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A beginner’s guide to buying shares

Wall Street

You've decided you want to start investing. But how do you start?

The stock market is an often confusing place that's riddled with jargon. But once you know the basics, you can get started easily.

If you're looking for a beginners guide to the stock market, you've certainly come to the right place. Maureen Jordan from Tilly Money has answered all the questions we had about getting started and exactly how to buy shares.

 

How do I go about buying shares in a company?

Buying shares is a pretty simple process. First up, you’ll need to open an account with a stockbroker. There are lots of these online brokers around now but the two biggest Australian online brokers are nabtrade and CommSec.

Is buying share online the best way?

You can use a real person like people did before these online sites became so popular, but that will cost you a lot, though there are benefits too. Buying online is cheap and efficient.

 

So, what does a stockbroker do?

Whether you use these online brokers or a traditional stockbroking firm, a stockbroker acts as your agent. They make your transaction to buy (or sell) a stock happen and they arrange the electronic settlement or payment.

 

How much money do I need to start buying stocks?

You can start investing with as little as $500. This is the minimum amount of shares you can initially buy in any company that’s listed on the Australian Stock Exchange. Share prices vary enormously, from over $200 a share, to as low as a fraction of a cent. Therefore, the number of shares in any company you buy depends on how much money you have to invest and its share price. Of course, you’ll need to pay brokerage (i.e. a fee to the broker) on each share transaction.

 

How much do these online brokers cost?

Nabtrade charges brokerage at a flat rate of $14.95 for transactions up to $5,000 in value; $19.95 for transactions from $5,001 to $20,000 in value; and 0.11% of the value if it’s over $20,000. There’s no stamp duty or any other transaction costs.

 

How do shares trade?

The Australian Stock Exchange (ASX) runs an electronic trading platform where brokers (say nabtrade or Commsec) lodge orders to buy or sell shares. Each listed company has a unique stock code, which is usually three letters. For example, Telstra’s code is ‘TLS’, Commonwealth Bank’s is ‘CBA’ and Afterpay’s is ‘APT’. Another name for this stock code is the “ticker”.

 

How do I know that I’ve bought a stock?

It’s just like any marketplace. 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 is $2 and the seller’s offer price is $2.20, then nothing happens. There’s no trade. However if the bid and the offer do match, that stock is sold — to you!

So there you have it. You now own a piece of the company that you’ve bought shares in! Now it’s time to learn even more about what you’ve bought. And if it’s a quality company (you should only buy shares in quality companies!), then watch your investment grow over time.

 

Important: This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. Consider the appropriateness of the information in regard to your circumstances.

 

Head to Tilly Money for more stories on financial literacy. Or read more from Tilly Money here like how to gather your work from home tax deductions or what you need to know about the 2020 recession.