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What is online share trading?

Online share trading is buying and selling shares in listed companies over the internet. It has given the ability to invest in the share market to anyone with a computer or smartphone connected to the internet.

When you buy a share in a company, you become a shareholder and you own a small part of that company. You will receive a share of the company?s profits as a dividend if the company does well, and you?ll have the right to vote at company meetings if you own the right type of share. However, if the company does poorly your shares are no longer worth as much, so you have effectively ?lost? the money you paid for them.

As a nation, Australia is buying and selling more shares online than ever before. The Investment Trends 2014 Second Half Online Broking Report, based on a survey of 11,879 traders and investors, showed that the number of active online share traders increased from 585,000 in June to 595,000 in November.

With over 2,000 companies listed on the Australian share market alone, there are plenty of investment options to choose from. Here at CANSTAR, we can?t tell you what to invest in, but we can tell you about trading platforms that offer outstanding value for money. Visit our website to compare online share trading platforms.

Benefits of trading in shares:

As with any other type of investment, online share trading offers some specific advantages. You should seek independent, professional financial advice tailored to your personal financial situation before making any investment decisions. Ask your adviser about the pros and cons for you specifically if you were to invest in shares. Some possible benefits are as follows.

1. Diversification:

You know the old saying, “don?t put all your eggs in one basket”? It is still great advice when it comes to investing. The right balance of cash, shares, and property can give you the best returns depending on your personal risk profile.

2. Solid long-term performance:

According to the ASX 2015 long-term investing report, for the first time in decades, international shares have overtaken ASX shares as the best performing asset class over the 10 years studied (to December 2014). However, previous year?s long-term reports have shown terrific long-term performance from Australian shares, and as the 2015 report points out, a 20-year view shows Australian shares are a clear winner, along with Australian residential property.

So despite a short-term drop, Australian share trading is still looking pretty good over the long-term view. Click here to see our comparison of how various asset classes have performed over the past 30 years.

3. Dividends add an extra source of income:

Unlike term deposit rates, which have been falling as the RBA lowers the official cash rate, the income paid on Australian shares has historically grown at an average rate of between 5%-6.5% each year.

And since a company has already paid tax on its earnings at the higher rate of 30%, dividends received come with a bonus in the form of a franking credit. From the franking credit, you only ?lose? the difference between the 30% and your own tax rate – so it?s still quite a nice bonus.

4. Benefit from a good economy:

We all support the economy indirectly every day, by buying goods and services from businesses listed on the Australian share market. Buying shares in one of those businesses, from an industry with good management and solid growth prospects, could mean you benefit along with the economy.

Online share trading fees and costs:

Brokerage: The main fee that online share trading customers pay to stockbroking firms is brokerage: a fee charged to buy or sell shares and to monitor and manage conditional orders.

The good news for customers is that the average cost of brokerage per trade has continued to fall over the past five years since 2010, for both high-value and low-value trades. As our 2015 report found, the average cost of placing a $100,000 trade has fallen by an average of over $8 over the past five years, representing a decrease of 7.67%. The cost of placing a $5,000 trade has also fallen by over $6, which is a substantial decrease of 23.99%.

Information service fee: A fee charged by a stockbroker to provide information about the current or delayed prices of shares listed on the ASX.

Fail fee: A fee charged by a stockbroker to the seller if the seller fails to deliver the securities, or to the buyer if the buyer fails to make payment by the settlement date.

Staying safe online:

According to a 2014 study by the Australian Communications and Media Authority (ACMA), 4.3 million Australians with an internet-enabled mobile phone downloaded a banking and finance app in just 6 months in 2013. A 2015 study released by E*TRADE showed more than two out of three Gen X investors and more than half of all Baby Boomers surveyed said mobile trading was “critical”.

We are used to having instant access to conduct financial transactions on the go, and we expect faultless security. Just like with internet banking, your details falling into the wrong hands could be disastrous.

If something were to happen on the broker?s end, you would be protected. But there are also a few vital things you need to do to keep your online share trading activities safe:

  1. Never reveal your logon details or password. Always log off before you walk away from your computer or phone.
  2. Pick a long password that is a combination of letters and numbers. SplashData, a provider of password management apps, has compiled a list of the worst (and most common) passwords from over 3.3 million passwords that were leaked online in 2014. “123456” maintains its spot as the worst password of all time.
  3. Keep your security software up-to-date.

Taking online security seriously can help you stay safe when trading shares online. It?s your money, so don?t just give it away to any old hacker.


The birth of the stock market and the move to online trading:

Australia?s first stock exchange opened in Melbourne over 150 years ago, in 1861. Back then, share trading was done state-by-state, so the other states soon created their own exchanges. It wasn?t until April 1987 – approximately six months before the Black Monday stock market crash – that the states came together to form the Australian Stock Exchange, now known as the ASX Group.

Soon afterwards, in 1990, the ASX made share trading electronic, opening it up to phenomenal growth. The cost to buy and sell shares dropped because there was less effort involved in doing it online, and charting tools and other analysis rose in quality and became more available to the average investor.

Until the online switch, share trading was difficult and expensive. Investors relied on daily newspapers to know the share prices, and a trade would take several hours to a whole day to complete. Share trading was solely a game for wealthy folk who could afford to pay a broker to complete trades on their behalf, and it involved a long-term view of profit over months and years.

Today, the World Bank tells us 84.6% of Australians use the internet – over 20 million people online! Share trading is now available to the general population, not just the elites.

We have a plethora of tools to help us choose the right stock for us to buy, and we can complete a trade within minutes of choosing one. According to the ASX?s 2014 Australian Share Ownership Study, 58% of investors trade through an online broker compared to the 31% who use a full-service broker or advisor. Even Gen Y has come of age so that we now have enough money to invest and are entering the share market, and our technological literacy gives us a distinct advantage.

Staying ahead of the pack is an ongoing challenge for trading platforms in a nation that expects incredible online and mobile functionality.

Investment strategies have also changed as a result of instant access to research, more brokers, and the time required to make a trade. Online trading typically involves a short-term view accounting for fluctuations in the market over mere hours or days.


What does online share trading look like in Australia post-GFC?

In 2009, the S&P/ASX 200 crashed to the terrifying low of 3,120 points – its lowest point in years, and a huge drop from the highs of over 6,800 in November 2007. In early 2014, we reported that the S&P/ASX 200 had recovered and was sitting at a comfortable 5,400. At the time of writing in 2015, the index sits between 5,000 to 5,100.

Compared to the rest of the world, Australia recovered reasonably quickly from the Global Financial Crisis, using a combination of government stimulus, a resources boom, a responsive Reserve Bank, and pre-existing prudential standards. This did come with the cost of increased government debt and historically low interest rates – but it helped us make it through.

Those hardest hit by the GFC included fearful investors, who tended to sell their investments at a rock bottom loss upon hearing the bad news instead of waiting it out. Unfortunately, Australian consumers? confidence has still not yet fully bounced back, according to the 2014 NAB business confidence survey and 2015 data from Roy Morgan. The official RBA cash rate remaining at a historic low of 2.00% as at September 2015, indicating our economy has still not fully recovered as a whole.

Unemployment also remains at a decade high of 6% – low by global standards but high by Australian standards. In January 2008, pre-GFC, ABS data showed only 457,700 people were unemployed. During the height of the GFC in 2009, unemployment reached 5.5% or 650,000 people (ABS, Nov-Dec 2009). In July 2015, that number had risen even higher to 800,700 (seasonally adjusted) people – which is a rise of 4.1% from July 2014 alone. These statistics show the real cost to everyday life endures for a long time even after a global financial crisis subsides.

However, in spite of lowered confidence in the economy, investors in Australia have returned to the share market. ASX monthly statistics show growth in the number of equity trades being made from over 15,177,900 trades in August 2014 to 17,195,700 in July 2015. Trading in other securities has also risen similarly, with interest rate/hybrid securities and warrants showing the largest growth.

Types of online share traders:

To a certain extent, value for money in an online share trading platform depends on how much and how often you invest in shares. CANSTAR classifies investors into three categories for the purpose of rating online share trading platforms:

  1. Casual investors – Trading shares about 8 times per year with an average transaction value of $15,000 per trade. Casual investors should look for user-friendly client services and support, and general education resources, since they are the most likely to use this. They should also look for cheap brokerage because fees on trading small amounts can be as much as 40-60% of the amount.
  2. Active investors – Trading shares about 40 times per year with an average transaction value of $15,000 per trade. Active investors may trade managed funds as well as direct shares. Active investors should look for detailed company and market information, and a dynamic trading platform.
  3. Traders – Trading shares about 40 times per month (360 times per year) with an average transaction value of $15,000 per trade. They may trade derivatives as well as shares. Traders should look for a dynamic trading platform, access to superior charting tools, and a wide range of available securities and markets.

Not all investors need the same services from their platform, since the features you want depend on how often and how much you trade. You can use our online share trading platforms comparison table to find out which platforms offer outstanding value for money for the needs of your investing profile.


What to look for in an online share trading platform:

In 2015, CANSTAR assessed 39 platforms offered by 15 providers, to determine which platforms offer the ideal mix of price and features for casual investors, active investors, and traders. The two general areas we assess for determining value in a platform are price and features.

1. Price:

One of the most crucial factors in terms of value for money is the price it costs to invest and trade. This includes the cost to place a trade (brokerage) and any ongoing costs for maintaining an account with that platform.

2. Features:

The main features that CANSTAR assesses in determining value ratings include:

  • Account Services: Account information, application process, contract administration
  • Reporting: Consolidated reporting on dividends and interest, year-to-date profit/loss statements, tax reporting tools
  • Client Services and Support: After-hours helpline, online/phone training
  • Margin Loan: Availability of margin loans for online trading
  • Company and Market Information: Availability of research tools to enhance fundamental analysis, availability of market research, availability of company information, availability of international market information
  • Research Tools: Availability of research tools to enhance technical analysis, availability of different alerts, availability of other technical trading information
  • Charting: Availability of basic and advance chartings
  • Education: Availability of education, technical help
  • Security: Level of online security provided
  • Settlement Accounts: Flexibilities and restrictions of settlement account
  • Trading Platform: Trading platform other functionalities, dynamic data stream, conditional order
  • Ease of Use: Number of steps required to make an order or obtain a quote
  • Premium Services: Availability of dedicated service manager and requirements
  • Trading Securities/Markets: Availability of local and international securities and stock exchanges
  • Accessibility: Accessibility channels for the platform

Please note that these are a general explanation of the meaning of terms used in relation to online share trading. Your financial institution may use different terms, and you should read the terms and conditions of your shareholdings carefully to understand all features, dividends and brokerage fees and charges that may apply to your portfolio.

All Ordinaries (All Ords): The All Ords index contains the weighted share prices of around 500 of the largest Australian companies, i.e. all the common or ?ordinary? shares. It is the oldest index of shares in Australia, established by the ASX at 500 points in January 1980, and it is the predominant measure of the overall performance of the Australian sharemarket. A company is weighted according to their size, as measured by the total market value of the company?s shares.

Asset: Something you own. In the context of online share trading, an asset usually refers to shares owned in a company.

ASX: Stands for Australian Securities Exchange. The Australian share market.

ASX code: The unique code used by the Australian Securities Exchange to identify each listed company on the share market.

Bear market: A time period when share prices are generally falling.

Bid: 1. The price at which someone is prepared to buy shares. 2. An offer made by an investor, a trader or a dealer to buy a security (shares). The bid will specify the price the buyer is willing to pay for the shares and the number of shares to be purchased.

Blue chip: Shares in a large, well-established company known for its sound financial ability to make a profit in both good times and bad. These shares are highly valued because of the reduced risk to investors in buying them.

Book value: The value of an asset as listed on the company?s balance sheet, meaning the cost of the asset less any depreciation.

Brokerage: Client fees paid to a stockbroking firm for them to buy or sell shares on your behalf.

Bull market: A time period when share prices generally are rising.

Caveat emptor: Latin for “let the buyer beware”. In financial situations, this phrase means that a buyer should be careful to examine all terms and conditions before signing any contract to purchase the product.

Clearing House Electronic Subregister System (CHESS): A computer system that performs the exchange of ownership of shares for money, known as settlement, for shares traded on the ASX. CHESS also provides an electronic register (?subregister?) of who owns what shares across all ASX listed companies.

Conditional order: Instructions given by you to a broker to monitor a particular stock and automatically trigger a buy or sell order if the share price reaches your target.

Contract note: A written document confirming a transaction between two dealers or a broker and a client which details the costs, type and quantity of shares traded.

Delayed price: A price that is not the current live price for the share, but is delayed but a certain amount of time, usually around 10 to 15 minutes.

Delisted: When a company is removed from the Official List of the stock exchange and its shares are no longer listed for sale.

Derivative: A financial product that derives its value from an underlying variable asset such as shares, share price indices, fixed interest securities, commodities, and currencies. Some types of derivatives are futures, exchange-traded options, contracts for difference, and some warrants.

Dividend: The distribution of part of a company?s net profit to its shareholders. Usually expressed as a number of cents distributed per share owned.

Dynamic data: A data service offered by online trading systems that allows you to view live market information without needing to click a refresh button.

Float: The initial raising of capital by a company asking the public to subscribe to their securities. Shares offered on the share market for the first time are an example of a float.

Fundamental analysis: An overall examination of the financial position of a company, taking into account its industry sector and the current economic environment.

Futures: Futures are contracts to buy or sell a particular asset (or its equivalent value in cash) on a specified date in the future.

HIN (Holder Identification Number): A number that identifies you as the owner of your securities in the CHESS subregister. This number should be stored securely to prevent theft of your shares and identity fraud.

Limit order: An instruction from you to a broker to buy or sell shares at a specified price or better.

Listed company: A company that has agreed to abide by the ASX Listing Rules so that its shares can be bought and sold on the ASX share market.

Live Price: The current price of a share.

Margin loan: A loan that lets you borrow money to invest, using your shares or managed funds as a security guarantee for the loan. Margin loans are extremely risky and are not recommended, as they can cause people to fall into large amounts of debt. They would only ever be an acceptable choice for experienced investors who actively monitor and manage their share investments to prevent losses.

Market capitalisation: The total market value of a company?s shares. This is used as a unit of measurement to decide how large or small a company is.

Market depth: A measurement of the demand and supply of a particular share, or the liquidity of that share.

Market order: An order from you to a broker to buy or sell shares at the current market price immediately.

Merchant: Someone who sells goods or services to customers for payment.

Official list: The list of the names of all securities permitted to be registered and trading on ASX.

Ombudsman: If you have a dispute with your broker or financial institution and you haven?t been able to resolve it with them directly, you can contact the Financial Ombudsman Service of Australia. It is a free and independent service that resolves disputes with stockbrokers and other financial institutions. Anyone can call them on 1300 78 08 08.

Option: A contract between two parties, giving the ?taker? (the buyer) the right to buy or sell an underlying asset at a particular price on or before a particular date. As the name implies, the taker has a right but not an obligation to buy or sell.

Price-weighted index: A share market in which each share influences the index in proportion to its price-per-share. The value of the index is generated by averaging the prices of all stock in the index. Stocks with a higher price are given more weight and have greater influence over the performance of the index. An example of a price-weighted stock index is the Dow Jones Index.

RBA cash rate: The overnight interest rate that the Reserve Bank of Australia offers financial institutions to settle-up on inter-bank transactions.

Securities or a security: A financial product bought and sold in a stock market. Securities include shares, bonds, options, notes, and warrants. A security is usually negotiable and it is also fungible, meaning items of the same type are all the same and interchangeable. The company or entity that issues the security is known as the issuer.

Share market: Also known as the stock market or the equity market. The market in which shares of publicly held companies are issued and traded. The stock market is one of the most vital components of a free-market economy because companies get capital from investors in exchange for giving shares as a portion of ownership in the company.

Shareholder: Any person, company or institution that owns at least one share of a company?s stock. Shareholders are the owners of a company. Shareholders receive a portion of the profits if the company does well, in the form of dividends. However, if the company does poorly, the shareholder has effectively ?lost? money. Also known as a stockholder.

Shareholder register: A list of every current shareholder (the people who actively own shares in a company). Every listed company is required to keep their shareholder register updated on an ongoing basis. The register includes each person?s name, address and the number of shares they hold.

Short selling: Where someone sells a financial product that they do not own, with the intent of buying the product later at a lower price. Short selling was viewed as a contributing factor to the volatility of the world market during the GFC.

Soft market: A market that has more potential sellers than buyers. A soft market can describe the situation for an entire industry or a specific asset. Also known as a buyer?s market, because there is more supply than demand, so the purchaser holds most of the power in negotiating prices.

SRN (Security Reference Number): Numbers allocated by an issuer to identify each ?issuer sponsored? holder. This refers to owners of shares only registered on the company subregister rather than on the CHESS subregister. SRNs must be provided to your broker when buying or selling shares. The number begins with the letter ?I?. Issuer sponsored holders are also allocated a HIN, but the SRN is more secure and is only shown on Issuer statements.

STP (straight through processing): An efficient way to electronically process transactions where the customer does not need to manually re-enter data or instructions previously provided. The transaction goes “straight through” the system and completes itself automatically. It includes different stages like trading, clearing and settlement. Also known as exception-based processing, because the transaction completes automatically unless the program detects an anomaly that requires a human?s attention to resolve.

Substantial shareholder: A person or company that holds more than 10% of a company?s voting rights through owning a large amount of the right type of shares.

Takeover: Acquiring a controlling interest in a company by purchasing the majority of its shares.

Technical analysis: Examining the actual history of the trading and price of a security or index.

Unlisted company: Any company not listed on a licensed stock exchange. Shares in unlisted companies cannot be bought and sold on the ASX.

Volatility: A measurement of the amount of fluctuation in the prices of shares.

Volume-weighted average price (VWAP): A trading benchmark calculated by adding up the total dollar amount of share trading transactions for the day and dividing by the total number of shares traded that day.

Write down: To reduce the ?book value? of an asset after taking into account the depreciation of the asset or a fall in the asset?s market price.

What online share trading platforms are there in Australia?

CANSTAR ratings quoted are current at the time of writing in 2015. The following are the online share trading platforms assessed for CANSTAR?s 2015 ratings.

  1. Amscot Stockbroking: Asmcot was established in 2002 as a low-cost, self-contained broker for the ASX. Their platform received a 5-star rating for traders and they also rank highly for active investors.
  2. Bell Direct: Bell Direct is the award-winning online ASX broker created in 2006 by Bell Potter, one of Australia?s largest full-service stockbrokers. Their platform received a 5-star rating for traders and they also rank highly for casual investors.
  3. CMC Markets Stockbroking: CMC Markets was founded as a foreign exchange broker in 1989 by entrepreneur Peter Cruddas; he began with just a £10,000 investment in a small office, a desk, and a phone. Their platform has won our award for best value online share trading platform every year from 2011 – 2015. In 2015, they received a 5-star rating for all three trading profiles.
  4. CommSec: CommSec brokerage services began in 1995 and they launched an online share trading website in 1997. Customers can trade ASX and international shares. Their platform ranks highly for casual investors and active investors. At time of writing, they offered up to $600 of free brokerage upon joining.
  5. E*Trade: E*TRADE Australia was founded in 1998. As they have been owned by ANZ since 2007, E*Trade customers can use the Grow by ANZ app on their smartphone or tablet. Customers can invest in the ASX and 11 major international stock exchanges. At time of writing, they offered up to $500 of free brokerage for 90 days from joining.
  6. First Prudential Markets: FP Markets was established in 2005 and their platform has previously received our 5-star rating. Their platform ranks highly for casual investors.
  7. HSBC: HSBC started operations in Australia in 1965 and has 48 million customers around the world. They have a great series of educational ?How To? videos for online share trading. Their platform ranks highly for casual investors and active investors.
  8. Macquarie Bank: Macquarie Bank opened in Sydney in 1969 with just three staff members. The ability to link your Macquarie Bank account to your online share trading platform means your balance is automatically checked in real-time, preventing the risk of settlement failure. Their platform ranks highly for casual investors and active investors.
  9. Morrison Securities: Morrison Securities has been participating in the ASX since 1985. They offer digital platforms for each trading profile – IRESS Mobile for casual investors, IRESS Investor for active investors, and IRESS Trader for traders. Their platform ranks highly for traders.
  10. nabtrade: NAB was founded in 1981 and is one of the big four banks in Australia, with over 12.7 million customers worldwide. Their platform received a 5-star rating for casual investors and active investors and they also rank highly for traders.
  11. netwealth: netwealth Investments Ltd was founded in 1999, right before the turn of the millenium. It is a member of the Heine Group, an international trade and finance company in Europe since 1865. Customers can invest in the ASX with online share trading, but they can also invest their super or wrap accounts in international exchanges.
  12. St. George directshares: St. George is best known as the bank with the dragon logo. It was founded in 1937 and has 2.6 million customers in Australia. Since 2006, directshares has been administered by E*TRADE Australia. As an introductory offer (current at time of writing), you get 10 free trades for joining.
  13. Suncorp: Suncorp was founded in 1902 and remains Australia?s leading bank in regional areas. Customers can trade any security on the ASX except for options, as long as they have sufficient funds in their Suncorp Wealth Cash Management Account.
  14. Trader Dealer Online: Trader Dealer is a subsidiary of MDS Financial Group. They help customers stay in touch with the latest economic news on their website with Finance TV.
  15. Westpac Online Investing: Westpac was founded in 1817 and became one of Australia?s big four banks. They own a number of other banking brands including St. George, Bank of Melbourne, BankSA, and RAMS. Their platform received a 5-star rating for casual investors and active investors and they also rank highly for traders.

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Contract for difference (CFD):

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Should you use CFDs for trading?

Risks of CFD trading

Trends in online share trading:

The State of the Australian Economy: Good news – we?re doing well!

Rise of the Gen Y sharemarket investor in 2015

Australia post GFC: A 2014 reflection

Australian share ownership rising

Grexit: What is it? What would a return to the Grexit mean in 2015?

When will our share market improve?

The popularity of Online Share Trading

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Why is the Chinese stock market falling in 2015?

Fear levels have fallen in 2014

CMC Markets Stockbroking makes it five wins in a row for CANSTAR Online Share Trading award in 2015

Online Share Trading: CMC Best Value Australia in 2014

CMC Markets: Investor trends in 2014

Glenn Stevens: How Australia is tracking in 2014

Warren Buffett?s 2014 letter to shareholders

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