The market unmuddled

Adam gets to grips with your questions

By Adam Shaw BBC2's Working Lunch

Paul Vernon wants to know how the bid/offer price is calculated.

While normally one price is quoted for a share, in reality it has two. One is the buying price and one is the selling price.

'Bid' is the selling price - so what you would get if you sold your shares; 'offer' is the buying price - so what you would have to pay to buy.

Like most things in the market the level is largely decided by competition.

City institutions set a price they are willing to buy or sell at, if it's uncompetitive people wouldn't trade through them, so competing bids tend to settle down at specific levels.

The difference between the two makes up part of the market maker's profit.

The price we quote is the mid price - the price half way between the bid and offer price.

You can't actually buy or sell at the mid price but its a convenient shorthand way of referring to the price of a share.

Mike Clark has been day trading for six months and got a cheque through the door recently paying a Lloyds TSB dividend. He only had the shares for nine days and wonders why he got any money.

Day traders might well be shocked to be making any money but every share has a date which if you are holding the shares on, you get the next dividend payment.

It just happens that Mike was holding the shares on that date.

Frank Abramson says that the quality and cost of the Annual Reports he gets are inversely proportional to their results.

In other words, thick glossy brochures reflect poor results. Well I couldn't possibly comment but I know some people say the same of company headquarters. Thinking that if the headquarters are too flash - the company is spending their money in the wrong way.

Mr Everson from The Wirral recently purchased some shares through his broker and was surprised by the amount of identification they asked for.

They wanted to see either a copy of his bank account details or his driving licence - signed and stamped by a doctor or other professional person - plus a current utility bill.

Mr Everson says getting the details together added an extra ten pounds to the cost of selling his shares.

We contacted a number of brokers today and the type of i.d. they need seems to be just as rigorous.

Some carry out a check of the electoral register first. The rest ask for an original passport or a driving licence with covering letter from a professional to verify identity plus proof of address.

This is because of new stricter controls to try to combat money laundering. So it's always worth checking before you decide to buy or sell shares to find out if there are any other costs you may have to meet in getting the right documents together.

Chris Latham has been looking for investment funds which track the FTSE 250 and also others which track the French and German markets.

All he's managed to find are FTSE 100 and All Share trackers. Do the others exist?

There are some FTSE 250 trackers available - but do watch out for set up charges and compare the annual management charges.

The cheapest one we could find is the HSBC 250 Index tracker. It has no initial charge for setting up and an annual management charge of 0.75%.

We looked high and low for a tracker for the French and German markets but came up with nothing. Let us know if you know differently.

One option open to Chris may be Exchange Traded Funds.

These allow you to invest in a company which then directly invests into the components of say the Dax or CAC. But buying shares abroad is more complex and more expensive.

Finally, Neel Patel is a university student and wants to know the best way of investing £100 in the stock market.

In short I wouldn't do it.

Commissions will wipe out the money too quickly. I'd save until you have more money to put in as a lump sum or to drip feed into a fund, like a tracker for instance which doesn't charge an entry or exit fee.

That way you keep your commissions down.