How to Trade Stocks in Australia
Are you interested in starting trading Stocks? Stock trading can initially feel complicated, but we are here to make it easier for you to get started. We have therefore carried out thorough research within stock trading in Australia to create a list of the best stock trading platforms. We will go through some of the basics when trading stocks to give you a better understanding and additionally give you some valuable tips that will help you become as successful as possible.
What’s the difference between shares and stocks?
There is only a minor distinction between shares and stocks, which has been further blurred in the financial markets of today. The words are usually interchangeable and simply refer to the certificates that relate to the ownership of any company. You may well see the two words used in different contexts. For instance, “stock” is used as a general term relating to the overall ownership certificates for any company, and “shares” is normally used when referring to a specific company. The bottom line is that they are really the same thing, with any minor distinction being more related to syntax than financial accuracy.
Brokers will issue shares to generate capital and investors buy shares when they believe that they will do well and can share in the success by making a profit. A share itself is simply a reflection of the overall value of any company. As an example, if a company is valued at $200 million, and has issued 100 million shares, then each individual share is worth $2.The value of the shares can obviously go up and down for a variety of reasons.
How Do You Make Money From Stocks?
If you pay attention to financial media, you might be under the impression that profiting from shares involves rapid trading. Constantly researching on your laptop, and being glued to news about movements in the stock market. This might work for you if you already are day trading, however, this type of trading does not suit everyone. And buying shares and holding them can be an equally good option if the company makes a profit.
You will then receive interest and dividends as a one-off, or on a regular basis, throughout the year. Of course, you will also benefit from their increase in value over the longer term, so plan to hold these shares for five years or more, and reap the benefits when you choose to sell. Always select well-run companies that display a strong financial background and shareholder-friendly practices.
How To Buy Shares
Companies are listed on a stock exchange after having completed an Initial Public Offering. This process takes it from being a private company to a public one, so you can buy shares in any company listed on any exchange. The most popular and easiest way to sell or buy shares is by using the services of a reputable broker. When they are first put onto the market, you can also buy them via a prospectus or through a managed fund. There are also online ‘share dealing’ platforms where you can buy shares from companies listed on a number of stock exchanges.
In Australia, there are currently five public exchanges, with four of them which directly supervise companies that issue shares on their markets. Chi-X offers the infrastructure to trade shares quoted on ASX but does not actually list or supervise these companies.
Asia Pacific Stock Exchange (APX) – lists growth oriented companies in the Asia-Pacific region.
Australian Securities Exchange (ASX) – Australia’s main securities exchange.
Chi-X – trades in shares already quoted on the ASX.
SIM Venture Securities Exchange (SIM VSE) – lists innovative companies dealing in green technology, energy and bio-science.
Stock Exchange of Australia (NSXA) – lists around 70 smaller companies.
How to minimize the risks when buying shares
When you have decided to buy shares, it is very important that you understand the risk of trading shares. Every time you buy shares you risk losing money. Worst case scenario, your investment can become completely useless. It is therefore important that you never trade with more money than you can afford to lose. Something to consider is that smaller companies on smaller lists are usually far riskier. But there is often much higher rewards if those companies are doing well.
All it takes for your investment to be adversely affected can be a bad year for the company. It is therefore often recommended that you invest long-term and wait until the stocks hopefully go up again. But even here, there can of course be higher rewards from a short time investment if the company had an unusually good year.
You can determine the risk yourself
As mentioned, there is always a certain risk when you invest in shares. However, for the most part you can decide for yourself how much risk you are willing to expose yourself to. You have the opportunity to invest at the level you feel comfortable with depending on how experienced you are or how much time you want to spend. However, with higher risk usually comes higher reward. So if the risk is high, there is a possibility that the reward can be very high.
If you want to minimize the risk, we recommend that you invest in large, well-established and stable companies. These companies do not have the same risk of suddenly falling as much in value. The disadvantage of these companies is that they rarely grow particularly fast, which means that you do not have the opportunity to get the high returns you can get on the smaller and more risky companies. In the list below you can find the eight golden rules when you buy shares.
8 Golden Rules For Stock Trading
The greater the return you are expecting, the higher the risk you will be taking, so be well prepared.
Never put all your eggs in one basket. Diversify your investments across different companies, geographies and asset classes, to lower your exposure to risk.
Minimise any fees, which can come in the form of commissions, management or advisory fees and taxes.
Buy and hold some of your investments over the longer term.
Review your portfolio regularly to reassess its performance and the risk factors.
Stay informed, updated, and always add to your knowledge about finances and the stock market.
Learn how and when to invest in shares and follow a disciplined approach.
Don’t be tempted to be influenced by other investors as to when to sell or buy funds. Any investment can be volatile sometimes so do not be reactive.
How To Hold Shares
You can hold shares for an indefinite period and if you are with a certificated share dealing service, you will be issued with all the paperwork and certificates. The advantages of this method are the shareholder benefits which are available to named shareholders on the company’s register. You will not only receive any company perks, but also company voting rights and annual reports.
However, if you are taking a shorter term view or decide you want to actively trade your shares, then this can be cumbersome. It is then easier to open a ‘nominee account’, which allows you to purchase and own shares without requiring any paperwork. Simply put, you are the legal owner of the shares, but the platform will hold them electronically on your behalf and your name will not be on the relevant company’s share register. Any dividend payments due are then received directly from the broker.
While you are holding shares, you will still have access to your portfolio of holdings, enabling you fast access to valuations and live share prices, so it’s important not to forget about them. Always keep an eye on how they are performing, even though they are longer-term investments.
How To Sell Shares
Selling your shares should be just as simple and fast as buying them. Although each broker’s platform will have different features and work slightly differently, the principle is exactly the same. If you have a nominee account and do not, therefore, hold any certificates, then you must sell your shares via the same broker or platform you bought them from. When you are ready to sell, you will have two options:
Sell a number of your shares
Sell a monetary value of your shares
If you have opted to sell all your shareholding in a company, then you will need to select the exact number of shares. You will then be given a quoted price for your sale and will have a very short time period to accept or decline. If you accept and have made any profit from the sale, then this money will show immediately in your trading account.