If you know nothing about share trading, start your education here.
Share trading is a simple concept made complex by jargon. A share is a stake in a company. A company will float shares on a stock exchange so the public can purchase the stock. When you purchase shares it means you become a part-owner and you may receive dividends if the company continues to make a profit.
You can buy shares using the services of a stockbroker. A stockbroker can be an online trading platform or a full service professional.
Compare share and CFD trading accounts
In either case, the market agent acts as an intermediary to the stock exchange. Online share trading platforms let you make purchase and sell orders instantly. Transactions are logged by the exchange and executed up to three business days. Settlement of trades executed in the Australian and overseas equity markets can take up to two days (trade day plus two business days). Settlement of trades in the US equities market can take up to three days (trade day plus three business days), however this will change to two days in late 2017. Trading in the US options market takes up to one day (trade day plus one business day) for settlement.
Trading shares in Australia
In Australia there are two stock exchanges, the ASX and the NSX. The S&P ASX 200 is where shares on the 200 biggest companies in Australia are bought and sold.
Different brokers give you access to local and international stock exchanges. Brokers do charge a fee for their service. Here, we let you compare brokers by brokerage fees in our comparison of online share trading accounts.
What are the different types of shares?
You can trade these types of investments using online share trading platforms or through a broker.
This type of stock is publicly listed on the Australian Securities Exchange (ASX) or the National Stock Exchange of Australia (NSX). Shares in the top 200 Australian companies are traded on the S&P ASX 200.
You can also trade on overseas markets. You can trade shares in some of the biggest companies in the world from Europe, Asia, the U.S and London.
Managed funds are publicly listed investment tools you can use to gain access to a spread of assets. Managed funds are listed on the ASX and international stock exchanges.
Fund and company options
As the name suggests, fund and company options give you the option to buy a particular asset. There’s no obligation to purchase the asset when the option matures. You can even invest in installment options. These investment vehicles let you pay half when you take out the option so you can start receiving dividends while maintaining the right to not buy the rest of the stock in the future. Like warrants, options are a leveraged investment.
Warrants take value from an asset, or group of assets. A warrant can be tied to the performance of a stock exchange, a commodity (such as gold), or a group of related assets such as commodities or related shares like transport and infrastructure. You can invest in warrants to increase your exposure to growth assets or you can use warrants to trade on the rise and fall of value of an asset.
Leverage is a term used to describe the level of capital to debt.
As a company continues to grow in value so do your shares. You make money when you sell your shares, you also make money if the company makes a net profit and pays dividends to shareholders.
A company has the option to pay dividends to shareholders, buy back their own shares on the open market or choose to keep the money to reinvest in the business. Whether or not you’ll get paid a dividend depends on the type of company you choose to invest in. Startup companies generally do not pay dividends as they need the capital to grow their business. Blue chip stocks such as Telstra pay a fully franked dividend, which can deliver consistent returns above what you could get by investing in a savings account or a term deposit. There are also tax advantages to investing in blue chip stocks.
It’s important to look past dividend payments as an indicator of a particular stock’s worth. A high dividend payment doesn’t always mean the company is performing well. There are reasons for high dividend payments and poor performance including poor expected future performance and a falling share price.
A blue chip stock is considered to be reliable and able to deliver strong, consistent returns.
What is franking?
Dividends can be fully-franked or not. If you’re receiving a franked dividend, the company paying the dividend will pay tax to the Australian Tax Office (ATO) before you receive your payment. Franking stops you from paying tax twice.
Have more questions? Answers to frequently asked questions on share trading
Do you need to be an Australian resident to open an account?
Yes, you’ll need to be an Australian resident to open an online share trading account. You’ll also need to be over the age of 18.
What account are my dividends paid into?
If you apply for a share trading account with an Australian financial institution, you’ll need to open a settlement account as well so you can receive payments from your share trading account. Independent share trading platforms or brokerages can be linked to any cash management or transaction account.
What platforms support online share trading?
You can trade from your desktop or laptop computer as well as your tablet and mobile device for when you’re on the go.
What fees do I have to pay when I make a trade?
The types of fees you’re likely to pay when you open a share trading account are ongoing fees, brokerage fees or a commission. Trades conducted over the phone are more expensive than trades executed online. Brokerage charges are expressed as a commission or a flat fee based on the value of the trade.