If you’re new to share trading, you may need an explainer on shares: what they are, and how to buy and trade them.
Welcome to your first taste of our upcoming crash course on all things trading and markets.
So what is a share?
To put it simply, a share is a unit of ownership in a business. That can include a company, a mutual fund, a financial asset or a trust—and buying a share secures you equity in that business. A slice of the business pie, if you will.
Your ownership entitles you to a portion of the profits the company makes.
The ASX defines the money that a company raises as equity capital. Unlike debt capital—borrowed money—equity capital doesn’t need to be repaid, given your continuous ownership. Your reward for investing in the company includes dividends, amongst other things.
Here’s the hack: with capital gains, you can make a profit by selling your shares for more than you paid for them. Dollar dollar bills, ya’ll.
Buying and selling
Shares are bought and sold on a stock exchange. These days, the majority of public shares (as opposed to private shares) are traded electronically, so orders are placed using computers and matched online by exchange-traded software.
A buy order essentially signals your interest in buying a certain quantity of shares in a certain company.
A sell order (you guessed it) is the opposite—a sign that you’re wanting to sell a certain number of shares in a company.
Once an order is filled, those involved are generally given a few days to conduct the transaction and move respective funds and shares around. You can buy and sell shares either through the help of a full-service broker, or an online share trading platform (ahem, try OpenTrader).
Alright, so why trade?
The benefits of buying shares are highly dependent on your investment goals. We’ll be covering trading versus investing soon, so keep your eyes peeled.
Trading shares as opposed to investing is essentially a short-term commitment. You’re not looking to hold on to any shares that you’re buying for the long term, but instead, trying to profit from a short-term change in their value. That change could be as short as days, or even hours.
Think of trading as your cheeky Tinder hookup.
As you would with any Tinder hookup, it’s good to be smart and keep yourself protected.
Trading can be an easy way to lose money if your shares go down in value rather than up, so best practice is not to jump in and start buying shares right away. Keep your finger on the pulse of the market for a while, and keep an eye on the stocks that catch your eye.
You can even try paper trading—lo and behold you get 50,000 dollarydoos to play with if you sign up with OpenTrader. It’s a good way to get a handle on how the tools and market work.
What do I buy?
We won’t tell you what to do, but we will point you towards a few common rules of thumb. Our trading whiz Kieran Neeson recently summed it up perfectly, but here’s a few extra tips:
- Decide your time frame
The more time you have, the greater exposure you have towards growth assets like shares. Having plenty of time gives you the opportunity to ride out any future short-term losses and gain them back over the long-term.
- Keep an eagle eye on the market
This one’s crucial: watch before you buy in. It can be tempting to dive straight into the investing pool, but best practice is to wade around in the kiddie pool for a while. Watch how your company performs for a little while on the stock market before buying in.
- Invest in what you believe in
Buying shares is a pretty good indication of your support for a company through tying your wealth to their performance. That may not always be the case, but if it is—why not support a company that aligns with what you believe in? Better yet, why not try your hand at investing ethically?
Whether you’re a seasoned pro trader or a budding novice, we’ve got you covered. How does trying your hand at share trading with two free months of pro tools sound?
General Advice Warning
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