By Allison Tait, ninemsn Finance
As with all types of investment - and most things in life - the first step is always to conduct research. While you may have a mate with a mate who heard about a "hot tip", remember you're dealing with your money - money you've worked hard to earn. Don't throw it away without knowing where it's going.
"I recommend that beginners start by reading newspapers either print or online," says Marise Cheney, founder of Learnhowtotradeshares.com.au. "Pick some common stocks or companies perhaps one within the industry in which you work, a bank and a miner. Look for articles on those companies not just within the business section, but throughout the paper."
Reading all the information you can on a company will help you to see how all factors affect the price of its shares. An obscure article in the social pages about a director's messy divorce, for instance, has the ability to affect the share price.
"When you check the price the next day, you can see if a price has gone up or down and begin to relate it to what you've read," Cheney says. "Reading the business pages also allows you to familiarise yourself with the language."
According to the Australian Securities Exchange website, there are two distinct points at which you can purchase shares:
- From the company itself, in the very first instance of the shares being offered in a float (float being the term used when a company seeks to raise money by offering its shares to the public for the first time).
- Buying them from other investors, via the share market, following the float. Once shares are listed on the Australian Securities Exchange (at the time of the float) they can only be bought and sold through a broker.
"You don't need to use a full-service stockbroker (that is, a broker who also gives you advice) to trade shares," Cheney says. "You can trade through an online broking service such as Commsec or E*trade."
To do this, you need to set up an account with the discount broker of your choice Cheney recommends a pay-per-trade account and from there, you're ready to go.
The first step
Before you conduct a real trade, Cheney suggests setting up a "watch list" within your account. Choose the stocks you're interested in and then simply watch their prices.
"You might watch for six months, or even longer, to get a feel for what they're doing," she says. "It helps you to decide which ones you might buy into."
You could also participate in some of the ASX's Sharemarket Games, which are free to play and allow you to "buy" and "sell" shares under simulated share market conditions. These games allow you to set up an artificial portfolio and will help to give you an idea of how you'd go with real money over the same period.
How it works
The actual buying and selling of shares is a fairly simple transaction. If you are going through a stockbroking firm, you set up a client account (most will require funds in advance of conducting your first trade), and then place an order for specific shares either "at market" which means a price at or about the market price when you place the order or "at limit" which means you give the broker a figure that is the highest price at which you'll buy (or the lowest price at which you'll sell).
If you're going through an online broker, you place the order yourself, when you think the time is right.
All shareholdings are registered with CHESS (the Clearing House Electronic Subr egister System).
Once you have your shares you need to decide how long to keep them. You can hold onto them for the long term and enjoy the dividends (shareholder payments) that they bring. Or you can keep them for a short term in hope of making a quick gain.
"It's good to have a mix of long-term, blue-chip shares for dividends, and short-term shares for growth," Cheney says. "Either way, though, you must have an exit strategy."
An exit strategy is the price at which you will sell the share if it drops. "It's more difficult than buying," Cheney says. "Most people can't get their heads around the idea of a share going down. Have a figure in your mind."
Selling your shares is a similar process as buying, but in reverse.
Marise Cheney's top 10 tips for buying and selling shares
- If you plan to use an adviser or stockbroker, do your research and ensure they are qualified to give advice.
- Create a "watch list".
- Try some paper trades (low-value trades) or the ASX share market game for practice.
- Attend a course. The ASX offers free courses that cover the basics in buying and selling shares.
- Be wary of "hot tips". There's no substitute for your own research.
- View potential shares with objectivity. Emotions can cloud your thinking.
- Try to attend relevant meetings or seminars. Talk to other people who invest and ask about their strategies.
- Diversification is the key. Spread your stocks over different companies.
- Have a plan and stick to it. Know when to buy and when to sell.
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