How to buy and sell shares in Australia
By far the most common way to buy and sell shares in Australia is on its share market, using either a broker or a stockbroking service.
You can also buy them through a prospectus when the shares hit the market, or buy them through a managed fund or an employee share scheme.
Using a broker
You can choose from an online broker, like Commsec or e*trade, which can involve you making your own decisions, or a full–service broker, who’ll advise and help you.
Online trading accounts have the lowest trading fees, usually around $20 to $30, and you’ll only pay these fees when you make a trade.
Full–service brokers charge for their services, but the advice can be invaluable as brokers must have a firm basis for their recommendations. Most brokerage fees are a percentage of the value of the trade and this percentage tends to drop as the trade size rises. There’s usually a minimum fee, however, no matter how small the trade is. Smaller trades usually incur 2.5 per cent while larger trades incur 0.1 per cent or so.
Buying shares directly
Companies sometimes offer new shares on the market to raise capital and this is known as a float or as an initial public offering (IPO).
You need to read the prospectus to help you to decide whether to invest in an IPO or not. The prospectus must be lodged with the Australian Securities and Investments Commission (ASIC) and must feature the vital details of the company and the IPO. There should also be the features of the securities, information on how to buy them and information on the company itself, its financial status and any risks involved.
How to read a prospectus – the checklist
Do you understand the sector or industry the company is in?
Who are its competitors and why does the company think it stands a chance?
Do you understand the financial statements and if there’s no profit showing, can you expect one? If you’re looking at startups, you’re taking a bigger risk.
What’s the P/E ratio? The price/earnings ratio of the company will help you to work out if the IPO is a fair price. The higher the P/E ratio, the higher the expected growth.
Is there a dividend in the pipeline and if so, when will it arrive?
What’s the company planning to do with the funds raised?
Does the company have all the requisite licences and permits to operate? If it doesn’t, when will it have them?
How much are the directors paid? Is it in line with what you’d expect in that industry? Do they have the right skills and experience? Check if any of them are on ASIC’s Banned and Disqualified register or if any have managed a failed company in recent years.
How much are independent advisers paid from the IPO money? If it’s more than 10 per cent, the company may not be receiving enough of the funds to operate or invest efficiently.
What are the risks involved? The risks detailed should be industry–specific, not just the vague reminder about shares going down as well as up. The more detailed the disclosures, the better.
Is the profit estimate realistic? If the company is in a thriving sector, then buying shares in it could lead to some great profits. Look at the time frames involved, as well as how much you’ll lose if the thinking is on the blue-sky side.
Buying through an employee share scheme
These schemes offer shares, or the chance to buy shares, in the company that they work for. These may come without a broker fee or at a discount, but these perks may come with restrictions on selling them in the future, so read the small print.
If you invest in a managed fund then your money is pooled together with other investors’ money. A professional fund manager buys shares for you all and attempts to outperform the market. This is great share trading for beginners, but it’ll come with fees, so make sure they’re not too steep.
Exchange traded fund
These funds, also known as ETFs, invest in a set of shares that comprise an index, such as the ASX 200 Index. Trading in ASX shares in this way lets you diversify your portfolio with a relatively small amount of money.
You can trade ETFs like any other share, and it’s cheaper than managed funds, but each contribution you make incurs a broker fee, so only invest amounts that will outstrip these fees.
Selling your shares
You may want to sell your shares at some point in the future.
If you hold your own shares directly then you can sell them by placing a trade online or by asking your broker to sell them for you for a fee.
Make sure you keep hold of a copy of the trade confirmation, whether it’s shares or units in a managed fund, for tax purposes.
Selling shares takes two days for the legal title of ownership to be exchanged, known as T+2. Once the settlement for the sale and transfer is complete, the money will be transferred into your account.
If you’re using a managed fund then you can sell your units within it, but make sure the withdrawal costs aren’t too high.
If you’re offered a buy–back
Occasionally, a company you have shares in will offer to buy back some or all of them from you. If you get such an offer, you can say no, but think about it first.
Ask why the company wants to do a buy–back
The company should send a document explaining why it wants to buy the shares. It may want to reduce its admin costs by buying back the smaller parcels of shares, for example.
Is it a good time?
You don’t have to sell, even if you feel bad about the company’s admin costs… However, if you were thinking about selling anyway, you can accept the offer readily as buy–backs won’t involve any broker fees for you.
You can compare online broking services at InfoChoice.
The information contained on this web site is general in nature and does not take into account your personal situation. You should consider whether the information is appropriate to your needs, and where appropriate, seek professional advice from a financial adviser. If you or someone you know is in financial stress, contact the National Debt Helpline on 1800 007 007.