A Simple Guide to Trading Shares in 2023
To those less familiar with the concept of online share trading, starting out may appear to be quite daunting and time-consuming. However, it doesn’t have to be – with the right education plan, beginners can soon develop their share trading knowledge to become experts.
What is a Share?
A share is a unit of ownership in a company that individuals can purchase. When you buy shares in a company, it provides you with equity in that business and because you own a portion of that business (albeit only a small % in most cases), you are entitled to receive a portion of its profits – these are known as dividends.
Shares are typically issued by a company and sold to investors in an IPO (Initial Public Offering) or during a ‘float’. After this initial offering, shares are then bought and sold by investors via the stock market. Today, shares are of one of the most popular financial instruments traded.
What Is Online Share Trading?
When people speak about “online share trading”, they are generally talking about the act of buying and selling shares, usually via the internet, using an online broker’s share trading platform.
10-20 years ago, share trading was reserved for large financial institutions, banks and wealthy individuals only. But times have changed and now all types of people from different backgrounds are trading shares – for example, it is believed that over 700,000 Australians made one of more share trades in 2018. In 1999, just 35,000 Australians made a share trade!
How Do You Trade Shares?
When you’re ready to trade shares, you have two options;
Option 1: Buy and sell physical shares on an exchange.
This form of share trading is known as traditional share trading because it’s been around a lot longer than option 2 and is the ‘old way to buy/ sell shares’.
For example, if you wanted to buy Facebook shares you would need to buy these from the NASDAQ stock exchange in New York. Traditional share trading remains popular to this day however this form of trading does not have the same benefits as shares trading using derivatives.
Option 2: Trade shares using a derivative product like CFDs.
With this form of share trading, you can trade a contract for difference (CFD) on an equity. This is an alternative to traditional share trading and the major difference is when your trade share CFDs, you are speculating (or betting) on the price movement of a share without actually owning the share itself (like in option 1 above).
Traders can go long (buy) or short (sell) on a share, depending on whether they believe a share will go up or down in value, and as you do not own the share, you do not need to stump up the full amount of the value of the shares, instead only depositing a small bit of margin to open a trade on a CFD platform. more on the benefits below.
Advantages Of Trading Share CFDs
Trading shares using CFDs comes with several advantages;
- Leverage: CFDs are a leveraged trading product – this means a trader only needs to put down a fraction of the full value of their trade (“trading on margin”), and in essence, borrows the remaining funds from their CFD broker. This allows for greater exposure and potentially greater returns, however it can also result in large losses too.
- No stamp duty: with share CFDs, any profits made are free of stamp duty. With traditional share trading, you must pay stamp duty on any profits.
- Short-selling shares: when purchasing shares in the traditional sense, you only profit when your purchased share rises in value. However, with share CFDs, you can profit in both a falling and rising market, due to the ability to short-sell share CFDs.
- Global access from one account: most CFD brokers offer 1000’s of different products to trade on their trading platform – most will offer a wide-range of global equities, as well as FX, indices, commodities, crypto’s, plus more – all from one trading account.
Who Can You Trade Stock CFDs With?
Best Stock
CFD Brokers
Available Stocks
ASIC-Regulated?
Standard Brokerage Fee
ASX Stock Cost
International Stocks?
Ongoing Monthly Fee
Max. Leverage
Stop-Loss Orders
Next Steps
How Does CFD Stock Trading Work?
Remember, when you trade CFDs, you are not buying the physical asset but instead, you are speculating on the price movement of that financial asset.
Equity CFD example:
- You believe that the current share price of Westpac bank ($28) is going to rise over the next month
- So you open a CFD account and make a trade on Westpac bank
- You buy 1000 x Westpac CFD contracts. This has a value of $28,000 ($28 x 1000 contracts). But because you are using CFDs, you only need to fund 5% of the full value ($1,400). You buy at $28
- Over the next week the stock price of Westpac increases to $29 – you have speculated correctly and you decide to exit your trade and take your profit
- You have made a profit of $1,000 ($28,000 – $29,000), less any trading costs.
What Hours Of The Day Can You Trade Stocks?
Global stock markets all have set trading hours of when you can trade equities. If the relevant stock market exchange is open, you can buy or sell shares. If the exchange is closed, you will need to wait until the exchange opens again the following day.
For instance, if you wanted to trade Royal Bank of Scotland (RBS) on the London Stock Exchange, you would be able to do so between 08:15 – 16:30 (GMT) Mon-Fri.
How Much Does It Cost To Trade Share CFDs?
Exchange data fees
To view some exchanges’ prices, you will need to subscribe to the relevant exchange data feed. The ASX is one such exchange that charges a monthly fee ($27.50) to view its prices and volume. Not all exchanges charge a fee so please research the potential costs of data feeds as they vary per broker.
Commission or spread
Most brokers will charge either a commission or a spread cost when you trade leveraged stocks using CFDs. This will vary depending on the broker. For example, TradeDirect365 charges a straight out commission for each share trade, starting at just $5. Whereas Plus500 add a spread to the live underlying price they offer.
Financing costs
If you keep a stock trade open overnight, you will be subject to a small overnight financing fee. The overnight cost can be positive or negative depending on whether you are LONG or SHORT on your trade.
