Introduction to Buying Shares Online

If you love a bargain, now may be the best time snag a bargain buying shares. And buying shares has never been easier – shares can be bought and sold at the click of the mouse and in the comfort of your own home. If you are unfamiliar with the process, then here is an outline of how to go about buying shares online.

1. Choosing an online stockbroker

To trade in shares you need a stockbroker or a brokerage service.

There are many options available when choosing an stockbroker. Firstly, you need to choose the level of service that you want your stockbroker to provide. A full service stockbroker or financial planner will not only buy and sell on you behalf, they will offer advice, investment recommendations, investment plans and retirement planning as well as have available research on various investment options.

Alternatively, you could choose a non-advisory or online discount trading service that will buy and sell on your behalf, but will not offer any investment advice. However, many non-advisory services have research tools available free of charge to enable you to make more informed investment decisions. They offer “live” stock quotes, charts, indicators and market commentaries.  Some offer investment options in managed funds.

The up-side to an online non-advisory service is that the fees are much lower than full service stockbrokerage. If you are comfortable in making investment decisions yourself, a non-advisory service is the cost affective alternative.

Many banks offer online non-advisory online trading services. If you already have a bank account, then signing up for an online share trading account is just a matter of filling out a few forms – and it’s usually free to sign up. Banks often offer both a discount service and a premium service at a cost. Before signing up for any online trading account, compare brokerage fees, services are on offer and recommendations, so that you choose the best service for your circumstances at the best price.

2. Set up your online account

To get started, you will need to set up an account. This will be a matter of filling out an online form with your personal details. You will also need to establish a cash account or direct debit or credit facility with your bank account. If you choose to use your own bank’s online trading facility, then your trading account will be linked with one of your bank accounts.

When you set up an account, you will usually be registered with the Clearing House Electronic Sub-Register System (CHESS) and given a personal holder identification number. This is the ASX’s central register for electronic transfer of share ownership. Basically it keeps a track of who owns what – you don’t need to do anything with this, it’s all done for you.

Once all the paperwork is completed, you’re ready to go.

3. Decide which shares to buy

This is the hardest part of the process. How to choose shares is beyond the scope of this article, but it is obviously the most important part of the process. If you have chosen to go with a non-advisory service, check out the resources below to help you with choosing which companies to invest in.

4. Place your order

To place your order you will need to know the three letter ASX code for your company. For instance, Woolworths’ ASX code is WOW. Usually your trading screen will have a look up tool to find out the code for your company, otherwise, have a look at the ASX website.

Secondly, you will have to tell your broker how many shares that you want. If you have $1,000 to invest and want to buy into XYZ company who’s share price is $4.36 then you can afford to purchase 229 shares. Your trading account will provide you with a calculator to work all this out for you. Don’t forget though, to factor in brokerage costs. The cost of brokerage will vary depending on your stockbroking provider, possibly around the $15 – $30 mark for a discount service.

Finally, you will have to specify whether you want to purchase the shares “at market” which means you will accept the price at or about the current market price of your shares, at the time you are placing your order; or “at limit” which means you indicate the highest price you are willing to pay for the shares. If you select at limit, you will need to also specify whether this is trade good for a day or good until cancelled.

5. Ensure that the funds are available to fill the order and cover the cost of brokerage fees.

When you place your order, you will need to ensure that there are enough funds available in the specified bank account to be able to fulfil the order. Some brokerage services will not go through with the order until the funds are cleared. Again, don’t forget to factor in brokerage costs. Prior to placing your order, your online service will show you a summary preview of the order including all brokerage costs.

When the order has been filled, you will receive a CHESS statement of ownership confirming how many shares you own and in which company.

6. Keep good records

It is essential to keep your trading records safe and in order. When it comes to tax time, too much information is better than not enough. You will need to keep records of any dividends received and all information regarding the purchase and sale of shares for tax purposes. Brokerage fees are tax deductible, so you will want to keep records of these too. Speak to your accountant regarding any other deductions that are available, and information they might need to do your tax.

Free Online Tools and Information

ASX – The Australian Stock Exchange website has up to date share prices, plus a whole range of information and services.

Australian Financial Review – Online newspaper (or read it in print) for share information, indicators, stock tables and general financial information.

MSN Australia Money – Shares and Funds for current and historical data on shares, company information, financial ratios and other information.

For learning how to invest in the share market ASX offers free Online courses on just about everything to do with investing in the stock market. ASX also offer classes and books. Participating in the ASX share market game is a good (free) way to get your feet wet when it comes to trading shares, without putting a cent in the market – and there is prize money for the winner.

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