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How to buy shares (2021)
- Choose a stockbroker: Find a stockbroker that matches your criteria
- Sign up for an account: You'll need to be over the age of 18 and an Australian resident to sign up
- Plan before you buy: Work out how much you can afford to invest and how long you'll be holding the shares for
- Choose the shares you want to buy: Do you want to buy Australian shares, global shares, dividend-paying or penny stocks?
- Order your stocks: Search for the company name or ticker code and set a market or limit order to buy
- Pay for your shares: Ensure you have enough funds in your account ahead of the settlement date
To buy shares in Australia you need sign up to a stock brokerage account. This could either be a full-service advice broker (such as Morgans) or an online broker.
This guide will take you through the basics, including how to buy shares online, how much it costs and whether it’s a safe option for you. If you're ready to start buying shares, you can select an online broker in the comparison table below.
How share trading works
As the name suggests, shares or stocks represent a "share" of a company. When you buy a share, you own a small part of a company. The price of your stock rises if the company is doing well and falls if it underperforms.
You make money from stocks the same as you would any other product – by selling for a higher price than what you initially paid. The difference between the buy and sell price will be your profit or loss.
To buy and sell shares, you'll need to sign up with a stockbroker. You have two main options here – you can buy shares online using a share trading platform or use a full-service broker.
A full-service broker is a traditional brokerage firm or investment bank such as Goldman Sachs and Morgan Stanley. The main benefit is they do all the trading for you based on your instructions and they may offer advice. The downside is they charge a premium fee for their service, starting from $70-$200 per trade.
The cheaper option is to use an online broker and place the trades yourself. These charge anywhere from $0 to $30 per trade in brokerage fees.
Having trouble deciding which broker is right for you? There are dozens of share trading platforms available in Australia and the best option for you will depend on how experienced you are, whether you want to buy Australian or global stocks and how often you intend to trade. Check out the comparison table below for more details.
Compare online brokers
Take a look at Australian online trading platforms in the table below. Depending on what you're after, it may save money to use more than one platform, for example, one for Australian shares and the other for another market such as US or UK stocks.
Important: Share trading can be financially risky and the value of your investment can go down as well as up. “Standard brokerage” fee is the cost to trade $1,000 or less of ASX-listed shares and ETFs without any qualifications or special eligibility. If ASX shares aren’t available, the fee shown is for US shares. Where both CHESS sponsored and custodian shares are offered, we display the cheapest option.
There are plenty of factors you'll need to take into account when choosing a broker, so check out our guide to choosing the best online share trading platform for more details.
How to buy shares without a broker
Just to clear up any confusion, share trading platforms are technically brokers – only without the personal interaction. If you're looking to buy shares online, you can use the table above to compare apps.
However, there are also a few ways you can buy shares without a broker at all:
- Managed funds. You access shares without a broker by investing in a managed fund or your superannuation. These funds typically hold multiple company stocks which are selected by a fund manager.
- IPOs. Some crowd-funding platforms allow you to buy shares when a company first lists on a stock exchange, called an Initial Public Offering (IPO).
- Your company. Some firms offer their staff company shares as part of their employment contract. These are called employee share schemes.
- Off-market transfer. It’s possible to inherit shares or be given shares by someone else without a broker. This is called an off-market share transfer.
- Share purchase plan (SPP). Sometimes companies raise extra capital by selling new shares via an off-market share purchase plan. Typically, you invest in an SPP directly through the company itself.
To sign up to a broker in Australia, you’ll need to be at least 18 years old and an Australian resident.
Registering for an account with a broker is usually free, however there are sometimes subscription costs or fees to transfer funds to your account. If you’re a new customer, you’ll need to provide the following information:
- Your name, address, date of birth and contact details
- Your tax file number (TFN)
- Proof of ID
- Bank account details
Depending on the broker you choose, it can take as little as a few minutes for your account to be approved or it can take up to a fortnight.
You may be asked to deposit a specific minimum amount in order to open an account although this isn’t always the case. In most cases, you’ll have the option of funding your account through BPAY, bank transfer, credit card or debit card.
Stocks can be a great investment, but they’re also pretty risky. The more companies you hold and the longer you can afford to have money locked into stocks, the less risky your investment is. So it’s important to have a timeline and some actions in mind if things change.
To build a plan, you’ll need to ask yourself the following key questions:
- How much can I afford to invest in stocks?
- How much can I afford to lose?
- How long can my money stay in the stock market?
- What will I do if prices start to fall?
- What about if prices rise?
Once you can answer these questions, you can start mapping out the types of stocks you want to invest in. As a rule of thumb, the riskier the investment, the bigger your potential profit. Work out if you can afford to buy high-risk stocks (such as penny stocks) or if you should stick to safer long-term investments like blue chip stocks or index funds.
With thousands of stocks to choose from, you'll need to do some research around which ones match your investment goals. Bear in mind that it's safer to have a diversified portfolio of stocks from different sectors and even countries to avoid major losses if one market falls.
You’ll often have access to market research, analysis and even stock recommendations through your platform, so use this info to help make an informed decision. The other option is to follow the buy, hold or sell ratings of top brokers such as Morgan Stanley, Goldman Sachs, Morgans, UBS and Morningstar. Just keep in mind that even the experts get it wrong a lot of the time.
Here are a few tips to help you decide:
- Do you trust the company? The best company to invest in is one that you both understand and trust. Pick a company that you believe will continue growing and can be trusted to use its profits wisely.
- Do you use its products? Are you a fan of Apple or do you use Facebook every day? These could be good options because you'll also be among the first to notice if the company starts underdelivering to customers.
- Debt + profit levels. Are debt levels under control and is profit growth meeting exceptions?
- Expansion. Does the company have plans to expand into new global markets or sectors? A growing company usually means a rising share price.
- Dividends. Does the company pay a dividend? If not, are you expecting the company's share price to rise?
- Stock price. Is the stock overvalued? An expensive stock is where the share price has risen beyond its perceived value, which could mean it's going to fall in the near future. Read more in our guide "How to value a stock".
Ask an expert: How do you pick the right stocks?
CIO, Montgomery Investment Management
Only invest in quality companies. To identify a quality company search for a sustainably high rate of return on equity. High rates of returns on equity drive better long term returns for investors in those companies. A company that can sustain such returns usually has a sustainable competitive advantage.
Look for sustainable competitive advantages from a great reputation, geographic location, benefits from scale, technology, Patents, innovation or IP, the Network Effect or barriers to entry. Always remember the most valuable competitive advantage is the ability to raise prices without a detrimental impact on unit sales value.
Ask an expert: How do you pick the right stocks?
Senior Market Strategist, Saxo Markets Australia
Do your own research (financial health, earnings, quality, potential growth etc.), believe in the business yourself and don’t buy a stock because someone gave you a hot tip.
Stick to your investment plan and risk manage – cut losers and allocate that capital elsewhere and let winners run.
Lastly, focus on building a balanced, diversified portfolio that can weather the economic cycle, over picking the next winning stock. No one is right all of the time! The power of consistency and compounding returns (compound interest - the 8th wonder of the world according to Einstein) over a long period of time is far greater than a get rich quick stock pick.
Once you’ve decided which stocks you want to buy and how much you want to spend, the next step is to order them. If you have a full-service broker, you'll need to call or email them to place your trade. If you're using an online broker, this part’s up to you.
Keep in mind that larger purchases may incur higher fees. For example, your platform may charge $30 brokerage to buy a smaller number of shares but will change the fee structure to 0.1% of the trade value when larger amounts are purchased.
- Select your stocks by entering the company name or stock code
- Enter the number of stocks you’d like to buy or the amount you’d like to invest
- Choose your order type – you can usually opt to buy at the current price or use a limit order to pick a better price
- Preview and confirm purchase
There are a few different ways that you can order your stocks, ranging from simple to quite complex instructions. The names tend to differ between brokers and not all offer the full range of options, but these are some of the more common types:
Market order. This is the most basic order type, where you buy or sell shares as soon as possible at the most current available price.
Limit and stop orders. This allows you to buy or sell stocks depending on a specific price. For example, if CBA’s share price is $68 but you want to buy at $65, you can set a limit order to execute once its price falls to $65 or lower (see example below). You can also set a "stop loss" to minimise losses by selling if a stock price falls below your buying price.
Trailing order. This is a type of limit order where the limit is based on a percentage change or a price difference from the market price. For example, Afterpay (APT) has a price of $50 and you’d like to buy it for around $40, but only if it’s price dips temporarily rather than indefinitely. You could set a trailing price trigger of $40 with a stop value of 5%. This means your order would be triggered once APT falls to $40 and then placed only once it rises by 5% to $42.
Once you’ve entered all the specifics of your transaction, you’ll then get a chance to review the details before placing your buy order. If you place a conditional order (a non-market order), you’ll typically receive a notification by email or text message once the order has been carried out.
What are bid, offer and last prices?
Some brokers display the "bid", "offer" (or ask) and "last" price of stocks. Think of these as similar to auction prices, where buyers and sellers are offering their best prices.
A bid price is the highest price any trader is offering to buy a company’s stock at that moment and the ask or offer price is the lowest price any seller is willing to accept. The last price is the most current price – and also the last price bidders agreed upon.
Although the last price is the stock’s most recent price, it’s not necessarily what you can expect to pay if you make a market order. Instead, you’ll be paying the latest bid price and you’ll get the ask price when you sell.
The funds needed to pay for your shares will automatically be charged from the linked cash account that you selected in step 2. In most cases, you can fund your account using a bank transfer, BPAY, credit card or debit card.
If you're using an online broker, you’ll need to have sufficient funds to cover the cost of any trade transactions you make, including fees that apply. The trade settlement period on the ASX and Chi-X is two business days (commonly referred to as T+2), which means your account will be charged two days after you've bought the shares.
If you don't have enough funds in your account by the time you're charged, you'll be hit with a hefty late fee – typically around $100.
Next steps - Monitor the performance of your shares
Congratulations, you’ve bought some shares! If you’ve bought Australian shares, you should receive an email or letter confirming your status as a shareholder along with your holder identification number (HIN).
Keeping your investment plan in mind, the next step will be to monitor the performance of your stocks. How often you do this will depend on your plan. For example, if you have a long-term investment strategy, you may only need to check in every few months. If you have a short or medium-term strategy, it may be a good idea to check each night or each week.
Pay taxes on profits
Yes, you do need to pay tax on any profits you make from shares, including dividends. Any income you make from dividends is automatically recorded by the Australian Taxation Office (ATO) and is included as part of your regular taxable income at tax time.
Profits that you make on capital gains – i.e. when you buy low and sell high – are only counted in the financial year that you’ve sold your shares. Your broker will usually send you a tax invoice with any profits that you’ve earned from stocks each financial year.
Tip: If you hold shares for more than a year, you only need to pay tax on half of the profits you’ve earned. You can read more about share trading and taxes in our tax guide.
Keep track of your shares with a portfolio tracker
Sharesight Portfolio Tracker
Sharesight works alongside your online share trading platform and makes it easy to track your performance and stay organised.
- Track shares, ETFs, property, currency, and more
- Comprehensive dividend and tax reporting
- Free for investors with less than 10 holdings
How to invest in shares in Australia
How much does it cost to buy stocks?
In Australia, there’s a minimum $500 investment for every new ASX company you invest in. So if Afterpay (APT) has a share price of $50, you’d need to buy at least 10 shares of APT stock if it’s your first time buying.
These rules change depending on which country a stock is from. For example, you can invest as little as a few cents into US stocks, even if it's your first time buying. Some brokers also allow fractional investing where you can buy in fractions rather than whole stocks. So say Facebook is priced at $200 a share, instead of investing $200, you could buy one-tenth of a share for $20.
The other main cost you need to think about is the brokerage or commission fee. This is the fee charged by your broker or share trading platform every time you buy or sell stocks. Brokerage fees are around $10-$30 on most share trading platforms – sometimes called "discount brokers" – and anywhere from $50-$150 for full-service brokers.
Other fees charged by brokers include the currency conversion fee (for foreign stocks), account fees, custody fees (for US stocks) and inactivity fees. These are important considerations since any fees you pay your broker will reduce your earnings and impact how much you invest per trade.
Will your profits cover the fees?Say you invest $100 in Netflix stock with a broker fee of $10 a trade, a custody fee of 0.1% and an annual account fee of $50. If you bought no other stocks, you would need Netflix’s stock price to rise by at least 71% in order to cover the fees you paid ($20 to buy and sell + $1 custody fee + $50 account fee). But if you'd invested $5,000, you'd only need its price to rise by 1.42%.
Risks of share trading
Before you start buying and selling stocks, be aware of the risks:
- You can lose money. A company’s stock can plummet to zero in the worst case scenario. If you've invested in such a company, you could lose your entire investment.
- Bankruptcy. Shareholders are usually the last to be paid when a company goes broke. When this happens, there’s a good chance that you won’t get your money back.
- Emotional toll. Daily share market fluctuations can cause plenty of stress for investors. If you can’t handle the ups and downs, you may be better off looking for a safer and steadier investment option.
- Unexpected problems. Even if you do a lot of research into a company, it’s simply not possible to predict the future. Natural disasters, terrorist attacks, bad company news and even changes in government policy can all occur unexpectedly and adversely affect the price of shares.
- Lack of expertise. While investing in the share market sounds quite easy in theory, it can get quite complicated if you don’t know what you’re doing. First-time investors should be wary of getting ahead of themselves.
- Getting in over your head. A final word of warning if you’re thinking of investing in shares: don’t bite off more than you can chew. Make sure to use your common sense and take a cautious approach – good advice no matter whether you’re planning on investing in shares, property or anything else.
Frequently asked questions about buying shares in Australia
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