How to Buy and Sell Shares in Australia

If needed, don't hesitate to seek advice from a financial professional to help guide your investment decisions. Just be wary of shonky educators promising to get rich quick or to follow their stock picks religiously. The best course of action is to do your own research, trust your gut, and only invest in companies you’re comfortable with.

Research Companies and ETFs

The foundation of successful investing lies in thorough research. Before making any investments, it's essential to gain an understanding of the companies or Exchange Traded Funds (ETFs) you are interested in.

If you have some cash you want to invest in a single company, it pays to do your research. It’s advisable you don’t put all your eggs in one basket, as the saying goes. This way you won’t feel so bad if the company’s share price dips.

Start by examining a company’s financial reports, which include income statements, balance sheets, and cash flow statements. These documents provide valuable insights into the company’s profitability, debt levels, and overall financial stability. For instance, a company with consistent revenue growth and manageable debt levels may be considered a strong investment prospect.

• A common way to find out the value of a company is to look at its price-to-equity ratio (or PE Ratio). By dividing the share price, or market value, of a company’s stock by its annual earnings per share.

• The long term Australian PE Ratio average is about 15. Anything under this might be considered ‘undervalued’.

In addition to financials, consider the broader market conditions and how they might impact the sectors you’re interested in. For example, if there’s a lot of cyber security breaches, then a cyber security firm could do well. If a bank’s earnings report is solid, then its share price could rally. It pays to follow the news!

Exchange Traded Funds (ETFs)

If you are too hesitant to invest in single companies, ETFs essentially give you exposure to a wide range of them. They are often focused on sectors, such as tech, health, or blue-chip, or around growth timelines, such as aggressive, moderate, or conservative.

ETFs can be more convenient, albeit less exciting, as they grant access to both domestic and overseas shares without additional tax considerations if they are based in Australia, but remove some of the fun of picking companies and putting yourself in the driver’s seat.

• Popular ETF providers in Australia include iShares (Blackrock) and Vanguard. Visit these companies' websites to find an ETF that suits you.

• Look for core ETF details such as what it’s investing in, its target market determination (TMD), the fund’s total value, its historical performance, and how long it’s been in the market.

All stock market investing carries risks, which is why you should look to invest with a timeline of at least a few years, rather than trying to time the market.

Investing overseas

When considering overseas investments, the dynamics become even more complex. Investing in international companies introduces additional factors such as foreign exchange risk. This risk arises because the value of your investment can be affected by fluctuations in currency exchange rates.

For example, if the Australian dollar strengthens against the currency of the country where your stock is based, your investment's value might decrease when converted back to AUD, even if the stock performs well in its local market.

Moreover, each international market has its own set of regulations, tax laws, trading hours, and economic factors that can influence stock performance. Before investing, it's crucial to understand these differences.

If the company is not domiciled in Australia, it’s likely you’ll have additional tax considerations in the country it’s based. In the United States, this might mean you need to fill out an IRS tax form every financial year. You will also need to pay capital gains tax in Australia, still.

When buying international shares, you will need to find a brokerage that allows you to do this. Keep in mind the costs may be higher if you are investing overseas.

For more information on buying international shares, it can be helpful to speak to a tax professional.

Find a Broker

Choosing the right broker is a critical step in your investment journey. A broker acts as your gateway to the stock market, providing the platform and tools needed to buy and sell shares.

There are two main types of brokers available to Australian investors: full-service brokers and online brokers. You’re most likely more familiar with online brokers, or have at least heard of some names if you’re reading this. Online brokers are a popular choice for investors who prefer to manage their portfolios independently.

A non-exhaustive list includes:

• Commsec

• NABtrade

• Westpac Online Investing

• CMC Markets

• SelfWealth

• Stake

• Superhero

• eToro

These online brokers offer a more cost-effective solution, with lower fees and the convenience of trading at your fingertips. They offer user-friendly interfaces, access to a wide range of markets, and educational resources to help you make informed decisions. But you’ll be, by and large, investing on your own.

On the other hand, full-service brokers offer a comprehensive suite of services, including personalised financial advice, detailed market research, and portfolio management.

These brokers are ideal for investors who prefer a hands-off approach or those who value expert guidance. However, the personalised service comes at a higher cost, with fees typically based on a percentage of your transaction value.

When selecting a broker, it's essential to consider factors beyond just fees. The ease of use of the trading platform is crucial, especially if you're new to investing. A platform with a clear, intuitive interface can make a significant difference in your trading experience. Additionally, consider the quality of customer service offered by the broker.

Responsive and knowledgeable support can be invaluable when you encounter issues or need assistance with your trades. Note that support staff probably can't give you financial advice.

What to look for in an online broker

• Brokerage Fees: These are standard fees per trade but can vary based on trade size and volume. Some brokers offer discounted rates for frequent traders. Standard rates for Australian trading typically amount to $5 to $20 per trade, with big banks generally more expensive.

• Minimum Investments: Many first investments carry a minimum order of AUD $500. This a regulatory requirement from the ASX. Be wary of brokers who do not have this minimum as you may not be actually investing directly in the stock!

• Account Fees: Most online brokers do not charge account fees, but some might have inactivity fees if the account is not used for a specific period.

• International Trading: The availability of international markets varies between brokers. Some may focus exclusively on certain markets (e.g., U.S. stocks). International trades could be more expensive or carry a currency conversion premium.

• Research Tools: The depth and breadth of research tools provided can vary significantly. Full-service brokers generally offer more comprehensive research options, while discount brokers may provide basic tools and data.

If you’ve found a broker, now it’s time to make an account and get ready to put your first order in. But there’s different types of orders to consider, which we'll get into later.

Setup an Account and Put Your Order In

Once you’ve chosen a broker, the next step is to set up your trading account. The setup process is straightforward and typically involves providing personal identification, linking your bank account, and agreeing to the broker’s terms and conditions.

Most brokers require you to verify your identity by submitting documents such as your driver’s license or passport, in compliance with Australian regulations.

After your account is set up, you're ready to place your first order. Understanding the different types of orders is crucial for executing trades that align with your investment strategy. Below are three of the most common.

Market Order

A market order is the simplest and most common type of order. When you place a market order, you instruct your broker to buy or sell a share immediately at the best available price. Market orders are typically executed quickly, making them suitable for trades where speed is more important than price precision.

As a beginner investor, it’s generally advised you stick to this one for your first trade until you become more comfortable with the process.

Limit Order

A limit order gives you more control over the price at which your trade is executed. With a limit order, you specify the maximum price you’re willing to pay when buying shares, or the minimum price you’re willing to accept when selling.

The order will only be executed if the market price reaches your specified limit. This type of order is ideal for situations where you believe the stock price might move in your favor but want to avoid paying too much or selling for too little.

Stop Order

A stop order is a tool often used to manage risk. This type of order becomes a market order once a specified price, known as the stop price, is reached. For example, if you own shares that have appreciated in value, you might place a stop order at a price slightly below the current market price. If the stock price falls to this level, the stop order triggers a sale, helping you to lock in your gains or minimise potential losses.

Ride the Ups and Downs

Investing in the stock market is inherently more volatile and risky than say, a savings account. Share prices fluctuate due to a myriad of factors, including economic indicators, company performance, and global events. It's essential to prepare for these ups and downs and develop a strategy to manage them effectively.

Avoid emotional investing and checking your portfolio everyday

It’s important to avoid making decisions based on short-term market movements or emotions. Emotional trading, such as panic selling during a market downturn or overenthusiastic buying during a bull run, can lead to poor investment outcomes.

Avoid checking your portfolio’s performance everyday. Minor dips and bumps can be expected, and your brain can blow them out of proportion. Instead, check casually once a week or even less.

Also avoid sticking a large amount of money in some minor sandalwood company your mate told you will go gangbusters. Be wary of penny stocks in general as they can experience huge fluctuations and small-cap companies are inherently more volatile.

Instead, focus on your long-term investment goals and stick to your plan. Market fluctuations are normal, and attempting to time the market can be more detrimental than beneficial. As the old saying goes it’s ‘Time in the market, not timing the market’.

Most investments should be invested with an outlook of holding onto them for at least a few years. Reconsider investing if you think you’ll need that cash for, say, a house deposit, in a year’s time.

Review your position periodically

Periodically reviewing your portfolio is another critical aspect of successful investing. Over time, your portfolio’s asset allocation may shift due to market movements. For instance, if one sector performs exceptionally well, it might represent a larger portion of your portfolio than originally intended, increasing your exposure to that sector's risks.

Rebalancing your portfolio involves adjusting your holdings to realign with your desired asset allocation, ensuring that your investment strategy remains on track.

In addition, as the years go on, your priorities might change. If you’re approaching retirement, you might favour a more conservative approach to investing. While you’re young, without a house, assets or kids, you might be able to take on more risk.

Staying informed is key to navigating market volatility. Regularly follow news and developments that could impact your investments. This includes global economic trends, geopolitical events, and sector-specific news.

For example, a change in government policy might affect a particular industry, leading to price movements in related stocks. Again, however, keep a ‘big picture’ view, and don’t be tempted to panic sell after your first downturn or market correction.

Keep in mind capital gains tax if you sell

Capital gains tax (CGT) is a tax applied to real gains - not just paper ones. This means if you cash out your position, you can expect to be taxed accordingly at the end of the financial year.

Your CGT rate is the same as your marginal income tax rate. So if you earned $70,000 in employment income and $5,000 in capital gains, you’d be taxed as if you’d earned $75,000.

However a 50% discount on the CGT applies if you’ve held the asset for 12 months or more. So, if you’ve held BHP shares - for example - for a year and you’ve made $5,000 in capital gains, you’d be taxed as if you’d earned $2,500.

Keep in mind CGT at tax time if you’ve cashed out your shares, and see a tax professional if you want advice relating to your personal situation.

Read more: Investing

Harrison Astbury

Editor and Financial Analyst

Harrison is InfoChoice's editor and market commentator. With years of experience at some of Australia's largest comparison sites and media organisations, Harrison is passionate about all things banking.

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