The stockmarket allows you to buy and sell parts of the company that is on the stockmarket. The general aim of buying into that company is, you think it will increase in value and so will your stock value within the stockmarket.

Share investing is accessible to almost anyone: individuals, superannuation funds, companies, institutions, and large offshore investors.

Buying and selling shares isn’t exactly like going to the shops and buying bread and milk.

Firstly, you’ll need to open an account with a stockbroker, such as Trade For Good. The stockbroker will act as your agent to the Australian Stockmarket Exchange and are responsible for making your transaction to buy or sell a stock happen and arranging electronic settlement or payment.

You can start investing with as little as $500. This is the minimum amount you can initially purchase in any listed company. Share prices vary greatly, from over $200 a share to just a few cents. Accordingly, the number of shares in any company you buy depends on how much you have to invest and its share price. You’ll also need to pay brokerage or the transaction fee (i.e. a fee to the broker) on each share transaction.

Studying various brokers and how they stack up not only on price but also other features, products, and services of interest to you. For online trades, Trade For Good charges brokerage at $19.80 for transactions up to $ 17,147 in value; then $19.80 + 0.110%. Check the Comparison table below to see how we compare.

The ASX runs an electronic trading platform where brokers lodge orders to buy or sell shares. Each listed company has its own unique stock code, which is usually three letters in length. e.g. Telstra stock code is ‘TLS.

A trade occurs when a buyer’s price (known as a “bid”) and a seller’s price (known as an “offer”) overlap. If the bid price on Telstra is $2 and the seller’s offer price is $2.20, then nothing happens. If they match, that stock is sold.

When placing a trade there can be several bids or offers at the same price. When the bid price matches with the offer price, then an order is made and the quantity of the trade size is done.

Now when prices overlap and orders are traded, the earliest order has priority over the next earliest(higher priority on the list of buyers or sellers on that particular price) and is filled in full before the next order is allocated any shares.

The number of buyers and sellers for a security at any time is called market depth.

Watch the video below for more information on market depth and how it works.

Following the transaction, you’ll be sent a contract note from Morrison Securities(they are the broker for Trade For Good) confirming the details of the transaction and settlement details.

In Australia, shares settle on a “transaction date plus 2 working days’ basis” (“T+2”), meaning that settlement occurs 2 working days after the transaction date. So, if you trade on a Tuesday, settlement occurs on Thursday.

This when the settlement date, buyers pay the proceeds (via their brokers, and their bank accounts are debited), while sellers receive the proceeds. The good part is, if you are selling, the funds generated from the sale, will be available within the software for immediate use of other buys.

The register of shareholders is updated to record the details of the new owner, you will receive a letter from the listed companies stock transfer company within a few weeks.

The ASX is open every working day except for national public holidays.

The market opens each working day at 10am (EDST) and closes each day around 4.10pm (EDST). You can still place, amend or cancel orders outside of these hours, they just won’t update until the next trading day.

After you complete your first trade, you’ll receive a contract note from your broker, a CHESS holding statement from the ASX, and a welcome pack from the company. The latter will invite you to provide(if your broker hasn’t already passed them on):

• details of a bank account for any dividend payments;
• your tax file number or exemption (which is not compulsory); and
• communication preferences for receiving notices, annual reports, and other information from the company.
• If the company operates a dividend reinvestment plan, you’ll also receive information on the plan and how you can elect to participate.

As a shareholder, you’ll be entitled to attend the company’s annual general meeting (and any general meetings) and vote on resolutions, including the election of directors and the remuneration arrangements for key officers. You can also receive a copy of the company’s annual report and other important information.

Most investment experts agree that while there’s no right or wrong way to invest, it’s best to have a mix of the different asset categories, such as shares or property, and they being diversified within that category. The reason for this is that one asset category rarely consistently performs better than all others and that when blended together there is a better chance of a higher return overall, with reduced risk.

Shares are considered to be a “growth” asset, meaning that a large part of the total return should be generated from an increase in their value. While the other part of the return is income through the payment of dividends.

Note that it hasn’t always been plain sailing for the Aussie share market, with crashes including the 1987 Black Monday crash; the dotcom bust of 2000; the global financial crisis in 2008-09, and the Covid pandemic in 2020. Importantly, the market has recovered on each occasion.

Shares can be more volatile in the short term than other asset classes such as bonds, cash, and sometimes property. Typically, shares will perform better than cash over the medium term and should deliver a positive “real” return, that is, higher than inflation. Even in a bad year, some companies will deliver outstanding performance for their shareholders. And in really good years, not all companies will deliver positive returns.

Along with the potential for high returns over the medium term, shares offer several advantages compared to other asset classes:

• You can invest as little as $500 in one company to get started. You don’t have to be a millionaire to be a share market investor, and while transaction costs will need to be considered, it doesn’t take too much to build a diversified portfolio of stocks;
• Most shares are liquid, which means that they’re easy to sell and you’ll receive your funds within two business days.
• Transaction costs are also relatively low. For Trade For Good charges brokerage at $19.80 for transactions up to $ 17,147 in value; then $19.80 + 0.110%. Check the Comparison table below to see how we compare.
• You can see exactly what your shares are worth with live pricing, so you will be able to see how your portfolio is tracking; and
• For Australian shares (dividends), you may be entitled to franking credits depending on the dividends. This may offset tax payable on your tax return.

What are the disadvantages:

• The main disadvantage is that as higher-risk assets, you can lose your capital. There can be quite a lot of risk relating to an individual company and that’s why investors usually maintain a portfolio of different shares to diversify this risk;
• Volatility risk, that is the market taking a sudden dive and dropping quickly. This is much harder to manage. We do offer free tools with the IRESS Viewpoint software, where you can set stop losses, where if a stock drop 20% it will place an order into the market to sell the stock and minimize the downturn.

The return on your purchase, being the dividends, you would expect companies to increase their dividends over time, there is the risk that companies will cut or eliminate their payments due to various factors.

When companies make a profit, they will typically return part of their profit to their shareholders through the payment of a dividend. The dividend is usually paid twice yearly.

Not all companies make a profit so they don’t pay a dividend. Others choose not to pay a dividend because they want to re-invest the profit in growing the company. The majority do pay a dividend – but will usually retain some of the profits to re-invest in the company.

If you buy shares in a company and sell those shares for a profit, you’ll potentially have to pay capital gains tax. You’ll be taxed at your marginal tax rate on the difference between what you sold the shares for and what you paid for them.

However, Individual investors who have owned the shares for more than 12 months are eligible for a discount of 50%, meaning that they only pay tax on half the gain. Superannuation funds get a one-third discount, while company shareholders aren’t eligible at all. Capital losses can be used to offset capital gains, and if not applied, can be carried forward to the following tax year.

Like interest on a bank account or from a term deposit, dividends are taxable. If the dividend is “franked”, this means that the company has paid tax to the Australian Taxation Office (ATO) and the attached franking credits (also called imputation credits) can be applied by the shareholder as a tax offset. If the dividend is “unfranked”, there aren’t any franking credits.

Whether it is the prospect of high returns, the potential benefits of franked dividends, or liquidity, there are good reasons to invest in shares. And with low transaction sizes and costs, it is relatively easy to build a diversified portfolio of shares.