Australians now have more investment opportunities at their fingertips than ever before.
From shares and futures, to foreign exchange and contracts for difference (CFDs), ordinary Australians can now take control of their finances on an unprecedented scale - and they can do it all from the comfort of their own home.
However, despite the ease in which everyday Australians can trade several investment products, the degree of risk involved means that online trading and investing is not suited to novice investors. But if you’re aware of all the risks and you know what you’re doing, online investing and trading can allow you to build your wealth and diversify your portfolio.
Online trading gives anyone with internet access the opportunity to trade a wide range of financial instruments. These include Australian and international shares, indices, commodities, foreign exchange, futures, CFDs and more.
Shares are the most commonly traded products with Australian investors, but as more people become aware of the trading options available and how they work, other investments like CFDs and forex are growing in popularity.
The objectives with online trading and investing are financial, regardless of whether you’re investing for profit or looking to generate an income. There are countless trading strategies available across an extensive range of financial instruments to help you reach your investment goals.
You can trade from the comfort of your own home at a time that suits you, and it’s quick and easy to get started - once you’ve signed up for an online trading platform and deposited funds into your account, you’re able to start trading.
The reason that Australians engage in online trading and investing is to further their financial well being. For some people, the aim is to generate a regular income now and into the future, for example, in the form of dividend payments from shares you own. For other investors, the goal is to boost their bank balance by buying and selling financial instruments to take advantage of fluctuations in global markets.
There are many advantages to online trading and investing, including:
- You can take control of your investments.
- It’s generally cheaper than trading through a traditional broker.
- You can trade from the comfort of home whenever it suits you.
- You can execute trades immediately to take advantage of market conditions.
- You can enjoy the flexibility of investing your money across a variety of assets and industries.
- The potential for much higher returns than you could expect from many traditional investment options.
Buying a share in a business means you will become a part owner of that company. Trading on the ASX gives ordinary Australians the chance to buy shares in small start-up companies they expect to enjoy future success, or even to purchase shares in large blue-chip companies like BHP Billiton or the Commonwealth Bank.
There are two main reasons people buy shares. The first is to profit from capital gains when share market prices move up or down. For example, you could buy 100 shares in XYZ Pty Ltd at $3 a piece for $300, and then sell them in three months when the share price has risen 66% for a profit of $200 (note this is a fictional example only.
The second reason is to generate an income from shares that offer a high dividend yield. Some companies pay dividends to give shareholders a portion of their profits, and dividends can be used to supplement your regular income.
Investing in shares in blue-chip companies - those with a long history of providing steady investment returns - can be a sound long-term investment strategy for novice investors. There’s also the potential to enjoy a large profit if you get on board early with a company that experiences a large rise in its share price, while other benefits include the ease of trading and relatively affordable brokerage fees.
However, it’s worth remembering that share prices can be volatile and experience fluctuations, while the performance of the share market can be influenced by a wide range of factors in the economy. Like with many other types of investments, a lack of investment knowledge can also pose a risk to your ability to trade successfully.
How can I trade shares?
You can trade shares in Australian companies listed on the ASX as well as companies listed on stock exchanges around the world.
There’s an extensive range of online share trading platforms to choose from including offerings from the big banks such as nabtrade, CommSec and Westpac Online Investing, as well as dedicated online brokers such as CMC Markets and FP Markets.Back to top
CFDs, or contracts for difference, are rising in popularity with Australian investors. CFDs are derivatives that allow you to trade on the fluctuating values of a wide range of underlying financial instruments, such as shares, indices, currencies and commodities.
Rather than owning the underlying asset, CFDs allow you to bet on how that asset will perform. For example, you may choose to open a CFD on a particular share (the underlying asset) that you expect to increase in value. If its price does rise as you expect, you can then sell the CFD for a profit. This strategy involves buying in a rising market, but you can also sell a CFD if you expect the underlying asset to fall in value - and then purchase the CFD back at a later date for a lower price.
There are several advantages to trading CFDs, including the fact that you are trading with leverage. This means that you won’t have to cover the full value of an investment when you wish to open a position, only a small percentage of it - for example, on a CFD worth $100,000 you may only have to meet an initial margin of 1%, or $1,000. This gives you access to potentially large profits for a small initial outlay, while you also don’t have to worry about any ownership costs because you never actually own the underlying asset on which you are trading.
However, it’s possible to lose significantly more than the amount you originally invested when trading CFDs. Trading CFDs is a high-risk investment strategy, with counterparty risk and volatile market conditions affecting your ability to turn a profit. Therefore CFD trading should only be done by experienced investors.
How can I trade CFDs?
If you’ve got the financial knowledge to trade CFDs and are fully aware of the risks involved, there are plenty of providers offering online CFD trading accounts for Australian customers. These include CommSec, Westpac Online Investing, FP Markets, CMC Markets, Invast and IG.Back to top
The next investment option available to Australian online traders is commodities. These raw materials have a huge influence on the performance of the global economy and can be split into three main categories:
- Base and precious metals (gold, silver, copper, nickel, iron ore etc.)
- Oil and energy (natural gas, brent crude, US light crude etc.)
- Agricultural commodities (sugar, wheat, cattle etc.)
The prices of these commodities will rise and fall based on supply and demand and a range of other economic factors. As an example, you may have seen reference to the price of gold on the nightly finance report on the news, while changes in oil prices can have a direct effect on our daily finances at the petrol station.
Trading commodities involves taking advantage of rises and falls in their value. For example, a scarcity of iron ore supplies around the world would cause the price of iron ore to rise significantly, and investors can benefit from the increase in price.
There are a number of ways Australian investors can gain exposure to local and global commodities, such as through CFDs, futures or exchange traded funds (ETFs).
The main benefit of investing in commodities is that they are seen to offer a steady investment option when share market prices are volatile, however you will need to be aware of the many geopolitical risks that can influence the market prices of commodities.
How can I trade commodities?
If you’d like to start investing in commodities, a wide range of trading platforms from providers like CommSec, CMC Markets and IG will allow you to do so.Back to top
Trading futures allows investors to trade using leverage in a wide range of commodities and financial instruments from Australia and global markets. A futures contract is an agreement to buy or sell an underlying asset, at an agreed date in the future, for a price agreed upon now.
The main aim when trading futures is to profit from price changes. Futures contracts can be opened on financial instruments like shares, bonds, indices and commodities.
Traders can turn a profit by buying futures at a low price and then selling at a higher price, or selling a contract at a high price in anticipation of a future decline in prices and buying the contract back at a later date for a lower price.
Like CFDs, futures allow you to use leverage and only have to outlay a small percentage of the full value of your investment. This results in the chance of profits from a small outlay, but the chances of losses are equally high. If a position goes against you it’s possible to lose more than the amount you initially invested.
How can I trade futures?
If you’re aware of the risks and would like to start trading futures, providers like Macquarie Bank, CMC Markets, optionsXpress and many more offer platforms to help you get started.Back to top
An option is a contract that gives you the right (but not the obligation) to buy or sell a security at an agreed-upon price at or before a predetermined date. Available across the S&P/ ASX 200 index and more than 60 of Australia’s largest companies, options offer quite a flexible trading solution for investors. This is because they can allow you to hedge against a fall in the value of shares you own and also offer leveraged exposure to the ASX. They also mean you can lock in your sale price today but you still have time to decide whether you want to buy or sell the security in question.
Leveraged exposure means that buying options costs less than buying the shares themselves, while a small move in the price of a share will lead to a proportionally greater move in the price of an option. Conversely, the potential for large losses is equally great and you can end up losing more money than you invest.
How can I trade options?
An extensive range of trading platform providers, including CommSec and optionsXpress, offer the features you need to start trading options.Back to top
Another option worth considering for online investors is exchange-traded Australian government bonds. A bond is a form of debt security that offers ongoing interest returns to investors, and bonds are issued by the government as a method of raising funds.
Exchange-traded government bonds can be bought and sold in the same way that shares can, and the fixed interest rate they offer means you can enjoy guaranteed returns for the life of your investment. They can be bought and sold whenever the ASX is open and can be used to provide ongoing income.
The main risk when trading bonds is that because your interest rate is locked in, you won’t be able to benefit from any potential interest rate rises.
How can I trade bonds?
Online brokers such as CommSec and Macquarie Bank allow you to trade Australian Government bonds.Back to top
Although term deposits are a far more traditional form of investing, you can still open a term deposit account quickly and easily online. Designed to offer a steady and secure return on the funds you invest, term deposits allow you to invest your money for a specified period of time in an account that pays fixed interest.
Offered by several Australian banks, credit unions and building societies, term deposits have the major advantage that they are less risky than other investing strategies.
If you can lock in a competitive interest rate, term deposits can offer healthy returns on the money you invest. You also have the security of knowing that the interest rate will not change during the term, not to mention the fact that term deposits of up to $250,000 placed with an Authorised Deposit-taking Institution are guaranteed by the Australian Government.
However, there are a few downsides to term deposits that should be considered. If you want to access the funds in your account before your deposit matures, you’ll likely have to pay a fee to do so. You also may not be able to obtain as attractive an interest rate as you would on a high interest savings account, while the fact that your rate is locked in means that you won’t be able to take advantage of interest rate rises.
How can I set up a term deposit account?
If you’d like to set up a term deposit, compare the terms and interest rates on offer from banks, credit unions and building societies around the country.Back to top
Another traditional online investing option is to open a savings account. Banks, credit unions and building societies across Australia offer a wide variety of high-interest online savings accounts. Many even offer bonus introductory interest rates to help you maximise your savings.
Investing your money in a savings account with a trusted financial institution is a relatively safe option. Comparing accounts before you sign up will ensure that you find one with a competitive rate, but keep in mind that this rate will rise and fall in line with the rest of the market. It’s also vital that you check for any fees and charges that apply to your account, as well as any special criteria you must meet (such as minimum monthly deposit requirements) in order to receive a high rate of interest.
How can I set up a savings account?
You can compare an extensive range of high interest savings accounts at finder.com.au to find the right account for your needs.Back to top
If you want to start trading shares, CFDs or other financial instruments online, you’ll need to compare the services and features of several trading platforms.
There’s no shortage of choice pertaining online trading platforms, so consider the following features when weighing up the pros and cons of different providers:
- What securities can I trade?
- Do I have access to local and global markets?
- What fees will I need to pay, both in terms of ongoing fees and brokerage fees for each trade? Also check whether higher brokerage fees apply to special transactions such as phone trades or conditional orders.
- What level of market data is available and will I need to pay a fee to subscribe to it?
- How fast are trades executed?
- Can I place trades online and over the phone?
- Is there an app available and what devices will it work on?
- How intuitive and easy to use is each platform?
- Are there educational resources (videos, instructional articles, webinars, FAQs etc.) available to help me boost my trading knowledge?
- What research, analysis and market insights are offered to help me make informed trading decisions?
- What customer support options are available and at what times? Look for phone, email and live chat support.
Answering all of these questions will help you decide which trading platform is right for you.Back to top
Some well-known providers of online trading platforms include:
- CMC Markets. Allows you to trade CFDs, shares, forex commodities, indices and treasuries.
- CommSec. Offers share, CFD, managed fund, option, ETF, warrant and interest rate security trading.
- ANZ Share Investing. This platform lets you trade shares, warrants, IPOs, ETFs and managed funds
- IG. Trade CFDs, forex, indices, shares and commodities.
- nabtrade. Nabtrade allows online trading of domestic and international shares, options and ETFs.
- Invast. Trade forex, CFDs, indices, commodities, shares, bonds and direct market access CFDs.
- Westpac Online Investing. Trade Australian and international shares, IPOs, ETFs, government bonds, options and warrants.
- FP Markets. FP Markets trading accounts allow you to invest in direct market access CFDs, forex, futures and shares.
With low brokerage fees and the ability to trade from the comfort of home, you can trade a wide range of financial instruments including shares, CFDs, indices, commodities, futures, options and bonds. However, it’s important that you compare the features and fees of multiple online trading platforms before signing up for an account.