How do you buy stocks?

If you’ve glanced at the finance headlines in the last six to 12 months, you might’ve read the term “recession fears” or something similar. Though the financial markets of developed world economies have had some extreme patches of volatility, the hard landing many commentators envisaged hasn’t come to pass…not yet, anyway. 

But investor sentiment is a fickle thing. Any number of scenarios could play out to cause another stock market sell-off. It’s not that long since the ASX 200 declined by more than 30% in a matter of weeks (between 20 Feb and 20 March 2020, to be precise).

The S&P/ASX 200 fell 32.5% between 21 February and 20 March 2020. (Source: Market Index)

Many people took this opportunity to buy stocks for the first time (they “bought the dip”). If you stayed on the sidelines but are now considering getting involved and want to know how to buy shares, this article is for you.

Note: The following is general information and shouldn’t be considered advice, as it doesn’t consider your individual circumstances. As always, don’t make any decisions without first speaking to a professional financial adviser.

The basics of share investing

Company shares aren’t sold “over the counter” like other more tangible products and services. There’s no shop you walk into and ask for 50 Telstra shares. Instead, they’re sold by brokers – financial specialists who take your order and execute the trade on your behalf. 

Step 1: How do you open a brokerage account?

There are two types of brokers:

Full-service brokers: They do the trading for you, and can advise you on what to buy or sell. They must have a reasonable basis to recommend something to you and are also legally obligated to disclose any interest they have in it.

Broker fees are a percentage of the value of a trade. Typically, the larger the transaction, the lower the percentage you pay. Most brokers charge a minimum fee. For example, the fee on a transaction of up to $5,000 may be 2.5%. For a large trade, it may be 0.1%. That means small trades worth a few thousand dollars can be relatively expensive.

Online discount brokers: This is now the most common way to buy and sell shares, largely because of the ease of access and low fees. You simply open the account yourself and pay a fee each time you buy or sell, with the cost typically starting at around $20. 

All major Australian banks have broking websites that allow you to use the money in your Internet banking account to buy shares. And there are also many non-bank brokers including, but not limited to, CMC Markets, GO Markets, Stake, Pearler, and eToro (the last one you might’ve heard about recently in relation to a regulatory breach).

Once you’ve chosen your preferred broker, you can open your account by providing a few personal details such as name, address, date of birth and Australian Tax File Number.

Step 2: How do you choose which shares to buy?

This is where it gets trickier. One of the first considerations for most investors is whether to buy shares in Australian companies (typically those listed on our biggest securities exchange, the ASX) or global companies (those listed on any of the more than 60 exchanges around the world, of which the New York Securities Exchange is the largest). 

A rule of thumb for investing is to “stick with what you know” – which is why many investors prefer to buy shares in companies listed in the same country they call home. Australian investors are often thought to have an even stronger “home bias” than those from other markets – possibly because we’re on an island that’s a long way from the biggest developed markets in North America and Europe.

For obvious reasons, it’s harder to stay on top of the activities of a company that’s in your own timezone, perhaps your home city, versus one that’s tens of thousands of kilometres away. 

There’s also the issue of cost. For example, trading international shares on CommSec starts at around US$65, versus a minimum $19.95 brokerage fee for Australian shares.

So, let’s assume you’re buying ASX-listed shares. Coming back to the above point about “sticking with what you know,” many investors get their start by buying shares in companies they’re familiar with. They might be shares issued by a company you work for, via an employee share scheme (ESS) or perhaps a large player in an industry you know plenty about. For example, if you work in mining, something like BHP Group might appeal.

There are more than 2,750 companies listed on the ASX and the largest 200 of these – by capitalisation – make up the benchmark S&P/ASX 200. This is the stock market index you'll most frequently hear about on the nightly news. The capitalisation (cap) of a company is calculated by multiplying the number of shares it has on issue by the current market price of a single share (that’s why market caps move around constantly).

Many large-cap companies are household names and are more widely understood, which is why investors often buy their first shares from among this cohort. 

Coming back to the above example of BHP, this company is currently the largest listing on the ASX – it’s often called a “blue chip” stock, a term referring to the 50 largest companies by market cap. 

You can find a list of both the ASX 50 and ASX 200 on Market Index by clicking the links in this sentence.

Apart from the size, there are countless other ways to decide which stocks to buy – and you don’t need to rely on any single approach. 

Technical versus Fundamental analysis

Two broad schools of thought are “technical analysis” and “fundamental analysis”. The first is the study of statistical trends, with traders seeking to identify opportunities by looking at patterns in things such as stock price movements and volumes. Several Stock Scans are available on Market Index. These track daily share price activity, dividends, company director trades, trading signals such as the breakout, high and low PE ratio and many others.

Fundamental analysts study everything from the overall economy and industry conditions, to the financial strength and management of individual companies. Earnings, expenses, assets, and liabilities all come under scrutiny by fundamental analysts, perhaps most commonly found in the offices of active asset managers.

Livewire Markets is dedicated to interviewing the people who run some of the most successful funds in Australia, for their insights on Australian and global share market fundamentals. Livewire is widely used by retail investors seeking information on Australian and global companies.

Step 3: How many shares do you want?

This usually comes down to a combination of both your budget and the strength of your conviction in the company. It’s universally accepted that pushing all of your money into a single company is a bad strategy because of the risk it entails. 

Read or watch a few articles or videos on Livewire – or chat to a financial adviser about investing – and you’ll almost certainly hear the term “diversification” described as a way to spread risk across multiple investments (for example, different companies in multiple sectors and various industries, with exposure to different sections of the economy).

You should also note that most online brokers impose a minimum trade restriction, typically starting at $500 for your first trade on the platform (this is the case for CommSec, CMC Markets, Stake and others). But you can transact in smaller amounts for future trades.

Step 4: Place an order

You’ve opened your broking account, chosen your preferred Australian company, and decided how much you want to spend on your first shares. You’re almost a retail investor! 

All that’s left is executing the trade. As mentioned earlier, there are multiple online trading platforms but they each work in similar ways. They should also be easy to use (in fact, I’d recommend placing ease of use high on your selection criteria when picking a platform)..

In this case, I’m using CommSec to buy $500 worth of Woodside Energy Group.

Logging in with your unique Client ID and password brings you to the Home screen. In the top right, you can enter a company name or its ticker (WDS, in this case.)

Source: CommSec.com.au

Entering those details and hitting “enter” brings you to the individual stock page. Here you’ll see the company’s latest price (it last traded at $37.50 when the ASX closed at 4pm on 3 August 2023.)

You’ll see two buttons – a green “buy” and red “sell”. Clicking the first takes you to another screen where you can enter either the number of shares you want to purchase or the amount you want to spend (remember, your first trade will need to be at least $500).

Source: CommSec.com.au

Below these are boxes denoting “Price Limit” or “At Market”. The first option allows you to request to purchase the stock only when its price trades at the figure you’ve entered, or lower. 

Selecting the “At Market” check box allows you to buy it at the price currently available. In this case, that’s Woodside’s latest closing price of $37.50.

Some of the other terms you’ll see on this screen include:

Bid – the highest price someone is willing to pay for the stock

Offer – The lowest price at which someone is willing to sell it

Last – The most recent price at which a buyer and seller agreed to trade.

Once these details are entered, Commsec calculates the cost of your order, including the brokerage fee plus GST.

Source: CommSec.com.au

Paying for your purchase is the final step. Ensure you review the information you’ve entered before hitting “Proceed”. This opens a window giving you a final chance to check the details before clicking the “Submit Order” buttons. If you’ve bought “at market,” your trade will typically settle in a maximum of two days (T+2).

Step 5: Look after your share and monitor your investment

Congratulations! You’re now an Australian stock market investor. Once you’ve bought shares in a company, you’ll almost certainly find you become more engaged not only in what’s happening inside the individual organisation but in the financial world more broadly. 

Just how quickly you add further stocks to your portfolio, how long you own them, when (or if) you decide to sell, are just some of the countless things you’ll need to consider from this point on. But you can learn more about all these and more – including what some of the best minds in the local and global financial industry are watching and thinking – at Livewire Markets and Market Index.