To invest in shares on the ASX, you will need to find a broker that can help you access the stock market. The process can be simple or hard, depending on your level of understanding of stock markets. We have outlined two easy steps for you to follow to buy shares on the ASX.
Step 1 – Finding A Broker
There are many brokers selling many products out there, but did you know a lot of them are just traps? Finding the right broker to invest in shares is essential and cheapest isn’t always the best. Like most things, you generally get what you pay for. You want to find a balance between a fair price and good service so that you get value for money. Brokerage is not the only cost you will bear when trading, poor execution, slippage and unscrupulous operators will all cost you more money in the stock market than fees in the long run.
What Broker Should You Choose To Buy Shares?
We recommend three brokers if you are looking to invest in shares on the ASX, depending on what you want are looking for. Always use a mainstream broker, to ensure that you are dealing with a reputable firm that will operate in your best interest.
Always remember, cheapest isn’t best and you get what you pay for. You will find this particularly true when markets crash and things go haywire – you don’t want your broker to collapse, their platform to not respond or their support team to ignore you when times are bad.
Finally, you can open an account directly with these online brokers but it is a massive hassle to do so. You will require certified copies of identification, trust documents, sign and fill multiple documents that are generally more than 30 pages long and so forth with no help at all.
Many of our clients open accounts through us because we help you get everything sorted and opened with the least hassle to you. We open hundreds of these accounts so we know all the tricks to open them as quickly and efficiently as possible. All you have to do is double check and sign.
CMC Markets – CMC Markets has just built a new best-in-class platform and their rates are quite good. CMC just bought ANZ eTrade and for a retail broker, probably has the best equities and options execution around. If you require a HIN solution, we recommend CMC first and foremost. The majority of our clients currently execute through CMC so contact us and we can help you get a new account opened.
Usability: 5-stars, Cost: 4-stars, Options: 5-stars
CommSec – Even though CommSec is not the cheapest broker around, they have a great platform and some good basic research to get you started. Their service is second to none and there are no additional fees for accessing their platforms. If you require a HIN solution, where your holdings are individually under your name, then CommSec is the broker to go to. They are good for Australian equities and options. However, their options setup is a bit clunky so we recommend clients go to CMC Markets for options execution first.
Usability: 5-stars, Cost: 3-stars, Options: 3-stars
Interactive Brokers – Interactive Brokers is hands down the cheapest platform in Australia and one of the largest online brokers in the world. Their platform allows you to access almost every market in the world as well as almost any type of derivative you can think of and has some of the best rates around.
However, their platform is not user-friendly and quite hard to use and easy to make mistakes on. They also have an archaic way of randomly closing your positions without much warning if you breach any of their margin rules. You can also expect to wait up to 20 minutes or more to get through to support and if something is broken on the platform, it can take weeks to fix or not at all.
Due to their ability to access world markets, Interactive Brokers is set up under a custodial structure – this means that assets are held in trust for you by IB’s prime broker, but money and assets are still segregated. You can read more about the pros and cons here. Their worldwide access also means that opening one of these accounts will be one of the hardest things you will do in your life due to regulation and so forth, so definitely contact us to get one of these open.
Usability: 1-star, Cost: 5-stars, Options: 5-stars
Pro-tip: Do not use non-mainstream providers such as CFD or FX brokers or other small brokers to invest in shares. It is very expensive to run a broker and requires significant investment to do it properly. Non-mainstream providers cut corners and the worst of them are bucket shops that don’t trade in a real market and either trade against you or at risk of collapse. You get what you pay for.
If you have the time and don’t mind filling out pages of forms, then you can open an account directly with one of these brokers. If you have better things to do with your time, contact us and we will get CMC Markets, CommSec or Interactive Brokers account opened for you.
What Level Of Service Do You Need?
Secondly, you need to ask yourself how much experience do you have with buying shares. Can you answer all these questions with 100% accuracy?
- Do you buy from the bid or from the offer?
- What is the spread, bid and offer and how come you can’t execute at the last price?
- What happens if there isn’t enough volume at the bid?
- What happens when you submit a market order versus a limit order?
- How do you get half a cent better execution by placing an order at centrepoint?
- How do you place an order so that you get filled on the opening print in the morning match?
- What is the morning and afternoon match?
- What is liquidity and why is it important when making a fill?
If you can’t answer all these questions, you are essentially doing the same thing as driving backwards, blindfolded in the wet and the consequence is your hard earned money.
Knowing how and when to fill an order in the stock market and not making a mistake is just as important as knowing which stocks you should be buying because it can mean the difference between a profitable or an unprofitable trade.
If you can answer all these questions or you trade often enough that you want to learn the answer to all of these questions, then you definitely should go ahead and buy shares on your own in the stock market. If not, ensure that you talk to us as this is exactly what we do every day professionally. Remember that commission is not the only cost you will pay, you can end up paying just as much if not more by executing your trade poorly. The chances are the person who is looking to sell shares to you is a professional and is executing well, if they execute well and you execute poorly, you are essentially giving your money away to them.
As an example, if you are buying 100,000 shares in a small cap stock for 20 cents, if you trade it for just a single cent higher because of poor execution, that is $200 you are paying away to someone else in the stock market that should have been in your pocket. On the flipside, if you executed well and managed to buy shares a cent less, you just saved yourself $200.
As you can see, commission cost is really the least of your worries when it comes to share trading. There are professional day traders and computers that make a lot of money from retail traders such as yourself buying cheap shares from you because you sold too low and selling over-priced shares to you because you bought them too high. Don’t be that guy.
Online brokers don’t tell you this or care, because all they want is for you to execute so they can collect their fee. Online brokers who only supply a platform don’t care if you buy high and sell low.
Step 2 – Finding The Best Shares To Invest In
Now that you have an account opened, you now need to have an idea of what shares to invest in. There are a few questions you want to ask yourself first before you decide what stock is right for you.
Are You Looking To Invest In Shares For Income Or Growth?
If you are looking for stocks that produce income, they tend to be stable blue-chip stocks such as Commonwealth Bank (ASX CBA), Wesfarmers (ASX WES), Telstra (ASX TLS) and Woolworths (ASX WOW) to name a few. Check out our top 5 shares to buy now on the ASX post for more investment ideas.
If you are looking for higher growth with higher risk, you can go for smaller cap stocks such as Pioneer Credit (ASX PNC) or Syrah Resources (SYR) for example. Check out our top 5 high growth stocks to buy now on the ASX post for more trade ideas.
Knowing what type of investor you are is important, as that will help you determine what kind of risk you are willing to take and the strategy you will use. The type of stock, how you enter in them and how you sell them will all be determined by the type of investor or trader that you are.
Have You Researched The Stocks That You Want To Invest In?
Research is vitally important before you invest in shares. If you invest in shares by gut feeling or off tips from your friends or your taxi driver is a surefire way to lose your money. Make sure you fully research a stock or talk to one of our Advisers for a qualified opinion before you invest in a stock.
You can search our website for a lot of free research for the most popular stocks on the ASX as well as some stocks that we particularly like.
Do Have a Plan For Managing and Monitoring Your Investments?
A very important point when you invest in shares is that it doesn’t end at the purchase. Monitoring the stock for fundamental changes such as profit growth, political and environmental changes, new competitors and so forth is mandatory. Stocks aren’t rosy forever – many of them can and will fail, knowing when to take a profit or cut losses is just as important as knowing when to buy in.
Did you also know that when there are different methods when timing your entry for income stocks versus growth stocks? Understanding stock market structure and forecasting the supply and demand imbalance is just as important as doing fundamental analysis.
If you know what shares you want to invest in and you have a plan in place to build your investment portfolio, then you are all set to go. If you are new to share trading and want to invest in shares, contact us and we can help you get a plan in place.
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Henry is a co-founder of MF & Co. Asset Management with over 12 years experience as a trader, investor and asset manager. Henry’s focus is on High Net Worth Wealth Management and using algorithmic quantitative trading systems to invest for his clients. Henry also trains new Interns and Advisers on trading and risk management.