How to Buy And Sell Shares

The most common way to buy and sell shares is on the share market using a broker or broking service. You can also buy shares through a prospectus when they are first put on the market or indirectly through a managed fund. Another way to buy shares is through an employee share scheme. We shall take a peek at how to buy and sell shares.

Using A Broker

You can choose whether you want to a use an online broking service (sometimes know as a ‘discount broker’) and make your own investment decisions, or to use a full service broker who can provide you with advice and recommendations.

Online Broking Service

If you are looking for the lowest possible fees, then you should look at an online trading account. The fee to buy or sell a parcel of shares starts from around $30. You are charged only when you buy or sell a share.

Full Service Brokers

A full service broker will charge more, but can also give you advice on what to buy and sell. The law requires brokers to have a reasonable basis for any recommendation they make to you. They must also tell you about any interests they have in investment decisions which they recommend to you.

Brokerage fees are usually based on a percentage of the value of the purchase or sale. The percentage typically reduces as the amount of the transaction gets bigger. Most brokers have a minimum fee which they charge. Typically, the fee on a transaction of up to $5000 will be 2.5%. For large trades, it may only be 0.1%. Small trades worth a few thousand dollars can therefore be relatively expensive.

Use the Australian Securities Exchange find a broker tool to help you find a broker that suits your needs. You should check whether the broker uses dark pools or internalisation to execute trades, as this may have an impact on the price you pay for shares.

There are a number of share exchanges that brokers can use. See different ways to invest in shares.

Case Study: Katarina Buys Some Shares

Katarina, 35, inherited $10,000 from her grandmother and decided to invest in shares. She has some knowledge of the share market but decided to ask a stock broker for advice to be on the safe side.

When Katarina presented her choices to the stock broker, he cautioned her against investing in one company that had recently been hit with a lawsuit. He then organised for her to buy shares in the other companies she nominated. While his fees were higher than an online broker’s, Katarina was happy to pay extra for his advice and service.

Buying Shares In A Float

Companies may decide to offer new shares to the market as a way of raising capital. This is called a ‘float’ or an ‘initial public offering’ (IPO). You don’t actually need a broker to buy shares in a float. All you do is send the application form in the prospectus and your cheque to the company.

Many popular floats are oversubscribed, which means you may get only a proportion of the shares you applied for, or in some cases, no shares at all. Keep this in mind when sending off your application cheque since your money may end up being tied up with the refund coming a few months later. For more information, see prospectuses.

Buying Shares Via A Managed Fund

You can buy shares indirectly by buying units in a managed share fund. For more information, see choosing a managed fund.

Buying Shares Via An Employee Share Scheme

Some companies offer their employees the opportunity to purchase shares in the company. The shares might be offered without a brokerage or at a discount to the market price. For more information, see employee share schemes.

Invest in shares only if you are happy with your understanding of the stock market and are prepared to research and manage your portfolio on a regular basis. Otherwise, you should ask for financial advice and assistance.