How to Buy Shares in Australia for the First Time
Learn the essential steps to confidently buy shares in Australia for the first time. This guide simplifies the process from start to ownership.
Investing in shares can be a way to participate in the growth of companies and potentially build wealth. In Australia, this process involves understanding specific requirements and navigating the financial landscape. This guide outlines the foundational elements necessary before trading, the steps to setting up a brokerage account, the mechanics of placing an order, and the associated costs and ownership details for purchasing shares on the Australian Securities Exchange (ASX).
Understanding Essential Prerequisites
Before engaging in share trading in Australia, establishing certain foundational elements is necessary. A Tax File Number (TFN) is a unique identifier issued by the Australian Taxation Office (ATO) and is required for all Australian tax purposes, including investments. Providing your TFN to your broker ensures appropriate tax is withheld from investment income and simplifies your annual tax reporting. If you do not have a TFN, you can apply for one directly through the ATO website.
The Clearing House Electronic Subregister System (CHESS) is a fundamental aspect of Australian share ownership. CHESS is the system operated by the ASX that records shareholdings and facilitates the settlement of share transactions. When you purchase shares through a CHESS-sponsored broker, your ownership is directly registered under your unique Holder Identification Number (HIN). This provides a direct and secure record of your shareholdings.
A linked bank account is necessary for your investment activities. This account serves as the primary channel for depositing funds into your brokerage account to finance share purchases and for receiving dividends or proceeds from share sales. Ensure the linked bank account is in the same name as your brokerage account to avoid delays.
Choosing and Setting Up Your Brokerage Account
Selecting a stockbroker is a crucial step. The market offers various types of brokers, including online discount brokers and full-service brokers. Online discount brokers generally provide lower fees and self-directed trading platforms, suitable for those who prefer to manage their own investments. Full-service brokers offer more comprehensive advice, research, and personalized services, often at a higher cost.
When choosing a broker, consider factors such as the fee structure, including brokerage fees or commissions per trade, and any ongoing account keeping fees. Evaluate the features of their trading platform, looking for user-friendliness, access to research tools, and customer support. Security measures and the ease of funding and withdrawing from the account are also important considerations. Many platforms offer CHESS sponsorship, which directly registers your shares under your HIN.
The process of opening a brokerage account typically involves an online application. You will need to provide personal details and undergo an identity verification process, often requiring documents like a driver’s license, passport, or Medicare card. During the application, you will link your Australian bank account and provide your TFN. Once your account is approved, you can fund it using various methods such as electronic funds transfer (EFT), direct debit, or BPAY.
Placing Your First Share Order
With your brokerage account established and funded, you are ready to place your first share order. Log into your online brokerage platform, where you will typically find a trading interface. You will need the stock code, also known as the ticker symbol, for the company whose shares you wish to purchase. This code identifies the company on the ASX.
When placing an order, you will choose between a “market order” or a “limit order.” A market order instructs your broker to buy shares immediately at the best available price. This order prioritizes immediate execution but does not guarantee a specific price. A limit order allows you to specify the maximum price you are willing to pay per share. Your order will only be executed if the share price falls to or below your specified limit price, offering price control but with no guarantee of execution.
After selecting the stock code, specifying the quantity of shares, and choosing your order type, carefully review all the details on the confirmation screen. This review ensures accuracy before submission. Once confirmed, the trade undergoes a settlement process known as T+2. This means the exchange of money for shares and the transfer of ownership occurs two business days after the trade date.
Navigating Costs and Ownership Details
Understanding the financial implications of share trading extends beyond the purchase price. Brokerage fees, also known as commissions, are charged by your broker for executing trades. These fees can vary, often ranging from a flat fee for smaller trades to a percentage of the trade value for larger transactions. While brokerage fees are the primary cost, other minor levies or fees might be bundled into the overall transaction cost.
Following a successful share purchase, your ownership is officially recorded. The Holder Identification Number (HIN) plays a central role in confirming your direct ownership of shares within the CHESS system. After a trade, you will receive a contract note, which serves as a legal confirmation of the transaction, detailing the shares bought, the price, and the brokerage fees. You will also receive holding statements, which confirm your shareholdings registered under your HIN.
Two primary tax considerations for Australian share investors are Capital Gains Tax (CGT) and dividend income. Capital Gains Tax applies to any profit made from selling shares. If shares are held for less than 12 months, the entire capital gain is added to your assessable income and taxed at your marginal income tax rate. For shares held for 12 months or longer, individuals may be eligible for a 50% discount on the capital gain, meaning only half of the gain is included in their assessable income.
Dividends received from Australian companies are considered taxable income and must be declared in your tax return. Australia’s imputation system provides “franking credits” with many dividends, which represent the tax already paid by the company on its profits. These franking credits can reduce the amount of income tax you owe on the dividend, or in some cases, result in a tax refund.