How do you buy shares?
While we’ve spent a good chunk of our lives mastering the art of shopping for items like clothes, food, cars and even houses, buying and selling shares doesn’t typically fall into the average person’s realm of commerce. So, how do you buy shares and where do you start?
Step 1: Set up a brokerage account
Stockbrokers primarily come in two forms: full-service brokers and discount brokers.
A full-service broker is someone who can make stock recommendations and provide an investment plan for you. They charge a higher brokerage fee for this service.
Discount brokers are generally cheaper and more convenient and allow you to buy and sell shares yourself online for around $10-30 per transaction.
You can find the stockbroker that best suits your needs by using the ASX’s find a broker platform. Miss Money Box uses a discount broker because she likes to do her own research. The remainder of this post will discuss how to buy shares on the stock market yourself (specifically the ASX) using an online discount broker.
This is the incorrect way to buy shares.
Step 2: Choose what and how many shares you’re going to buy
Do your own research to figure out which shares you’d like to buy. You’ll then need to decide how many you can afford at the current price.
Let’s say you’ve done your research and you’re keen on buying shares in Bruce’s Brewing Company (ticker code: BBC)*. Your budget is $1,000. Bruce’s Brewing Company is trading at $4.50 so you can afford to buy 215 shares at the current price for $967.50 to fall within your budget and cover your brokerage fees.
Sidenote: Rather than buying shares in an individual company, you also have the option of buying into an Exchange Traded Fund or Listed Investment Company. These are groups of shares that can be bought and sold just like a single company listed on the stock market. These can be a great option for buying a whole bunch of shares in one transaction, giving you instant diversification. Robo-advisors like Stockspot and Six Park offer the option of investing and managing a range of ETFs for you.
Step 3: Place your order
There are two buy options when it comes time to place your order. You can buy ‘at market’ or ‘at limit’.
‘At market’ means you will be buying the shares at the current price on the share market. At market orders often go through straight away because you are paying the price that sellers are asking.
‘At limit’ allows you to enter a maximum price you are willing to pay per share, over a timeframe that you select. Unlike an ‘at market’ order, it may take some time for the trade to go through while enough sellers are found who are willing to sell at your buy price. This is risky, as you may be able to buy the shares you want for less if you wait, but by waiting, they may also increase in value.
Step 4: Pay for your shares
Miss Money Box suggests transferring the money into your trading account ahead of time to make sure the money is available at the time of settlement.
Step 5: Sit back and watch
Now that you have invested in some shares, you’ll need to monitor their progress. How often you check up on them will depend on your investment strategy. If you’re in for the long-haul, it may be a good idea to check in and see how your shares are performing every month. If you have a medium-term strategy, maybe check every week.
If you’re Miss Money Box, you check your shares pretty often because you’re a personal finance maniac and that’s how you get your thrills.
Before you dive head-first into the stock market, check out my previous post to discover what kind of investor you are and how the stock market works.
*Not a real company