How to Start Stock Trading in Australia

When first venturing in the world of stock trading in Australia, there are a lot of factors to consider. New traders need to consider the different brokers, trading platforms and strategies available.  Stock market beginners also need to learn how to manage risk to give yourself the best chance. The good news is that there are plenty of choices available to Australians looking to start stock trading. There are risks involved with every type of investment so we recommend taking some time to educate yourself before getting started. Our guide to stock trading in Australia will ensure you know exactly what you are getting into.

Before You Start Stock Trading in Australia

Step 1 – Learn A Lot. In short, if you want to start stock trading in Australia, and you want to give yourself the best chance of being successful, there are many things to consider. To start with as a beginner you will want to spend almost all of your trading time learning as much as you can about everything. But don’t make a trade yet.

Learn how to use technical indicators, and ensure you understand the basics of technical and fundamental analysis. Learn which types of trading platforms and brokers will suit you best with demo accounts. Learn how to create a risk management strategy that does not allow you to waiver or make emotional decisions. Learn about the type of stocks available, the different times of day that suit your trading style, and how much you are prepared to put on any trade. Learn how to avoid trading when you are not prepared, and most importantly, learn to accept when you need to go back and revisit any topics. This will all enable you to devise solid trading strategies based on specific metrics and avoid falling into the traps that many do.

As a simple first step, start out learning the basics of the stock market, and market functionality.

You will hear people talking about trading stocks, shares, and equities, which can be confusing because they all mean the same thing and are used interchangeably. Before you start trading stocks, there are a few points to be aware of. First, you need to understand what stocks are and how they work. A stock is a piece of ownership in a company. When you buy a stock, you’re buying a small part of that company. You become a shareholder.

The price of a stock can go up or down, and your goal as a trader is to buy low and sell high. Of course, that’s not as simple as it may sound. There are many factors that affect the price of a stock, such as the company’s earnings, the overall market conditions, and even political events.

Step 2 – Find a broker or trading platform. Once you have a basic understanding of how stocks work, you’ll need to open up an account with a broker. A broker buys and sells stocks on behalf of their clients. There are many different brokers out there, so be sure to shop around and find the one that suits your needs.

If you are planning on share trading, Australia has a well-set-up system, and the process is not complicated, but there are a few things you’ll need to get in place first. Australian traders usually work through a brokerage that provides an easy-to-use platform that can be accessed online or via an app.

As a new stock trader, you will need to choose a brokerage that meets your needs and learn your way around the platform so you know how to enter and exit positions (that is, buy and sell stocks). You’ll also need to understand how to use the various tools that trading platforms make available to their customers. Don’t worry; brokers try to make this as easy as possible for you. Most brokers will have education and training available, including tutorials and video demonstrations of how to use the platform.

Many will also allow you to open a demo account to practice trading with virtual money. This would enable you to find your way around the platform, see how everything works, and even try out trading strategies to determine if you would make a profit or loss if trading with real money. While demo accounts cannot precisely imitate how a trade would go in real life, they give you a good idea and help new traders learn how a platform works.

If you are already trading forex or other assets with a multi-asset broker, you may find using the same broker for stock trading convenient. Some platforms, however, specialise in a particular asset, so you may find it’s better to open an account with a new broker for your stock trading activities. If you are new to investing but want to focus on stocks, you can pick a broker specialising in such trades. If you think you would like to branch out and trade other asset classes, such as forex, in the future, go for a multi-asset broker with a good stock offering that also has the other assets available that you’re interested in.

Risk Management – Get Really Good At It,

Step 3, 4, 5 – Getting really good at managing risk. Risk management is perhaps the most vital skill to learn when stock trading in Australia. Risk management is everything involved in managing your money, protecting your capital, maximising profits, and minimising losses. It includes having systems for measuring the size of your potential losses against the original profit potential on each new position you take.

It is important to understand the risks involved in trading and have a plan to manage them. Risk management includes developing the discipline to trade to a predetermined strategy, generally governed by technical or fundamental analysis, rather than making emotional decisions and trading ‘on a whim’. It also covers things like setting a budget for your stock trading, never risking more than you can afford to lose, and diversifying your portfolio to minimise risk if a particular company or industry is hit by factors that cause a sudden downturn.

From a technical standpoint, this generally involves using your broker’s trading tools to set up automated order types. You can set up stop losses, which allow for a position to be automatically closed when a price goes below a certain level, or take-profit orders, which will enable a position to be closed when an asset reaches a specific price, providing you with a set level of profit that you are happy with.

There are several ways to manage market risk. One way is to diversify your portfolio by investing in different types of securities. Another way is to use hedging strategies, such as buying put options or selling short.

When trading stocks, the most important thing to remember is to do your research. Know what you’re buying, and know why you’re buying it. Of course, the same goes for selling stocks as well.

Once you think you have a good risk management strategy, go back over and check it again. Then just to be sure, check it a third time for holes and make sure it is foolproof. You will want to be certain that every investment, and every stock trade has a defined level of risk before you press the buy or sell button.

Strategies for Stock Trading in Australia

Step 6 – Get a good stock trading strategy. There are various stock trading strategies that you may want to try, but there are some fundamentals you will want to know that can help you manage your portfolio. Here are some things you need to consider when planning your strategy.

What kinds of stocks will you buy?

When picking the right stocks to trade, there is no sure-fire answer. However, there are a few things you can keep in mind that may help you choose stocks that have the potential to perform well.

One thing to look at is a company’s financials. You can find this information on most stock trading websites. This will give you an idea of how well the company is doing and whether or not it is in good financial health. If a company is in good financial health, it is more likely to weather market downturns and continue to perform well.

Another thing to look at is the company’s history. A company that has a history of strong performance is more likely to continue performing well than one that has not. You can find this information on the website of the company or on stock trading websites.

You may want to invest in ‘growth’ stocks or ‘value’ stocks for example.

Growth stocks are those that analysts consider will outperform the market in general or their specific market segment for some time. Value stocks are generally defined as those deemed to be currently undervalued. They are therefore expected to gain value over time as the market corrects their prices to their true value. You may also want to consider how ethical and sustainable the companies you invest in are and whether they pay regular dividends.

You’ll also want to diversify your portfolio so you don’t have too much invested in any one stock or sector.

How much will you invest?

You will need to think carefully about the amount of capital you have and how you want to invest it.

It is a good idea to trade the market with money you will not need in the short term, as this means even if you lose some money, you will have time to potentially recoup it, if it is a solid company (see above).

When trading regularly, many experts advise not to use more than 1-2% of your capital on a single trade to manage risk and minimise losses. Australian traders often use broker leverage in the form of CFDs, and this is sometimes possible when trading stocks too, but the level of leverage offered will be much lower than certain other instruments. According to ASIC regulations, for retail traders stock CFD leverage should be capped at a maximum of 1:5.

If you are considering trading shares with leverage, make sure you fully understand how leverage works. This is not something that should be done early on in your stock trading journey, as it can lead to more significant losses as well as potentially bigger profits. See risk management again if you think that is only a good thing.

When will you enter and exit trades?

Deciding when to enter and exit trades is the core of your investing strategy, and you will want to have a solid plan in place.

You must decide which indicators to use to help you make trading decisions if you are considering trading using technical analysis. Many investors rely on a combination of different technical indicators, such as Relative Strength Index (RSI) or Exponential Moving Average (EMA) tools to help make decisions.

Savvy investors apply fundamental analysis of the market and the sectors they invest into their overall strategy. Your market analysis will inform your specific trading tactics and determine where you place your stop-loss and take-profit levels. You should know your market well, and ideally stick to a few instruments or assets only. Whilst investing across a range of stocks helps manage risk in a general sense by creating a balanced portfolio, trading all types of stocks usually leaves you short on the detailed knowledge you need to make technical decisions.

Trading can be a much more quickfire activity than investing, so be clear about what it is you are looking for. Some investors have times of the day that they believe are best for trading stocks, and when markets overlap, or open, they thrive on the volatility. Others however much prefer executing trades either in or out only after the early morning volatility that surrounds the opening and closing half hour of the day has had a chance to subside.

If you are looking for volatile moves, you trade during the open or closing window. If you are looking for a more stable entry, consider the lunch time period as one of the best to make those slower more educated decisions, outside of the rush.

Choosing an Australian Stock Trading Platform

If you’re an Australian citizen or resident interested in share trading, Australian brokers and stock trading platforms will probably serve you best. At the very least, ensure that the brokers you are considering are regulated and licensed by the Australian Securities and Investments Commission (ASIC). As the main regulator for brokers based in Australia, ASIC also regulates international firms that have an Australian office or that target Australian investors.

Other things you will want to look at include commissions, trading fees and additional charges such as admin fees and inactivity fees. Depending on your needs, you might also be concerned with the platform’s built-in trading tools and indicators. Also, account types and features, the minimum deposit needed, deposit and withdrawal fees and limits, issues such as methods to deposit and withdraw cash, and how long withdrawals take to process. If you’re a beginner, you may also want to ensure you can access education, training, and a risk-free demo account.

Each investor will have different requirements, so think about the aspects of the broker that will impact you. Consider the type of trading you want to do, your experience level, your capital, and your objectives. Then do your research and compare brokers, looking specifically at the features that matter to you. To help you in your research, look at our broker reviews and list of the best stock brokers available to Australian investors.

Stock Trading in Australia FAQs

How to Buy Stocks and Shares in Australia

To buy stocks and shares in Australia you will need to open an account with a regulated broker, though it is also possible to buy stocks and shares directly through IPOs, crowd funding and employee share schemes. You will then need to do some research into which companies you would like to invest in. You should also have a risk management plan in place to ensure you don’t risk more than you can afford to lose.

What Are Stocks and Shares?

Stocks and shares are a type of asset that represents ownership of a company or similar entity. When you buy shares you are buying a part of that particular company. As the company’s fortunes change the value of the shares will change accordingly, hopefully increasing in value over the long term as the company becomes more profitable. There are no guarantees that stocks and shares will increase in value however – prices can go down as well as up.

How Much Tax Do You Pay on Stocks and Shares?

Any profits made from selling stocks and shares in Australia are liable for capital gains tax (CGT). When you sell stocks and shares for more than you paid for them, a capital gain, you will have to pay capital gains tax on the resulting profit. If you sell them at a loss, a capital loss, this will offset any other capital gains tax and reduce the total amount of tax you need to pay.

What Are Blue-Chip Stocks?

Blue-chip stocks are shares in large, well known companies with excellent reputations and long, financially sound track records. Blue-chip companies usually have market capitalizations in the billions of dollars and are the market leaders in their sector. Blue-chip stocks are considered safe investments due to the long history of financial stability these companies have. However profits are never guaranteed and stock prices can go down as well as up.

Can I Buy Shares When the Market is Closed?

In Australia brokers are not allowed to enter orders into the ASX system when the market is closed. The Australian stock market is open from 10am until 4pm Sydney time Monday to Friday. There are set 3 hour periods before and after normal trading hours known as the pre-open and adjust periods. During the pre-open period brokers are able to enter new orders into the system in preparation for the market open. During the adjust phase brokers are able to cancel and adjust existing orders. For some international markets it is possible to buy and sell shares out of hours through ECN networks.