How to Buy Shares in Australia

Have you thought about trading shares in the Australian market?

If so, several significant factors suggest your head is in the right place. ✅

Australia boasts the world’s 13th largest economy, and also holds the record for the longest uninterrupted stretch of GDP growth. With an abundance of natural resources and an educated workforce, the future of the Australian economy seems bright.

Australia also has a thriving financial sector—the country’s primary stock exchange, the ASX, currently lists 2,258 companies, which have a combined market cap of A$2,153 trillion. Australia’s share market is dynamic and full of opportunity—combined with the country’s solid economic forecasts, it’s no wonder that you’re interested in investing.

And you’re far from the only one—a new generation of investors, many of them self-taught, is entering the market—and despite the COVID19 pandemic, investor confidence is high. Although it may not look like it at first glance, now is as good a time as any to start trading shares.

But it can be difficult to make heads or tails of the financial world—especially if you haven’t been exposed to it before. Shares, brokerages, taxes, HINS—it’s enough to make your head spin. However, you’re not alone—we’re going to break up that jumbled mass of information into easy to understand sections that clear everything up. You’ll know how to buy shares in no time.

We’re also going to include some helpful tips that will make that information even more actionable—how to choose a stockbroker, what types of investing there are, and what to look out for when trading stocks. So, let’s get down to it.

How Australian Shares Work 🇦🇺

A share is a small unit of ownership in a company. If you own a company’s shares, you own a (small) part of that company.

Each share has a certain price—the price that you’ll have to pay if you want to purchase it. However, this isn’t indicative of how much the share is actually worth—it is only a reflection of how much people are prepared to pay for it.

These shares can then go on to become worth more money, allowing you to sell them for a profit. Owning shares also gives you the right to receive dividends and vote in a company’s annual meetings. To cut to the chase, in the simplest of terms, the goal of trading shares is to buy stocks that will appreciate (increase) in price, so that you can sell them later for a profit.

In Australia’s case, the companies you can trade are registered in the country and they are listed on the Australian Stock Exchange (ASX). So far, investing in this market has been very profitable, considering the 200 most popular countries (ASX 200) have grown by over 50% in value since 2012, even after you factor in the coronavirus crash.

Can You Actually Make Money Trading Shares? 💡

The basic idea behind investing in shares is pretty simple—you buy a share, and if you’ve made the right call, it will become more valuable over time—at which point you sell it and pocket the profits. 

Say for example that you decide to buy a certain amount of shares of Kogan (KGN), RedBubble (RBL), and Zip.Co (Z1C). If you’ve made the right choice, these companies will continue to grow, expand, and have bigger earnings. This means that more people will want to buy shares in these companies—this drives the price of their shares up, and allows you to sell them for a higher price than what you purchased them for.

You buy a share for AUD $100, it grows by 20%, you sell it for AUD $120 a few years later—that’s a profit of 20 bucks. Now this might not seem impressive, but if you own a bunch of stocks that grow at a rate of 10% per year (which is not unusual), AUD $20,000 will become more than AUD $1 million in 40 years—which is why retirement funds buy stocks.

Different Approaches to Australian Shares 📈

There are many approaches to investing. What we’ve described above is most akin to long-term, buy-and-hold investing. This is a solid strategy, and perhaps the most common approach to investing—and with good reason, as it has stood the test of time.

But it is far from the only one. Investing strategies are quite diverse—some focus on the long term, some focus on the short term, like day trading. Certain strategies focus on capital appreciation or the growth in the value of shares, while others focus on investing in dividends—therefore netting you a passive income.

And while we’ll be focusing on shares today, there are a lot of other securities out there. ETFs, mutual funds, and bonds aren’t the topic of today’s guide—but they will inevitably play a part in your investment strategy.

How to Start Trading Shares in Australia 🦘

First of all, you’re going to have to choose a stockbroker. You can buy shares directly, without a broker, but it isn’t worth the hassle. We’ll go into greater detail about how you should select a broker in a later section—for now, let’s just sketch out the process.

Next, you’ll have to sign up for an account. In the majority of cases, signing up is free—although monthly subscriptions and other fees may apply later on. Nowadays, the process of signing up can often be completed from start to finish entirely online. 

Depending on the broker in question, the approval process for an account can take minutes, or even a couple of weeks at the other end of the spectrum.

You’ll need to submit some information during the signup process—specifically:

• Your name
• Address
• Date of birth
• Contact details
• Your tax file number (TFN)
• ID
• Bank account details

Educating Yourself about Investing in the ASX 👨‍🏫

Once that is taken care of, you’ll be ready to trade. The ASX is open from 10am to 4pm (AEST) Monday to Friday. But you shouldn’t just jump right into it. Take the time to educate yourself about the share market and investing. Set a concrete goal, figure out how much you can realistically invest, and be honest with yourself about your risk tolerance. 

Take the time out to figure out a strategy. If you’re a beginner, stick to long-term, buy-and-hold investing at first—it will give you fundamental knowledge that you’ll need down the line without exposing you to too much risk.

The Australian Securities Exchange (ASX) requires you to invest at least $500 when first purchasing a company’s shares. Subsequent purchases don’t fall under any minimum investment requirement, but this piece of information will have a crucial impact on your plans to diversify.

And you should diversify—start off with companies that are in industries that you’re familiar with, but branch out into different sectors as you go along. This will help safeguard your investments from risks.

Over time, you’ll become more familiar with other securities, such as ETFs, mutual funds, and bonds—and you should definitely branch out in that regard as well. If you diversify properly, when disaster strikes—as it has for the ASX in January, you will fare much better than most. And on the flip side, when times are good and the ASX is performing great (like it is now), it’s impossible to predict which sectors will see the biggest growth.

Always keep on learning—the market is incredibly complex and dynamic, but with patience and effort, you can have a much better idea of what is going on. Learning how to properly research stocks and familiarizing yourself with technical and fundamental analysis will make you a much more competent investor.

How Brokers Help Australian Investors 🎯

All of this talk of stock brokers might be confusing if you’re not familiar with the terminology. So, what does a stock broker actually do?

The first important thing to note is that when we say stock broker, we’re not referring to an individual—we’re talking about brokerages, which are companies. Seeing as how human stock brokers have fallen out of style, whenever you hear stock broker, people are talking about companies in 99% of the cases.

Stock brokerages operate as market makers—basically, they connect buyers and sellers.

The role of a broker is to be a link between an investor and a securities exchange. But that is a bit reductive—nowadays, brokers generally offer a wide array of services—from money management, robo-advisors, to personal investment advice, mobile apps for investing, and their own financial products.

Brokers are generally divided into two categories—full-service brokers and discount brokers. 

Full-service brokers offer a variety of services, but they generally charge a commission on executing each trade, making them more expensive—and they also have higher minimum investment requirements.

On the other hand, popular discount brokers don’t offer financial advice and other services, but they are much more accessible and affordable—and, provided you commit to educating yourself on investing, they can be just as effective.

How to Pick the Right Australian Broker 👇

Picking the right broker is incredibly important. Although opening an account and getting started is easy, once you do get started, switching brokers can be a real pain. Getting it right on the first try is worth the extra hassle.

To jump directly into it, eToro and Interactive Brokers are two of the most popular brokers in Australia. Interactive Brokers has powerful tools available, making it preferred among experienced traders. New traders prefer eToro, due to its CopyTrading feature, which allows you to copy the trades of professionals—very easily.

That requires some research, as well as knowing what to look for—but thankfully, we’ve got you covered on both fronts. So let’s take a look at the most important factors that make a top-notch stock broker.

Price and ASIC Regulation 👨‍⚖️

When it comes to investing, safety is paramount. People invest for a variety of reasons—but be it a new car, house, or retirement plans—that money is important. Unfortunately, the world of investing is not immune to scams and bad-faith actors—so you’ll have to make sure you find a reliable broker.

How do you do that? It’s simple—make sure that the brokerage in question is registered with the appropriate regulatory bodies. In the case of Australia, that would be the ASIC—the Australian Securities and Investments Commission.

After you’ve checked that the brokerage is legitimate, read reviews, look for any past mishaps—and once you’ve informed yourself this way, you’ll know whether or not a certain broker is trustworthy.

Price is also an important factor to consider. Pick a broker that is within your budget—brokerages charge a variety of fees, and there is no one-size-fits-all standardized pattern to their fee structure. When comparing brokers, do a deep dive on what fees they charge, and how expensive they are.

Full Access to ASX and Other Markets 🏛

This article deals with buying shares—and while stocks are the best place to start with when it comes to investing, and they certainly have a role to play in any portfolio worth its salt, it is highly unlikely that you’ll end up with a portfolio that consists only of shares down the line.

As you progress on your investing journey, you’ll learn more about different types of securities—and ETFs, mutual funds, penny stocks, bonds, and other investment vehicles will certainly play a part in your strategy to some degree. With the advent of cryptocurrency, this topic is all the more important—and some brokers, like eToro, already offer cryptocurrency trading.

How wide of a selection of investment opportunities a broker offers is important. You’ll want to pay proper attention to this on time—switching brokers down the line can be quite a hassle. 

While you might not be thinking about other securities now, trust us—you inevitably will at some point. The range of investment opportunities offered is the biggest priority, right after safety and price when it comes to picking a broker.

Platform and Usability 🖥

If what a brokerage offers is secure, fits your budget, and offers a wide enough array of investment opportunities, the next thing that you’ll want to look at is the user experience.

Brokerages generally offer a mix of three types of platforms—desktop platforms, online platforms, and mobile apps. These can vary wildly in complexity and scope—so doing your research ahead of time is well worth the trouble. Finding a good brokerage for beginners is crucial if you’re a novice.

Platforms differ with regard to how user-friendly and well-designed they are, as well as how complex the charting and research tools they offer are. A more complex platform can give you plenty of room to grow as an investor if you have the necessary commitment.

While plenty of brokerages offer the tried-and-tested MT4 and MT5 platforms, in recent years, a lot of brokerages have decided to develop their own proprietary platforms. It’s impossible to overstate the importance of a broker’s platform—it is the lens through which you will look at the world of investing.

Thankfully, as most brokerages nowadays offer demo accounts, you can try various platforms out, dip your toes in the water so to speak, without committing. We strongly suggest opening a demo account with any broker that you’re interested in before you decide to take the plunge.

Another area that you should pay attention to is the broker’s mobile app. In today’s fast-paced world, responsiveness is everything. Even if you choose to be a long-term, buy-and-hold investor, having easy access to your brokerage of choice is a big advantage—one that you shouldn’t ignore.

Customer Support 🤝

Last but certainly not least, pay heed to what the current clients of a brokerage have to say about its customer support. No one wants to deal with customer support—in an ideal world, we wouldn’t have to—but sooner or later, an occasion arises when you want to talk to your broker about certain issues.

A helpful, professional, and responsive customer support team will go a long way in both calming your nerves and saving you money. You shouldn’t expect that your investment journey will be smooth sailing—so make sure to pay attention to a brokerage’s customer support offering.

How often are they available? Can the CS team be reached by email, live chat, phone, or all of the above? All of these are important questions that you should take into consideration before making a final choice.

How to Learn about Trading Shares in Australia 🎓

Trading stocks is a skill—and like any other skill, it requires knowledge and practice. So, where do you begin? Luckily, the entire thing isn’t as daunting as it may appear at first glance.

The internet is chock-full of educational material relating to the stock market. Some of that is quite solid stuff that is grounded in facts, but picking apart good sources from bad and unproven ones can be a chore.

A much easier way to start off your investing education journey is with your broker of choice, actually. Most brokerages offer a wide variety of educational materials that are well-produced, researched, and that will help you make sense of the basics and fundamentals.

Of course, not all brokerages are the same in this regard. Some put a specific emphasis on education, with enough material to last you from your novice years well into being an experienced investor. 

If education is something that is a priority for you, make sure to pay extra attention to what reviews say about the broker in question in that regard.

Of course, as we said, you shouldn’t discard other sources either. Thanks to the internet, a wide variety of books, podcasts, webinars, courses, and extensive stock trading guides are available—all of which you should look into.

Last but certainly not least, we come to the topic of demo accounts. Demo accounts, also commonly referred to as paper trading accounts allow you to trade with virtual or “paper” money. This allows you to take a crack at the stock market, test out strategies, and generally figure out where you stand without the risks of trading actually being involved.

We strongly advise you to start off with a paper trading account. Most brokerages offer them, and they allow you to experience a faithful recreation of the stock trading experience without exposing yourself to risk.

The benefits of this are hard to overstate—getting acquainted with how things work before taking the plunge could end up saving you a lot of grief, as well as a lot of money.

What Are the Taxes on Trading Shares in Australia? 💸

You will have to pay taxes on any gains that you’ve accrued via trading shares. This also applies to dividends, which will be included as a part of your taxable income when it comes time to pay up.

So, how much tax will you have to pay for capital gains? Well, it depends—but we’re gonna explain it as simply as we can, so you know how much of your dollars will go to the Australian government.

The profits that you make by selling shares are only counted for the financial year in which you sell them. The table above shows what % of your profits you will have to pay as tax.

There is a very important note to make, however. If you hold a share for more than a year, these percentages still apply—but you only pay tax on half of the profits that you’ve earned. In a very real sense, Australia’s tax regulations favor long-term, buy-and-hold approaches to investing in the stock market.

What Are the Day Trading Rules in Australia? ☀️

There are no specific day trading rules within Australia’s regulatory framework. There is no set minimum required to begin day trading, although you will need to meet a minimum investment requirement in order to access margin, without which day trading is practically impossible.

Keep in mind, however, that pattern day trading rules apply to any brokerage that is regulated by FINRA—meaning that they apply to quite a lot of the top international day trading brokers available in Australia.

Non-residents and Taxation 🌏

Non-residents are exempt from paying the capital gains tax, excluding taxable Australian property—a category that includes real estate, mining, and a couple of other categories. However, non-residents will be subject to the non-resident withholding tax.

What to Look for When Trading ASX Stocks 🔎

Investing in stocks is a complicated topic—and we can’t give you all the ins and outs of it here. We can (and will), however, give you a few key pointers that hold true no matter what.

Trying to find stocks that are undervalued is the best route to take, though it’s certainly challenging. It’s easy enough to follow the herd—but just buying shares of Tesla won’t cut it. If you’re following someone else, chances are that you are already late to the party—and such risky investment trends like the GME buying spree can be disastrous.

We all know a great opportunity when we see it—but there’s little profit to be made there. Instead, focus on companies that have solid long-term prospects, good management, and products that you believe in—companies that you think will stand the test of time, no matter what the current share price might be. Focus on the fundamentals—companies that exhibit strong fundamentals are much more likely to survive stock market bubbles.

An old adage says that you should write what you know—you should invest in what you know too. If you’re familiar with an industry or with a specific company, you automatically have an advantage that is significant and clear—you know how it operates, how it makes money, and what its products are like.

Diversify your assets. Diversification is treated as a buzzword nowadays—but the underlying principle is no less valid. Don’t bundle up all of your investments in one company, one industry, one country, or even one continent. 

The market is unpredictable, even chaotic at times—and when disaster and recession strike, you don’t want all of your investments to fall like dominoes. Diversify across the board—across industries, continents, and asset classes as well.

How to Successfully Trade Shares ✅

Trading shares is risky. Don’t invest money that you don’t have or money that you’re not prepared to lose. Don’t overextend yourself—taking care of debt comes first, and you should always keep at least a few months’ worth of savings if things go belly up.

While short-term strategies do exist and can work under the right circumstances, a vast majority of investors will want to commit a significant portion of their portfolio to long-term, buy-and-hold investing. When you translate that to plain English, it sounds like this—you won’t see most of the money that you invest for at least five years.

Focus on a specific goal. Do you want to save up for retirement? Perhaps invest in the rising real-estate market, or maybe buy a new car?

Investing is a numbers game—figure out how much money you want to make, and how much time you have to make it. Once you know that, you can tailor your approach—along with the risks that you’re willing to undertake.

And most importantly, don’t panic—and don’t panic sell. Recessions and economic downturns happen—this is just a fact of life.

For example, Zip Co had a huge drop in price after a long winning streak—does this mean you should sell your shares? No—looking at the bigger picture, the market as a whole is profitable in the long run, and so are companies who have shown they can grow. 

We know it can be nerve-wracking and stressful—but if you can resist the urge to sell when everyone else is selling, you might make an incredible comeback. The natural response to recessions is to think about cutting your losses—but if you’ve invested in companies that have real value, you’ll just be cutting your future gains instead.