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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.

 

Written by: TJ Ryan

The birth of the stock market & 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.