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BUYING SHARES

One thing to remember when trading is that you should never feel intimidated when talking to your broker. If you don’t understand something, just ask them to explain it. For example, when buying or selling a share, the broker may tell you that the shares are 50c bid, 52c offer. If this terminology confuses you, just ask for an explanation. This simply means that there are people wanting to buy the shares at 50c and there are people wanting to sell the shares at 52c. So if you want to buy right away, you will have to pay 52c, which is the lowest price at which shares are being offered for sale, and if you want to sell right away

Now that you have signed up with a broker, you are ready to start buying shares. At this stage, all you have to do is contact your broker and ask to buy x shares in x company at x price (as mentioned, some brokers will require you to have funds deposited with them before they will buy shares for you). It’s as simple as that! You will have to check with your broker to see what price the shares are trading at. If a company is trading at $1 per share, there is not much point in trying to buy on that day at 50c.

The broker then executes the order on your behalf by entering it into their computer system, and transmitting it to the ASX. CHESS transfers the shares electronically and notifies the company’s share registry of the transaction and of your details. You will receive confirmation of the order via a contract note, which is sent to you via email or post by your broker.

Settlement and transfer

When you buy shares, on the other side of the transaction there is a seller. For every buy, there is a sell. The money you owe for the shares is owed to the seller and must be exchanged for the seller’s ownership in the company. This process is called settlement and transfer.

The contract note that you are sent serves a greater purpose than just confirming your order. This contract note itemises the cost of the shares, including the brokerage and GST. You need to pay the amount shown within three business days of the transaction date, as shown on the contract. This is known as T+3, which is the transaction date plus three days. On the contract note, this date is often referred to as the settlement date.

One important point to mention here is that you can’t pay your broker via credit card. Brokers offer several payment options, but credit card is not one of them. You may have a linked cash management account with the broker, in which case purchases will be made directly from your account (as previously mentioned, some brokers will require this before they allow you to proceed) or you might use BPAY over the phone or send in a cheque. Brokers also generally offer direct deposit and direct debit as payment options. Be sure to ask your broker which payment options are available.

When buying or selling shares with a broker, just remember that beyond brokerage, you must also pay GST on the purchase or sale, which is ten per cent of the cost of the brokerage. Prior to 1 July 2001, you also had to pay a Government stamp duty of 15 cents per $100 of value on most types of transactions.

Selling Shares

When the time comes to sell your shares, you will need to contact your broker. The process is the same as buying shares, except you instruct your broker to sell x shares in x company at x price. Your broker will inform you of the price of the share, so that you can set the limit. Again, make sure you set a limit when selling online.

CHESS will transfer the shares and will notify the company share registry of the transaction and the new shareholder’s details, the person who bought what you sold. In three to four business days, you will receive proceeds from the sale, less brokerage and GST.

How do I access live share prices?

Checking the newspaper each day is helpful for telling you what each company closed at the day before, but if you want live share prices, head straight to the Internet.

There are an abundance of share trading sites, providing share-buying advice, with live feed from the stock market and some offer a free service. Just ask your broker or the ASX.

Profile: Warren Buffett

Far and away the most famous and successful stock market investor of all time.

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Why Invest in Shares?

Beyond shares being the best long-term investment and having tax benefits, they also offer other advantages, including flexibility and liquidity.

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