Getting into the stock market as an Australian can certainly be an overwhelming decision to make. Many ask: How can I get into the Stock Market as an Australian investor?
The Australian Stock Market is also called ASX or Australian Securities Exchange or simply Australian Stock Exchange.
After all, you probably aren’t aware of too many individuals who have followed this particular financial path.
This is because around 75 percent of the Australian population has never invested in shares. However, if this is something that you are considering, then you have come to the right place. Below, you will find out all that you need to know about getting involved in the stock market, in Australia:
Understanding the Australian Stock Market
Now, the first thing you will need to do before getting into the stock market is to understand how the Australian operation works. To do this, you need to have a better grasp of the major stock exchange platforms. You will quickly realise that it is the Australian Securities Exchange (ASX) is the country’s primary market operator. You can see the markets live here.
It is presumed that over a million trades take place on this exchange every day and that it has a daily turnover of about $5.6 billion. ASX has over 2,200 listed companies on its exchange and it is regularly considered to be amongst the top exchanges in the world.
For the longest time, ASX was the sole player in the Australian stock market but this changed when Chi-X was introduced in 2008. This is an alternative, regulated exchange that offers slightly different services from ASX. Chi-X allows investors the opportunity to buy and sell shares from all of the companies that are listed on the ASX. In addition to this, you can also trade in their own Warrants markets.
However, the caveat is that you can trade with other ASX listed products such as ASX Warrants, XTBs, and ETFs. With Chi-X, the largest daily traded value is over $3.4 billion. It is estimated that around 500,000 trades take place on the exchange on a daily basis.
If this seems to complicated for you, here are a few more investment ideas.
How To Pick an Australian Trading Broker
You can’t get into the stock market as an Australian, unless you have a broker who can place the trades for you.
In Australia, you have two main options when trying to pick a broker – a full-service broker and non-advisory broker.
As the name suggests, full-service brokers are an all-inclusive package. For one thing, they assist you with a detailed financial plan, depending on your current circumstances.
They will also offer advice when you buy or sell securities. Furthermore, they will provide the necessary recommendations and share research that is relevant to your situation. There is a minimum deposit requirement on every broker.
Due to all of the services provided by such brokers, the cost involved is a great deal higher as well.
So, you can expect to pay a higher brokerage fee, around $120 or more, for each transaction.
Which Trading Broker to Choose?
Non-advisory brokers are simply used to place your trades on the exchange.
Therefore, they don’t offer you any other advantages and will not offer you any advice regarding any trades that you make with them. Since these brokers offer minimal services, their brokerage fee is much lower as well. For instance, here, you can expect to pay around $20 per transaction.
This option works for individuals who have already amassed a considerable amount of knowledge and experience in the stock market and don’t require any assistance. These days, most of the non-advisory brokers can be found online.
If you want to ensure that you are dealing with a regulated broker, then you should check that they are a ‘Participant’ of either ASX or Chi-X. You will then be able to be certain that the broker is regulated by these exchanges and sometimes, the Australian Securities and Investments Commission.
When trying to find an Australian broker, it is important to understand the distinction between a direct broker and the businesses that may be offering to buy or sell shares on your behalf. Understand, there are some agencies that will provide you with advice on how to place trades and will also give you the opportunity to place trades through them. However, if they aren’t a participant in a licensed market, then they can’t make direct trades. Instead, they have to contact a Participant and place your trade with them.
Australian Stock Market – Choosing Your Sectors
Another point that you will need to consider before buying or selling shares on an exchange is which sectors and companies to be involved in. To start with, let’s first discuss the sectors that are available for you to invest in. Currently, the ASX consists of 10 sectors that have been collected from 24 Industry Groups, 68 Industry Sub Groups, and 147 Sub Industry Groups.
In Australia, the sectors are
- Consumer Discretionary,
- Energy,
- Financials,
- Health Care,
- Industrials,
- Information Technology,
- Materials,
- Consumer Staples,
- Telecommunication,
- and Utilities.
When deciding which sectors to become involved in, it is best to stick to those that you are more familiar with and thus, will have an easier time understanding.
The reason that sectors can be so vital to your trading plan is because they can make it easier for you to become a successful investor. In short, one of the more effective trading methods involves identifying the market trend, figuring out what sectors are performing best, and then determining which stocks to invest in.
Pick The Best Sectors
Identifying the top-performing sectors is a rather straightforward process and can be done with the help of technical analysis.
In fact, selecting the best performing sector is virtually identical to figuring out which stocks are doing well. Of course, there are also a number of financial agencies and sources that will provide you with this information as well.
Over the last few years, the top performing sectors in Australia have been Energy, IT, Materials, Health Care, Consumer Staples, Consumer Discretionary, Property, and Industrials in that order. The ones that are performing the worst are Financials, Utilities, and Telecommunication, respectively.
The key thing to keep in mind when selecting sectors is the importance of diversifying your portfolio.
Here, to reduce the risk involved in the buying and selling of shares, you spread your capital across two or more sectors.
This way, should one sector be negatively impacted, you can still rely on the investments that you have made elsewhere.
Choosing Australian Company Shares to Buy or Sell
Once you have determined the sectors that you want to focus on, it is time to narrow the search down to the companies that you want to buy shares and stock in. To make the right decision, there are several factors that you will have to think about. This includes the interest rates in Australia, exchange rates, current, and future government policies, and investor sentiment. You should also consider how foreign markets and economies can also affect various businesses.
The two types of companies you will find in the stock market are referred to as blue-chip companies and speculative companies. The blue-chip companies are those that have already been well-established in the marketplace. They consistently perform well and tend to have less risk associated with them. Now, it is relatively simple to identify these companies. You can check the S&P/ASX 50 and S&P/ASX100 to see what the top 50 and top 100 companies in the country are.
The problem, of course, is that these companies’ share prices aren’t attainable for many people, especially those just entering the stock market. Since there is so much faith in the performance of these companies, they are quite sought after. If this isn’t an option for you, then you may want to think about trying your luck with speculative companies.
Speculative Companies on The Australian Stock Exchange
The speculative companies are those that haven’t been around for too long or who don’t have consistent financial performances to back them up. The main draw with these companies is that the share prices are more affordable and that there is always a chance of handsome returns. This, of course, is accompanied by a rather high level of risk as well.
Among the points to consider when choosing a company to buy shares from, you should think about the potential profit you acquire. This is because there are some companies that offer dividends while others simply provide you with the chance to buy their stock. There are others, still, that offer both opportunities.
You will notice that companies that feature higher up on the ASX list often provide investors with higher dividends. If you are someone who wants a regular income, buying shares and stock in these companies may pay off. Smaller companies are more likely to focus on the growth of the organisation and thus, will invest the profits in their own business. In such instances, you will not be paid dividends.
Education in the Australian Stock Market
Just because you have done your research doesn’t necessarily mean that you are ready to start buying or selling shares yet. There is still a lot of information and techniques that you need to be aware of. Especially if you decide to go with a non-advisory broker.
Fortunately, ASX has a large number of sources that you can check out if you are a beginner or simply eager to learn more. The main website offers everything from online courses to teaching you about brokers. In the online courses, you can learn how to buy and sell shares while also being educated about all aspects of an investment and trade.
There is still one more step to take, however, before joining the stock market. This is to first practice with a trading simulation. With these, you are able to buy and sell shares with virtual money, allowing you to get some much-needed experience. Once you have figured out the ins and outs of the process, you can then make the leap to real-world buying and selling.
How Shares are Taxed in Australia
You need to be informed of how the profits made from buying and selling your shares can be taxed by the Australian government. In the event that you buy and profitably sell your shares, then you will automatically incur the capital gains tax. This is because shares are considered to be an asset.
There is, nevertheless, a silver lining in this situation. If you sell your shares 12 months after you initially acquired them, then you can be afforded the concessional gains tax. This means that your payable capital gains tax is discounted by 50 percent. So, only half of the capital gains is actually added to your assessable income.
Since there is a chance that you will have experienced a capital loss rather than a gain, you will need to report the loss in your income tax return. In this situation, though, you can use the capital loss to reduce a capital gain that you have made. In certain instances, you may be able to carry the loss forward, if you haven’t produced any profits during that particular tax period.
If you are an Australian looking to get into the stock market, you will find all the relevant information in this article. Once you have gleaned the necessary details, it is simply a matter of putting your knowledge to the test. Of course, you should keep in mind that there is always a certain level of risk involved in investing and you should be careful how you buy stock.