standard dealing accounts, with some fees for individual savings accounts (Isas) and self-invested personal pensions (Sipps) being higher.

Most brokers also charge a foreign exchange (forex) commission when converting from sterling to foreign currencies. This can be as high as 2%. This will normally be most relevant to investors buying overseas shares, but also applies if you buy one of a number of London-listed shares and funds that trade in dollars or euros. Some brokers also charge for processing dividends or handling corporate actions, such as rights issues, although this is less common.

Lastly, you should be aware of any other fees, such as account opening or closing fees (which are rare), and fees for transferring stocks to another broker. This means it's vital to understand your own trading patterns and how different fees will affect you. For example, if you only trade three times a year, you may be better off with a firm that charges a higher dealing commission and no inactivity fees.

A very frequent trader with a large account may benefit from lower dealing costs, even if the broker charges a relatively large annual fee.

Consider smaller firms

Cost isn't everything. There are substantial differences between the quality of service offered by different brokers. Many investors assume that big, high-profile firms will be better, but this isn't necessarily so. Smaller, independent brokers are sometimes more helpful and flexible, because they are more focused on meeting your needs.

Don't be put off smaller firms in the belief that they are less safe than larger ones. The Financial Services Compensation Scheme applies equally to brokers of all sizes and will pay compensation of up to £85,000 per client if a broker collapses and your shares or money are missing due to fraud or negligence.

Do ensure that any UK broker you deal with is authorised and regulated by the FCA. Never deal with unregulated brokers or any firm that cold calls you these are invariably scams.

Do you need specialist services?

You should also consider whether a broker offers any specialist services you may find useful. For example, many investors look for a broker who can automatically reinvest dividends at a lower-than-usual rate.

Alternatively, many brokers let you make regular investments on a specific dealing day for a very low fee. Both are good ways of keeping down costs while building your portfolio and are widely offered by larger brokers.

Some investors still prefer to hold shares in their own name rather than in the name of their broker's nominee company, which is the usual way in which shares are held by online brokers today.

This can be done by having a personal CREST account (CREST is the name of the UK's system used for settling trades in electronic form). However, there are a very limited number of online brokers who offer this to new clients: Stocktrade is the main one.

Very active traders may want to consider a broker who offers direct market access (DMA). Most brokers place your trade through market-makers known as retail service providers. This involves asking one or more intermediaries who trade directly on the stock exchange to quote a price for the trade. You then get around 15 seconds to decide whether to accept that or not.

With DMA, your order is placed directly onto the stock exchange's order book. Effectively, this means you offer a price and see if anybody will meet you, rather than accepting a price that somebody offers you. Most investors don't need this, but for very frequent traders the extra control can be useful.

Get value for money

The most important step is to be clear about exactly what you must have. Don't be tempted to pay for services you don't need. Many brokers offer glossy websites full of market data and information to try to win clients, but much of this is available free elsewhere.

Remember that keeping costs down is a key part of successful investing. That doesn't mean you must go with the cheapest broker good customer service and a reliable platform are worth a lot. But shopping around to be sure that you are getting value for money could be almost as important as the stocks you decide to buy once your account is open.

Most online brokers have been building up the data services on their websites in recent years, but the quality remains variable.

Firms that cater to more demanding clients such as Interactive Brokers and Saxo Bank now offer fairly comprehensive bundles of price and fundamental data, but others lack the detail and flexibility to make them useful for anything more than occasionally checking a figure. Some cheaper brokers have avoided adding such services in the first place.

So, while your broker's website can often be a useful starting point, ultimately you may need access to third-party data whether it's to get hold of up-to-date price charts for day traders, or company financials for long-term investors.

More firms are springing up all the time to meet this need, but knowing where to start can be tricky. Here are a few of the most popular choices.

Historical prices

If you're just keeping an eye on your portfolio or looking at long-term trends, you'll mostly be interested in the first two, while short-term traders may require more up-to-date data.

You'll then have to decide whether you want to access this data through a website; through the provider's own software; or as an independent data feed into standalone charting software, such as the popular NinjaTrader package.

It's simplest and cheapest to start with free web services, such as Bloomberg.com and Yahoo Finance. The Bloomberg website offers some of the data that Bloomberg provides for financial institutions, most notably recent prices (typically on a 15-20 minute delay) for stocks on a very large number of global exchanges. It also lets you view up to five years of historical price data in chart form.

Yahoo Finance covers a slightly more limited range, but has more historical price data, going back to the 1970s for some of the largest US stocks.

Importantly, Yahoo allows you to download price data and even offers an application programming interface (API), which means that third-party software can use the service as a data feed.

The makers of many charting packages have taken advantage of this, including NinjaTrader. Since both Yahoo Finance and the basic version of NinjaTrader are free, this means many long-term investors can probably meet any needs they have for historical price data without needing to spend money on commercial services.

Streaming prices

If you buy a packaged product that focuses on one or two markets, you will usually just pay a single fee to the provider, who then pays a licensing fee to the exchange out of that.

If you use a data provider that offers data from several global markets, you will pay a basic subscription fee to the provider and then add on the cost of the individual exchange feeds you want to receive.

If you're simply looking for a data feed for UK stocks, you could consider a service such as MoneyAM (web-based, fees up to £25 a month depending on options), or ShareScope (own software, fees up to £95 a month).

For wider international market coverage, two possibilities are eSignal (own software or third-party clients, from $40 a month plus exchange fees) and the standalone data service offered by Interactive Brokers (own software, $69 a month plus exchange fees).

More expensive services exist, of which the most comprehensive non-professional service is probably MetaStock XENITH, a slimmed-down version of the Thomson Reuters service used by institutions. It costs at least $150-$300 a month, plus exchange fees.

Fundamentals

You can look up simple figures quickly on Bloomberg.com, while the market data section on FT.com includes five years of simple historical data for several global markets.

The web-based subscription service from Morningstar.com has up to ten years of relatively detailed fundamental data for stocks in most major markets and allows you to download it to a spreadsheet to perform your calculations. Full access costs $22.95 a month.

If you're looking for a desktop software rather than a web-based interface, ShareScope and InvestorEase (£11.70 a month) offer UK-specific solutions, while the Interactive Brokers data service gives you access to fundamental data from Thomson Reuters for an extra $7 a month for a good range of global markets.

For those who can afford it, a full MetaStock XENITH subscription includes comprehensive global coverage. Lastly, investors looking for screening tools could consider the Stockopedia site. It covers UK and European markets, with the US apparently coming soon. Subscriptions cost up to £75 a month.

While most investors have traded UK stocks online, many still think that buying foreign shares is much more difficult and expensive. Brokers are partly to blame, as they are often bad at explaining exactly what they do and are fond of piling on unnecessary costs.

But if you pick the right firm, international trading is just as easy as buying British shares and only slightly more costly.

In general, headline costs for trading international stocks are in line with UK dealing costs. Trading commissions may be a bit higher, ranging from £5-£20, but there are rarely any extra account or handling fees.

You can't usually use discounted rates for reinvesting dividends or regular investments, but other than that, the process of buying a foreign stock is fairly similar.

However, there is one big catch: what you pay to convert sterling into foreign currency when you settle the trade.

How you are charged

To see why, you need to grasp two key points about how brokers manage international trades. The first is the way in which the trades are made.

Your broker may trade directly in the foreign market, via an overseas branch or a partner broker. Alternatively, they may buy through a British-based market-maker that deals in foreign shares.

The second is how you pay for the trade. If your broker deals directly, they may follow one of two approaches. One is to allow you to hold foreign currency in your account and settle the trade that way, or they may convert the price to sterling and make you settle in sterling.

If your broker uses a market-maker, the market-maker will quote a sterling price and you will settle in sterling.

These may sound like technical points, but they are crucial to understanding how much your broker is charging you. A number of brokers take advantage of investors' naivety to levy an excessive hidden charge that makes international trading far more expensive than it looks.

Understanding forex fees

When you turn sterling into foreign currency, you never pay the rate at which major institutions deal with each other (the interbank rate). You always pay a mark-up the only question is how much.

Where a broker allows you to convert sterling to foreign currency and hold it in your account, this charge is very clear. It varies hugely, from slightly above interbank rate at Interactive Brokers, to as much as 2% at TD Direct Investing, depending on trade size.

For brokers who automatically convert to sterling, the rate may be less apparent, but 1%-1.5% is typical.

When brokers use a market-maker, it gets more confusing. When the market-maker quotes a sterling price, it builds in some margin for itself.

One broker reckons this typically ranges from about 0.5% for trades under £10,000 to around 0.1% for those above £150,000. But some brokers have an arrangement whereby the market-maker increases the margin they charge, then rebates a proportion to the broker. This can substantially raise the forex mark-up paid by the end investor.

For example, with Hargreaves Lansdown, the forex fee may be up to 1.7%, depending on trade size, while for Selftrade it's up to 1.25%.

Forex commissions are often not clearly disclosed, yet they can have a huge impact on the total cost of trading.

Imagine you are buying £1,000 of foreign shares from a firm that charges £10 per trade and a 1.5% forex commission. The impact of the forex charge is greater than the trading commission, with your total cost of trading being £25, or 2.5% of the amount you're investing.

So scrutinise foreign dealing costs closely and find firms with low overall costs, not just low advertised commissions.

Choosing an international broker

Of course, costs only matter when the broker can buy the shares you want and access varies greatly from broker to broker. In general, brokers who use the market-maker system can access major US, Canadian and European stocks online. Some may also offer telephone trading in other markets, but it will be more expensive.

Those who invest directly may offer online trading in other parts of the world. Yet they may exclude certain smaller markets that would be covered by a market-maker-based service, because demand is too low to be cost-effective.

This makes choosing a broker largely about the trade-offs you are willing to make. It is often best to have two complementary accounts instead of looking for one to meet all your needs.

Just as with British stocks, there is no single broker who suits every investor's requirements. But the number of firms with a serious foreign-dealing service is more limited and many look increasingly uncompetitive, so it's easier to compile a shortlist.

At present, Sippdeal and iDealing seem to be among the cheapest firms that trade through market-makers (despite its name, Sippdeal offers regular accounts and Isas as well as Sipps).

Saxo Bank offers access to the widest range of markets, while Interactive Brokers is very cheap for active traders. iWeb has a relatively high forex fee, but its low trading commission could still make it a reasonable choice for small trades.

So you own a few unit trusts, maybe a work pension. But now you want to buy and sell shares in the market for yourself. Perhaps you've been persuaded of the merits of exchange-traded funds and investment trusts. Or maybe you've found a hot tip that you want to get into (in which case, just remember that hot tips often leave you with burnt fingers).

Whatever the reason, the fact is, if you've never done it before, the idea of buying and selling shares in individual companies can seem a little daunting, or even a bit mysterious. But don't be put off. In terms of actual mechanics, investing in shares, both in Britain and overseas, has never been easier or cheaper for private investors.

Essentially, there are three ways of buying shares: you can use the stockbroking services offered by your bank; you can do it over the telephone via a traditional stockbroker; or you can buy shares online using a share dealing service. You can find out more about the first two options here. Right now we'll focus on the most common method - online share dealing.

What is online share dealing?

Online brokers offer "execution-only" dealing services. In other words, all they do is take your order, then 'execute' it for you. They don't give you any advice - they just try to find the best price for you.

The good thing about this simplicity is that it means share-trading services can be offered cheaply. Where once a stockbroker was something only a very rich person could afford, nowadays investors can trade from less than £10 a deal.

How does online share dealing work?

Once you've chosen a broker (and we'll get to that in a moment), the first thing to do is to open an account with your broker and send them some money ('fund your account'). Then, when you've decided what shares you want to buy (check out the rest of our website for tips on how to do that), you're ready to give the broker your instructions.

On a typical share dealing website, the first thing you will be asked is your username and password. Next, you will be asked what company you want to buy, and how many shares, or what cash value of shares you want. You will then get a price quote and a short amount of time (around 15-20 seconds) to make up your mind whether to do it.

If this sounds a bit fraught, don't worry. You'll soon get used to it. If you don't want to do the deal, you can wait, have a think, and come back to it (although possibly at a different price). For added peace of mind, you can use limit orders (which mean you don't buy above a certain price, or sell below a certain price), or stop-loss orders (which limit your loss if the market moves against you). Once placed, the broker will email you confirmation of the order, and the deed is done.

How do I pick an online broker?

First, decide whether you want the option of telephoning your broker as well as dealing online. Some brokers charge extra for this facility, but others don't. Next, do you want to be able to deal in American and other international shares as well as on the UK market? If so, how much extra will your broker charge you?

Will they give you access to instruments other than equities, such as contracts for difference (CFDs), which are an increasingly popular way of accessing international markets? How much interest does the broker pay on the unused cash in your trading account and what discounts/penalties are there for frequent/infrequent trading? And do you want to hold your shares in a self-select Isa, or self-invested pension plan (Sipp)? There will be separate charges for these wrappers.

Another issue to be aware of is the type of account you have. Nominee accounts are the most common, and the cheapest, but these do have their drawbacks as we explain in detail here. We're not saying you should avoid them - but you just need to be aware of their limitations.

But don't get paralysed by indecision. You can always change broker if you find that you have different needs in the future, as you become more confident and experienced.

So you own a few unit trusts, maybe a work pension. But now you want to buy and sell shares in the market for yourself. Perhaps you've been persuaded of the merits of exchange-traded funds and investment trusts. Or maybe you've found a hot tip that you want to get into (in which case, just remember that hot tips often leave you with burnt fingers).

Whatever the reason, the fact is, if you've never done it before, the idea of buying and selling shares in individual companies can seem a little daunting, or even a bit mysterious. But don't be put off. In terms of actual mechanics, investing in shares, both in Britain and overseas, has never been easier or cheaper for private investors.

Essentially, there are three ways of buying shares: you can use the stockbroking services offered by your bank; you can do it over the telephone via a traditional stockbroker; or you can buy shares online using a share dealing service. You can find out more about the first two options here. Right now we'll focus on the most common method - online share dealing.

What is online share dealing?

Online brokers offer "execution-only" dealing services. In other words, all they do is take your order, then 'execute' it for you. They don't give you any advice - they just try to find the best price for you.

The good thing about this simplicity is that it means share-trading services can be offered cheaply. Where once a stockbroker was something only a very rich person could afford, nowadays investors can trade from less than £10 a deal.

How does online share dealing work?

Once you've chosen a broker (and we'll get to that in a moment), the first thing to do is to open an account with your broker and send them some money ('fund your account'). Then, when you've decided what shares you want to buy (check out the rest of our website for tips on how to do that), you're ready to give the broker your instructions.

On a typical share dealing website, the first thing you will be asked is your username and password. Next, you will be asked what company you want to buy, and how many shares, or what cash value of shares you want. You will then get a price quote and a short amount of time (around 15-20 seconds) to make up your mind whether to do it.

If this sounds a bit fraught, don't worry. You'll soon get used to it. If you don't want to do the deal, you can wait, have a think, and come back to it (although possibly at a different price). For added peace of mind, you can use limit orders (which mean you don't buy above a certain price, or sell below a certain price), or stop-loss orders (which limit your loss if the market moves against you). Once placed, the broker will email you confirmation of the order, and the deed is done.

How do I pick an online broker?

First, decide whether you want the option of telephoning your broker as well as dealing online. Some brokers charge extra for this facility, but others don't. Next, do you want to be able to deal in American and other international shares as well as on the UK market? If so, how much extra will your broker charge you?

Will they give you access to instruments other than equities, such as contracts for difference (CFDs), which are an increasingly popular way of accessing international markets? How much interest does the broker pay on the unused cash in your trading account and what discounts/penalties are there for frequent/infrequent trading? And do you want to hold your shares in a self-select Isa, or self-invested pension plan (Sipp)? There will be separate charges for these wrappers.

Another issue to be aware of is the type of account you have. Nominee accounts are the most common, and the cheapest, but these do have their drawbacks as we explain in detail here. We're not saying you should avoid them - but you just need to be aware of their limitations.

But don't get paralysed by indecision. You can always change broker if you find that you have different needs in the future, as you become more confident and experienced.

Over twenty-years ago, I looked at the rules that everybody else seemed to be working by. It seemed that they over-relied upon one simple untruth, which was that in the long run you are always better to be invested in equities. We hope that at long last that lie has finally been buried, but regrettably not before the ruination of many people's lives.

I set out to invent our own unique rules. First and foremost I wanted them to be simple to understand, rely on basic principles and reflect the lessons of history. After deep thought, I decided as follows, my first rule was not to lose clients' money; my second to outperform cash on deposit; all under the principle aims, to remain profitably invested whatever investment and economic conditions prevailed and avoid the herd. We would contend that any thoughtful investor would pick similar principles to work by.

Successful investing: don't lose money

There are three types of markets to avoid losing money you must be able to recognise them.

Primary bull markets are supported by the 30-week moving average. You can't lose money investing in a primary bull market. When a primary bull market eventually ends, it is signalled by two simple changes. On a long-term chart, using weekly prices, the previous ascending low will be violated and, at the same time, the chart will fall below the 30-week moving average. At that point, the bull market is almost certainly over; if not, it's on its last legs. This technical change is invariably associated with sky high valuations and euphoric investor sentiment.

Primary bear markets are the opposite of a primary bull markets, if you inverse the comments above, you will get the idea. A bear market can be a productive investment as long as you are invested on the short side, not on the long side typical of this was our very profitable investment in the SocGen Bear Note and the current investment in the RBS Bear Note. At the end of a primary bear market investor sentiment is dire.

A trading range is where the price goes sideways, they are an investment avoid. However, an avoid with very attractive characteristics because they often lead to the best opportunities, which is to buy or sell when the end of a trading range is triggered all trading ranges eventually end. To summarise, you won't lose money if you only buy primary bull markets, always sell primary bear markets and avoid trading ranges if you diligently do the work, the investment result will be fantastic and with low volatility.

Successful investing: outperform cash on deposit

If you successfully remain invested all of the time and don't lose money, you will outperform cash on deposit in the medium term. The key is to remain correctly aligned to investment markets which is what we strive to achieve.

Remain properly invested whatever the prevailing investment and economic conditions

The benefits of being effectively invested, irrespective of the conditions, is that it gives you such confidence. If you know that all conditions, whatever they may be and no matter how bad they seem, provide an opportunity to profitably invest, you have nothing to fear. You just have to work out what's going on and how to invest to benefit from that.

Successful investing: avoid the herd

At major turning points, the herd is always wrong. For managers such as us, this is the stressful part of our work because everybody, unless they are counter-intuitive, believes that if the top guys at the likes of Barclays Capital, UBS, Merrill Lynch and Goldman Sachs all say something is so, it must be correct because individually and collectively they are so clever. Except it's those very same, very clever people who have ruined our world; so believe us, when they all say the same thing, invariably they are wrong.

The final and crucial requirement is to own your own time machine, travel into the future and see how it turns out and then come back to the present and invest accordingly. Of course, we haven't really got a time machine but we study the lessons of history, use our imaginations and have confidence in our work how else have we been able to make so many good calls and achieve our objectives? The industry says these things can't be done but, dare we say, hardly anybody else has ever tried'. We believe, without question, that it can be done because in the way it's explained here it isn't any big deal. As long ago as the 1960s America put men on the moon. Surgeons, some of whom are clients of ours, are so clever that they can cut open people's heads, delve into their brain, fix it and sew it up again. Others can remove hearts from the recently deceased to save the imperilled life of somebody else. These examples and many more besides, are of truly difficult things to do; in comparison, not losing money, outperforming cash on deposit by being appropriately invested and avoiding the herd is easy peasy!

This article was written by John Robson & Andrew Selsby at Full Circle Asset Management, as published in the threesixty Newsletter.

There's no shortage of firms willing to splash the cash. Deals worth $1.8trn were announced in the first half of 2006, according to research firm Thomson Financial. The full-year volume is estimated to be more than $3.45trn. That's up from nearly $2.8trn last year and promises to beat the record $3.4trn set in 2000 at the height of the dotcom bubble.

Public company bosses seem happy to fork out serious amounts of money in order to further their empire-building ambitions. This year, we've seen AT&T acquire Bell South for $89bn, Eon bid $57bn for Spain's Endesa and Mittal Steel buy Arcelor for $34bn. Meanwhile, private-equity firms are fighting ever harder for acquisitions as they become embroiled in bidding wars and even make hostile approaches, a rare event in this industry.

What's driving the boom?

Easy access to money is a big factor. Interest rates remain low by historic standards, even after recent tightening measures by central banks, and the lenders who have flooded the world with so much liquidity show no signs of turning off the tap.

Private-equity firms have ready access to this cheap debt and are also loaded with hard cash from their investors the top five firms have a £38bn war chest that has to be spent by 2010. Public companies have been rediscovering the urge to splurge after several years of using their profits to pay down debt or hand cash back to shareholders. Industries such as oil and mining are at the cash-rich point of their cycle.

With a shortage of organic investments around, many firms are looking to grow by acquisition and to avoid being acquired. Dealmakers also claim markets are undervalued, particularly after the recent slump, making acquisitions attractive.

Is all this a good thing?

There's no doubt that it has given a major fillip to stockmarkets, with takeover speculation helping to boost the price of many shares. For example, British orthopedic specialist Smith & Nephew rose 3.2% in one day recently after Merrill Lynch put out a note saying that private-equity buyers might be interested in the firm. But stockmarkets built on takeover speculation are houses built on sand. What's more important in the long run is how valuable the deals turn out to be.

What does history have to say about that?

That large mergers and acquisitions (M&A) deals have an excellent record of destroying shareholder value. A much-cited McKinsey study in the late nineties concluded that the majority of deals turn out to be counter-productive. The dotcom bubble was particularly costly: it involved nine out of the ten most value-destructive deals in history, costing $500bn in shareholder value, according to research by Collins Stewart Tullett. However, M&A bulls say that the steady build in activity and the fact that solid, old economy firms are involved suggests that this time it's not a bubble and the outcome will be different.

Does that look likely?

The proof of the proverbial pudding is in the eating in other words, whether these deals will be beneficial or destructive won't be clear until we're some way further down the line. But warning signs are beginning to flash.

The average bid premium of around 20% is not high compared to those seen during the height of the dotcom bubble, but the valuations on large deals are ticking up. Mittal is paying an 80% premium to the price at which Arcelor was trading prior to its first bid approach.

The big deal in the mining sector the FalconbridgeIncoPhelps DodgeTeck-ComincoXstrata palaver is just the kind of convoluted bidding war that sees the winner end up as the loser. To recap, Xstrata originally bought a 20% stake in Falconbridge last autumn. Inco then made an agreed offer for Falconbridge, which Teck Cominco followed with a hostile offer for Inco. Phelps Dodge then made an agreed bid for both Inco and Falconbridge, and Xstrata countered with a higher hostile bid for Falconbridge.

The latest offer at time of writing is a sweetened bid from Phelps Dodge that values Falconbridge at a 116% premium to the price at which Xstrata bought its original stake. The aggressive competition between firms such as Goldman Sachs and Macquarie may also see many private-equity buyers overpay for assets.

Are we near the end of the boom yet?

Probably not while money remains cheap and plentiful. Rising interest rates or a reduction in the availability of debt should gradually curb activity, particularly as deals are becoming increasingly debt-loaded. The average private-equity deal involves six times as much debt as earnings, up from 5.5 in 2005, according to Fitch Ratings. Public companies are also gearing up on debt as they compete with the private-equity firms. However, barring major global problems, it looks unlikely that the market will slow sharply before the end of the year. There are signs that the cooler heads in the private-equity business feel they've run out of good targets at good prices and are starting to turn down more deals, but public companies seem happy to pick up any slack in the market.

The recent rise in the stockmarket has revived private investors' appetite for equities, says Andrea Page in Bloomberg Money. And it looks like most of those getting back in are doing it over the internet: according to stockbroking analyst ComPeer, in the second quarter of 2003 online share dealing volumes rose 42%. But the market is hugely competitive, so the choice for investors is huge. How do you find the right online share dealing service for you?

Think about price

Even if you are into an active trader, you can still deal online for a tenner or less. Hoodless Brennan (£7), Hargreaves Lansdown (£9.95), Ample (£10), and American Express Sharepeople (£12.50), all offer flat dealing rates online. ShareDealActive and Comdirect also have flat rates (£9.50 and £12.50), but they also allow you to do deals by phone for no extra charge. Other brokers still charge fees based on deal size. The Share Centre, for example, charges 1%. Keep an eye out for other charges too: some brokers charge a monthly or quarterly fee on top of dealing costs and others charge for inactivity. "Check the small print," says Andrea Page. You can compare the deals from different brokers on www.moneysupermarket.com.

Look for extra services

If you are returning to the market nursing bear market losses, you may be keen to limit your downside and automatically lock in gains, says Andrea Page. Ample and ShareDealActive offer free stop losses. You might also look for a broker that offers limit orders (where you can set a minimum sale price or maximum buy price), such as Barclays Stockbrokers or the Share Centre.

Do you need advice?

The online brokers have tended to steer clear of actually offering advice, says the FT. They focus more on execution-only broking: you tell them what you want and they do it. However, the likes of Barclays Stockbrokers and NatWest Stockbrokers offer an advisory service allied with the ability to trade online.

What else can you buy?

Most UK brokers offer online trading in overseas shares via the LSE's International Retail Service for similar prices as they charge for domestic shares. Many online dealing sites also offer fund supermarkets that offer discounts on a fund's initial charges and allow you to set up Isa and self-invested personal pension accounts. Hargreaves Lansdown, for example, claims to cut initial fund charges to an average of 0.25% and also pays out annual loyalty bonuses on around 900 funds. For Isas, why not look at Share Centre, says Shares. The company is developing a FasTrack account especially for Isa customers, which offers stop losses and tracking stop losses (these follow the share price up and at the point the price turns tracks the fall from the peak, hence locking in gains rather than stopping losses).

What about research?

Self trade is introducing a new range of research material to include company reports and brokers' tips, while American Express Sharepeople provides information on "key market events" that might affect portfolios, as well as charting tools, says Shares. For those who trade more than 30 times every three months, it also offers real-time market data. Barclays Stockbrokers also offers a "comprehensive range of independent research", says Shares. However, don't just use your broker for research, says the FT. Sites such as www.citywire.co.uk, www.ftyourmoney.com and www.thisismoney.com are all worth visiting too.

Look for incentives

TD Waterhouse is offering those who transfer from another broker £10 per line of stock transferred up to £100, plus up to four months' worth of commission-free trading, dependent on your trading history. IMIWeb will cover your existing broker's transfer fees up to £60 and Comdirect up to £100, while Hargreaves Lansdown will reduce its dealing charge to £4.95 a trade for your first 30 days with them, says Page.

Who's the best online broker?

Our readers particularly like Comdirect, says Shares, for its excellent stop loss and limit order policies, plus the "added bonus" of its research offering. Share readers also rate TD Waterhouse highly, because of its speed in executing trades and its reliability, and Barclays for its execution-only service.

Although US equities gave real returns averaging only 3.4% last year, over longer periods they continue to outperform other asset classes, Barclays Capital says in its latest annual study of shares and government bonds.

By contrast, UK equities delivered real returns of 18.9% last year. Their cumulative real return of 51% since the end of 2002 completely erased the losses caused by the tech stock crash.

Three lessons to be drawn from statistics in the study covering the past 105 years are:

• The longer you stay invested in shares, the better your chances of outperforming the major alternative asset classes bonds and cash. In the UK equities have outperformed government bonds in 80 out of 97 ten-year periods.
• However, there is no guarantee, even over a period as long as 20 years, that equities won't generate negative returns. It happened in the last century, and could happen again. But that is "unlikely," says the study.
• Reinvestment of dividend income accounts for most of the long-term real return of equities. In the UK, over 105 years, such reinvestment gross (assuming no tax paid on the income), raised the average annual real return from 0.65 per cent to 5.29 per cent.

Orbis says its Global Equity fund currently has a 44% exposure to Asian stocks, compared to a weighting of just 14% in its benchmark world index.

This is one of my favourite funds for investors who want a "buy-and-forget" exposure to world stock markets, with an annual return over the past three years averaging 41% in dollars, or double that of the MSCI World index.

By Martin Spring in On Target, a private newsletter on global strategy