Want to get into share trading? 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 build a portfolio through the Australian Stock Exchange (ASX) and other markets. Learn how online share trading platforms work, how to make money from them, what sort of fees you'll pay and what all that confusing terminology really means. While share trading carries risks, it's worth investigating as a means of increasing your net worth.
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Everything you need to know to get started in share trading
- What is share trading?
- What are the best share trading platforms for beginners?
- How can I compare platforms?
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, which provide continuous updates on the prices of those shares. The value of a company's shares change daily, 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 Australian Securities Exchange (invariably referred to as 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).
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. To buy a share online, you will need to create an account with an online trading platform (some great platforms for beginners are listed below).
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. As well as shares, you can trade in index funds (which track the performance of a range of stocks) and other products. There's a minimum order of $500 when buying shares on the ASX, and your online trading platform may impose a higher limit.
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.
So how can you make money from shares?
There are two main techniques:
- If you can sell your shares for a higher price than you paid for them, then you'll make a profit. 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.
- 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.
You can learn more about comparing share trading platforms in our detailed guide on how to make the best choice.
What are the best beginner trading sites?
If you're new to online share trading, a good place to start is with the platforms offered by the "big four" Australian banks: Commsec, Westpac Online Investing, nabtrade and ANZ Share Trading. These sites all offer affordable brokerage fees and a range of education and research resources to help you learn the ins and outs of trading.
How can I choose the best share trading platform for me?
- Compare commission 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.