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Helpful Information

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