New to online share trading? Check out this step-by-step guide on how to buy shares in Australia.
Thanks to online share trading platforms, buying and selling shares online is easier for the average Joe than ever before. This step-by-step guide explains how you can start buying and selling stocks on the Australian Securities Exchange (ASX) and exchanges around the world, and also has plenty of tips to help you get the most out of your online trades.
Let’s get started.
Step 1: Choose an online share trading platform
Choosing an online share trading platform is often one of the most difficult parts of the process. There are myriad platforms available to Australian investors – some of them are offered by the “Big Four” and other major banks, while others are provided by specialist share brokers. While it might be more convenient to stick with your current bank, you could loose out in terms of brokerage fees. It’s recommended that you compare the features and fees of a number of platforms before choosing the right one for you.
- Brokerage fees. This is the fee that applies to each buy or sell transaction. Depending on the platform you choose and the size of your transaction, this could be a flat fee or a percentage of the total transaction cost.
- What you can trade. Some platforms offer access to the ASX only, while others also allow you to trade on stock exchanges all around the world.
- Ease of use. Consider how easy each platform is for the type of trading you want to do. Most providers give you the option of a free demo account for a short period so you can trial the features they offer.
- Who the platform is suited for. Some share trading platforms are designed with casual investors in mind; others are more suited to active and experienced traders.
- Customer support. How easy is it to get in touch with the provider if you ever have any questions or problems? Is their customer service team based locally in Australia?
There are plenty of other factors you’ll need to take into account, so check out our guide to choosing an online share trading platform for more details.
Step 2: Sign up for an account
Once you’ve chosen a platform you’ll need to register for an account. This step is usually free, but keep in mind that some providers may charge subscription fees or ongoing fees for features such as market research.
The registration process takes place online and if you’re a new customer you’ll need to provide:
- Your name, address, date of birth and contact details
- Your tax file number (TFN)
- Proof of ID
- Linked bank account details
You’ll usually be asked to deposit a specified minimum amount in order to open an account. Once your application has been assessed and approved, it’s time to start trading.
Step 3: Choose the shares you want to buy
You may have already decided what shares you want to buy but if not, now’s the time to start researching stocks that match your investment goals. You’ll often be able to access a wide range of market research, analysis and even trading recommendations through your platform, so use this info to help make an informed decision.
You’ll also need to consider the number of shares you want to buy. This will obviously be down to your budget and your investment goals, but keep in mind that unless you already own shares in a company, the minimum amount of shares you can buy in Australia via the ASX is $500 – so if company XYZ is valued at $2 a share, you’ll need to buy at least 250 shares.
It’s also worth pointing out that larger purchases may incur higher fees or involve different fee structures depending on the trade. For example, your platform may charge you $30 as a brokerage fee 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.
Step 4: Place your order
This is where things can get a little confusing for novice share traders. You have two main options when placing a trade to buy shares: you can place the trade “at market” or “at limit”.
- Market orders. You place a market order when you want to buy a share immediately at the best price currently available.
- Limit orders. Placing a limit order allows you to set a maximum purchase price for your buy order. If that price becomes available within your specified time period, your trade will be executed.
Depending on the platform you choose, you may also be able to take advantage of a range of conditional orders that allow you to take advantage of market opportunities. For example, by placing a rising buy order, you can instruct your online trading platform to buy shares in a particular company once its stock price reaches a certain level.
Once you’ve entered all the specifics of your transaction, you’ll then get a chance to review all those details before placing your buy order.
Step 5: Pay for the transaction
You’ll need to have sufficient funds in your online share trading account to cover the cost of the transaction, including the brokerage fees that apply. The trade settlement period on the ASX and Chi-X is two business days, which is commonly referred to as T+2.
Step 6: Monitor the performance of your shares
Now you’ll need to monitor the performance of your shares in regard to your investment plan. However, the frequency with which you monitor them will depend on your strategy. For example, if you have a long-term investment strategy, you may only check in and see how your shares are performing every month. If you have a medium-term strategy, it may be a good idea to check each night or each week.
Whichever option you choose, you can review the performance of your investments by logging into your trading account.
Step 7: Sell your shares (if you want to)
When you decide to sell your shares, the process is very similar to the method of buying shares described in Step 4. Once again, you can choose whether you want to sell them via a market order or a limit order. A market order means the shares will be sold immediately at the best available price, while a limit order allows you to set the minimum sale price you’re willing to accept.
Let's pretend that, with her 50th birthday fast approaching, Cherie is looking for ways to increase her wealth before retirement. As her kids have left home and she’s paid off her mortgage, Cherie decides to start investing some of her savings in shares. After looking into the fees charged by her "Big Four Bank", Cherie decides to go with an online brokerage platform instead as the fees are more competitive. With a budget of $5,000, Cherie wants to buy shares in a major mining company. When the ASX opens for trading first thing on a Monday morning, Cherie notes that the mining company’s shares are priced at $39.80 each and rising. Keen to get in before any further price rises occur, Cherie places a market order for 125 shares. The order is then executed straight away at the best buy price available on the market – $40 per share. She must also pay brokerage of $19.95 on the purchase, bringing the total cost of the transaction to $5,019.95. With a long-term investment strategy in place, Cherie hopes that her shares will provide capital growth and also a small amount of income through dividends. She plans to sit back and review the performance of her 125 shares each week before deciding on future investment plans.
Cherie buys shares in an Australian mining company
Let's pretend that, with her 50th birthday fast approaching, Cherie is looking for ways to increase her wealth before retirement. As her kids have left home and she’s paid off her mortgage, Cherie decides to start investing some of her savings in shares. After looking into the fees charged by her "Big Four Bank", Cherie decides to go with an online brokerage platform instead as the fees are more competitive.
With a budget of $5,000, Cherie wants to buy shares in a major mining company. When the ASX opens for trading first thing on a Monday morning, Cherie notes that the mining company’s shares are priced at $39.80 each and rising. Keen to get in before any further price rises occur, Cherie places a market order for 125 shares.
The order is then executed straight away at the best buy price available on the market – $40 per share. She must also pay brokerage of $19.95 on the purchase, bringing the total cost of the transaction to $5,019.95.
With a long-term investment strategy in place, Cherie hopes that her shares will provide capital growth and also a small amount of income through dividends. She plans to sit back and review the performance of her 125 shares each week before deciding on future investment plans.
Tips when buying shares in Australia
Want to get more out of your online share trading? Keep the following tips in mind when buying shares online:
- Do your homework. Making informed trading decisions is crucial to the success of your investments. Research the financial health and growth prospects of companies by poring over annual reports, keeping an eye out for company alerts, reading share prospectuses and accessing research reports.
- Stay up to date with the Australian economy. Keep an eye on the health of the Australian economy, Reserve Bank interest rate decisions, government policy changes, levels of investor confidence, exchange rates and the performance of share markets in Australia and overseas. All of these can influence when is and is not a good time for you to invest.
- Start with blue chip companies. One of the safest options for anyone starting out in the share market is to invest in blue chip companies. These are Australia’s top 50 companies, as listed on the S&P/ASX 50, and are typically well-established companies. They usually offer the best chance for minimising your risk and providing steady returns.
- What about speculative shares? Speculative companies are not in the top 100 Australian companies and have a shorter history doing business. Some investors are attracted to buying shares in these companies because they offer the potential for large returns, but be aware that they also have the potential to suffer large losses.
- Buy what you know. Rather than diving in at the deep end and investing in a company which operates in a field you have little or no understanding of, start with industries and businesses you have some sort of background knowledge of.
- Diversify. If you want to minimise your exposure to risk, diversify your portfolio across a range of different industries. If you buy shares across five or six industries instead of just one or two, you can be better protected against losses if one particular industry experiences a sharp downturn.
Risks of online share trading
Before you start buying and selling stocks like you’re Gordon Gekko, make sure you’re aware of all the risks involved, including:
- Financial losses. A company’s share prices can fall dramatically and even drop as far as zero. This can mean significant financial losses for investors.
- Last in line. Shareholders are usually the last in line to be paid when a company goes broke. When this happens, there’s a definite chance that you won’t get your money back.
- Stress. The share market fluctuates on a daily basis, which 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 an enormous amount of thorough research into a particular 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.