Want to start buying and selling shares? Here's what you need to know and how to choose the right online share trading platform.
Online share trading makes it easy and affordable for anyone to begin investing in shares and building a portfolio through the Australian Stock Exchange (ASX) and other markets. Learn how online share trading platforms work, how to make money from share trading, what sort of fees you'll pay and what all that confusing terminology really means in this guide.
You can also compare some of the best share trading platforms by using the comparison table below.
Compare online share trading accounts
How does online share trading work?Companies sell shares (partial ownership of the company) in order to raise funds for expansion. Shareholders buy and sell shares through stock markets, for example the Australian Securities Exchange (the ASX), which provide continuous updates on the prices of those shares. The value of a company's shares change several times throughout the day, so shareholders aim to buy shares when they are low in cost, and then when the price of the share increases, sell the share and make a profit. Share trading is also commonly referred to a buying stocks - this is the same thing as buying shares. Generally, the term stocks is referring to a shareholder who has shares in several companies.
How do you trade shares in Australia?
For Australian-listed companies, all trading is done through the ASX, which lists more than 2,000 companies. Overseas shares are traded on a variety of exchanges, including the New York Stock Exchange (NYSE), the NASDAQ and the London Stock Exchange (LSE). If you want to buy shares in companies based outside of Australia, you can read our comprehensive guide to international share trading here.
How do I buy shares in a company?
In the pre-Internet era, the only way to buy or sell shares was through an individual broker, which was often expensive and time consuming. Online trading means investors can buy and sell shares directly in real time. While there are still fees involved, going online is far cheaper for individual investors. When you buy shares online, you'll pay a brokerage fee for each transaction, which typically ranges from $5 to $25 for ASX trades.
The standard ASX trading hours are 10am to 4pm AEST Monday to Friday. If you're looking to trade international shares, some global exchanges are open and operating 24 hours a day. As well as shares, you can trade in index funds such as Exchange Traded Funds (which track the performance of a range of stocks) and other products. Keep in mind there's a minimum order of $500 when buying shares on the ASX, and your online trading platform may impose a higher limit. To buy a share online, simply create an account with an online share trading platform such as those in the table above.
For a more detailed guide on the process of buying shares, take a look at our 7 step guide to buying shares online.
Compare leading Australian share trading accounts
- Saxo Capital Markets Classic Trading Account - $6.99 brokerage fee on Australian shares
- IG Share Trading Account - $8 or 0.1% (whichever is higher) brokerage fee on Australian shares
- SelfWealth Share Trading Account - $9.50 brokerage fee on Australian shares
- CMC Markets Stockbroking Account - $11 brokerage on Australian shares
- Macquarie Online Trading Account - $19.95 brokerage on Australian shares
- Capital growth. If you can sell your shares for a higher price than you paid for them, then you'll make a profit. This is known as capital growth, given that your initial capital (your shares) has increased in value. This is possible both with short-term investments (where you sell the shares after a brief period of time) and over longer periods. When you're starting out, aiming for longer-term investments makes sense as you're less experienced.
- Dividends. Some (but not all) companies pay regular dividends to their shareholders, based on the amount of profit they make, which can provide an ongoing income stream and may also have some tax advantages for individual investors. Dividend payments are a great form of passive income.
- Broker fees. Some brokers may charge extra for different types of orders or specialised investment products. High-value trades are often charged as a percentage of the total trade value, rather than having a fixed fee. Share Trading Finder™ can help you compare these accounts and commission fees.
- Availability of advice and research options. Online brokers will usually offer market news and updates, as well as other research tools that will let you investigate the trading history of individual stocks.
- Integration with bank accounts. Some services let you transfer money easily from your trading account to a high interest savings account. Others offer linked debit cards to use with your accounts.
- Access to other markets. If you want to invest in offshore exchanges, check what options are available with each service.
- Customer support. Check what level of customer support is available, what hours it's available and if the support team is based locally in Australia. This is particularly important for new traders.
- Read the news. It's important to stay up-to-date with the broader economy, and learn how major events such as national elections impact the share price of various companies.
- Research companies before buying. If you want to buy shares in a company, research as much as you can about the company before making your final decision. It's a good idea to read the company's annual reports and meeting minutes to learn what is in the pipe-line, and what changes will be made that could affect their share price.
- Consider blue chip companies. This is good strategy for people new to the share market, as these companies often have more stable returns and are less volatile.
- Diversify. Say you had $5,000 to invest int he share market. Rather than invest the whole amount in one company, consider spreading it out across a few companies from different industries. Diversification will help lower your risk, and ensure you don't have all your eggs in the one basket.
- ASX: The abbreviation for the Australian Securities Exchange, Australia's primary stock exchange
- All Ordinaries: This is an index of the performance of the share prices of around 500 of Australia’s biggest companies. Also referred to as the All Ords
- Bear market: This term refers to when prices on the market are falling and further falls are expected to occur
- Blue chip stock: A blue chip stock is a large company with a steady history of turning a profit
- Brokerage fee: This is the fee you must pay to a share trading platform when you use the platform to buy or sell shares
- Bull market: Opposite to a bear market. This term applies when share market prices are rising and expected to continue to rise
- CHESS (Clearing house electronic sub register system): This ASX system settles share trades and acts as the central registry for the electronic transfer of share ownership
- Contract note: This confirms a buy or sell transaction and includes details such as the type of share, the price paid and the quantity traded
- Dividend: Companies can distribute their profits or earnings to shareholders in the form of dividends. A dividend is calculated as a number of cents for each share you own
- Float: The initial raising of capital through public subscription to a security
- Fundamental analysis: This involves analysing the financial statements of a business to determine its overall financial standing
- Futures: Futures are contracts to buy or sell an asset at a specified future date
- Limit order: A limit order specifies the maximum (when buying) or minimum (when selling) price you are willing to accept for a share transaction
- Listed company: Listed companies have shares that are purchased and sold through the ASX
- Live price: This is the price of a share at a precise moment in time
- Market order: A market order is an order to buy or sell a share at its current market price
- Short selling: This is when you borrow a security and subsequently sell it, with the obligation to buy it back in future at a much lower price
- Volatility: This reflects the amount of fluctuation in share prices
- Warrant: This gives its holder the right to purchase a security at within a certain timeframe and at a specific price
- Yield: This is your return on an investment and is expressed as a percentage
So how can you make money from shares?
There are two main ways to make money from share trading:
What is a blue chip share?
Blue chip shares are large companies that are financially strong, and have a solid track record of producing good earnings to shareholders. Typically, they are industry leaders and household brands. Investing in blue chip shares could be a good strategy for beginners, as they are usually considered to be very stable and have been in the market for a long time. For example the Big Four banks, CBA, NAB, ANZ and Westpac, are considered blue chip shares.
How can I choose the best share trading platform for me?
When choosing an online share trading platform, consider the following factors:
Ready to compare accounts and start trading? Go to the comparison table now.
Tips for online share trading
Here's some tips to help get you started: