Investing in shares might be an excellent method to make your money work harder.
It’s critical to understand the dangers and seek guidance from qualified professionals. Still, if you’re ready to begin investing, you should know a few things about the stock market, how to purchase and sell shares, and what it means to be a shareholder.
The more you learn, the better and smarter you’ll be at managing your money in the long run.
1. What is the Share Market?
The share market (sometimes known as the stock exchange) is a transparent and regulated marketplace where shares in public firms are purchased and traded.
A share market may be compared to a department store for stocks – or a “one-stop-shop” for anyone looking to purchase or sell shares in any public firm trading on that market. There are several stock exchanges across the world. The New York Stock Exchange and the London Stock Exchange are two of the most well-known.
We have the Australian Securities Exchange (also known as the ASX) and Cboe Australia here in Australia. By law, all Australian stockbrokers must give buyers and sellers with access to both share markets.
The share market in Australia is responsible for two major functions:
- Operating a ‘primary market,’ which allows corporations to generate funds by issuing shares for sale, and
- Operating a secondary market,’ in which investors may buy and sell shares at market-determined prices.
2. What are Shares?
Shares are pieces of a company’s capital that have been sold to the public.
Each share gives the investor a right to a portion of the company’s profit (or loss), based on the percentage of the company’s overall capital the share represents. For example, if you own one share in a company that has been issued with 100 shares, your share represents 1% of the company.
When you buy a share, you are buying a piece of the company, or a direct investment in that company.
3. How to Buy Shares?
You can purchase shares directly, as in making a direct investment into the company, or indirectly through a managed fund (pool your money with other investors and let the fund manager do the work), Exchange Traded Fund (ETF – a group of shares that comprise an index), listed investment company (invests in a variety of companies and assets but is typically more expensive than a managed fund), or chess depositary interest (allows shares of a foreign company to be traded on Australian markets, such as the ASX).
When purchasing shares, you can do it ‘at limit’ or ‘at market.’
A limit order requests that you provide a maximum purchase price for your buy order. When the price of the shares reaches a specified level, trades are automatically conducted.
The limit order is useful for people who want to acquire shares when the price drops but don’t want to spend all day staring at their computer screens watching the stock.
A market order is when you acquire shares at the current market price right away.
4. Where to Buy Shares?
Shares can be purchased or sold through a stockbroker or generally referred to as a ‘financial adviser.’
Stockbrokers are authorised financial advisers who advise clients on managing their financial affairs and provide clients with access to the share market.
Financial advisers need to be licensed by the Australian Securities and Investment Commission (ASIC) and are governed by their own set of laws, called the Corporations Act 2001. The Corporations Act sets out the rules and regulations that financial advisers need to follow.
When dealing with a financial adviser, you have access to a lot of information, such as current share prices, company financial reports, information on companies listed on the ASX, and historical share price data for the companies you’re interested in.
Conclusion
The share market can be a great way to grow a portfolio, but investors need to understand that there are advantages and disadvantages to investing in shares. Before you begin investing, you need to understand the share market, how share prices are determined, the risks and rewards, and how to make an investment.
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