Selecting a stockbroker
The first step is to choose a stockbroker. A stockbroker is a person or company authorised to buy and sell shares, kind of like a middleman between you and the marketplace you’re buying shares from. There are generally two types of stockbrokers: online or full-service.
Online stockbrokers are a popular option as they are generally cheaper when it comes to brokerage fees. Online brokers don’t offer personal advice on which shares to buy and sell. Instead it’s up to you to select which shares to invest in and to make the trade – although an online stockbroker may provide you with access to research on particular investments, together with general guidance on how to buy and sell shares. ANZ Share Investing is an example of an online stockbroker.
Full-service brokers are stockbroking firms that can provide advice particular to your needs and buy and sell shares on your behalf, however they are generally more expensive.
How your shares are held: with your broker or the registry
Shares can be held by your stockbroker or directly with a share registry.
A share registry administers shareholding details for companies. If you hold shares directly with the share registry you will receive a Security Reference Number (SRN) for each company you hold shares in. Often employees who receive shares as part of an employee share scheme will hold shares with the share registry. You will need to provide your SRN to your broker, should you wish to sell shares held directly with the share registry, through your broker.
Most people hold their shares through their broker, such as ANZ Share Investing. If you select this option you will receive a Holder Identification Number (HIN) that applies to all of your share holdings with that stockbroker.
Where to buy your shares
Initial public offering (IPO)
An IPO is the process where a private company offers shares to the public to purchase. On the listing date the new shares will be traded on the securities exchange. This process is also known as “going public”.
On market refers to the buying or selling of shares on an exchange, such as the Australian Securities Exchange (ASX). It’s the most common way to buy shares.
Making a trade
Every time you make an initial investment in a company you will need to buy a minimum of $500 worth of shares (don’t forget you will also be charged a brokerage fee). For example, if shares in your chosen company are currently trading at 50 cents per share, you will need to buy at least 1,000 shares.
There are three types of orders you can place:
- At market orders allow you to buy or sell shares immediately at the best available price.
- Limit orders let you nominate a specified price for your order as well as a time period in which the order will remain active. Limit orders will only take place (execute) when the market reaches the specified price. It is possible that the entire order will not be completed if there aren’t sufficient orders placed at that price.
- A conditional order is either a limit or at market order which will only become active if the market reaches a predetermined price.
There are two dates to be aware of when buying or selling shares: the trade date and the settlement date. The trade date is the date that you buy or sell your shares in the market. The settlement date refers to the date when payment is made for the trade and ownership is transferred. Settlement occurs two business days after the trade date and is often referred to as T+2 (‘trade date’ plus two business days).
After you have purchased shares, you can monitor their performance through your share trading platform.
If you’re buying and selling shares, take note of the ASX’s normal trading hours of 10am to 4pm AEST. From 4:00pm to 4.10pm there is no trading, however orders can be entered, amended and cancelled while the market prepares to close. What occurs next is known as the Closing Single Price Auction (CSPA) which is when all overlapping buy and sell orders will trade at the final closing price. This occurs randomly sometime between 4:10pm and 4.11pm.
You can place, amend or cancel orders outside of these times, but normal trading will not take place until the ASX reopens.
How will I make money as an investor?
Once you have bought shares there are a couple of ways you can make money from them.
Capital growth is an increase in the value of your shares over time. For example, 200 shares are bought at $20 per share and then increase in value to $30 per share. The capital growth in this instance is $2000 or $10 per share. Keep in mind that you will not actually realise this profit unless the shares are sold. Realised profits are gains that you have converted into cash by selling your shares. When you trade shares this may have tax implications so you should seek advice from an accountant and become familiar with how your share investments impact your tax situation.
Some companies pay a dividend, which is effectively a way to share in that company’s earnings. Dividends can be paid in the form of cash or stock. The amount you receive corresponds with the number of shares you own.
When you’re ready to start buying shares you can read more on how to invest your money and how to get started with $1000.
Risks of share investing
It is also important to understand the risks associated with share investing. For example:
- If the value of your shares falls below what you paid for them, you’ll get back less than you invested if you sell. This means you could lose some or all of your capital invested.
- While the sharemarket has historically gone up over time, as with any form of investing, there is no guarantee this pattern will continue. There’s a multitude of factors influencing the market, and even experts cannot predict when the market will swing up or down, so investors need to understand there’s no such thing as a certainty.
Get started with share investing
Keen to learn more? We have a number of resources to help you get started: