Talk to a broker

Most stockbroking firms require you to provide funds prior to your first purchase of shares with them. Once your account is established, you can then place buy and sell orders over the telephone, or in many cases, over the Internet.

When placing an order with your adviser, it is a good idea to ask (or determine over the Internet) the current market price of the stock. Your broker will then want to know the name of the company, the type and number of shares to be bought or sold and possibly the price that you are prepared to buy or sell at. Do not tell your broker the total cost of the shares you want to purchase, brokers ‘talk’ in terms of numbers of shares. Telling your broker to buy 20,000 NAB shares will cost you close to $460,000, not $20,000.

Market and limit orders

You can place your order to buy or sell ‘at market’ meaning you will accept a price at or about the market price of the shares at the time you are placing your order. Alternatively, you can place an order ‘at limit’ and inform your broker of the highest price you are prepared to pay or the lowest price at which you will sell.

Trading ‘at market’ is useful when you are acting upon time sensitive information, and believe that you need a trade completed before the price of the share moves unfavourably. However, on thinly traded stocks, or stocks whose price is fluctuating quickly, you may not conclude your trade at the price you hoped for.

Placing your order ‘at limit’ ensures that you will not pay more than you specify for the `shares you are buying, and won’t accept less than you specify when you are selling. Considered a ‘safer’ way of buying and selling shares because you specify the prices involved, the downside is that the price of the underlying stock may move before you are able to trade, and because the price you specified was not reached, the trade will not occur.

Fees and other costs

You will be charged a brokerage fee and State Government stamp duty for any purchase or sale of shares. Brokerage fees differ significantly between stockbroking firms. They are generally determined by the level of service they offer, with higher fees often required to support research functions and other services.

The fees charged may be as a percentage of the transaction with the percentage often reducing on transactions of higher value. Some firms may charge a flat fee for transactions up to a certain size, and most firms charge a minimum fee for all transactions. You may be able to negotiate a particular scale of fees with your stockbroker based on the volume of business you do.

Settling you account

After your trade has been conducted by your broker, you will receive a contract note setting out the particulars of the transaction. Settlement must take place within three business days after the transaction (a system called T3).

Once you have placed an order and it has been filled, you are required to fulfil your side of the transaction even if you have not yet received the contract note. Settling means paying for the shares if you are buying, or providing the shares you are selling.

Records and certificates

One of the first things you will receive from a company in which you own shares is evidence of that ownership in the form of an issuer sponsored holding statement or a CHESS holding statement. Share certificates have now been phased out and all share holdings on the ASX are registered electronically (also referred to as uncertificated holdings).

CHESS is an electronic transfer and settlement system that has brought significant improvements to the Australian share market. Securities of over 1,200 listed companies are held on CHESS.

The CHESS Securities Clearing House (SCH), on behalf of companies, issues holding statements to uncertificated shareholders who are sponsored by brokers or institutions which participate in CHESS. A separate statement is issued for each security held in CHESS. A statement is issued whenever the holding balance of a security has been altered by a transaction during the month.

CHESS holding statements are accumulating. This reduces the amount of paper that needs to be kept by sponsored uncertificated shareholders.

With CHESS accumulating holding statements, transactions accumulate over a financial year (July 1 – June 30). A new statement page is issued to reflect transactions from July I each year. At other times, transactions for previous months are repeated in subsequent statements until a statement page is full. Once full, a new set of transactions commences on a new page. The page number increments by one and the first line of the statement shows a balance brought forward from the previous page – much like a series of bank account statements.

IPOs – Buying shares in a float

A company floats when it seeks to raise capital by offering its shares to the public for the first time. Often called an IPO in the financial press, the process is an Initial Public Offering.

The company that intends to float must first submit details of its business and the proposed share issue to the Australian Securities and Investments Commission (ASIC) in the form of a prospectus.

If you want to invest in the company, you must review the prospectus, fill in the attached application form specifying the number of shares you want to buy and send it with payment directly to the company or lodge it with your broker.

Companies wishing to have their shares traded on the sharemarket must first be listed on the ASX. To become listed, a company must be large enough for there to be a market in its shares, and it must agree to abide by the ASX Listing Rules.

Each year, additional companies seek to raise capital through listing on the ASX. Companies that have listed in recent months include HWW Limited (HWW), Melbourne IT (MIT), Chaosmusic Limited (CHS) and realestate.com.au (REA).