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How to buy shares online
New to online share trading? Check out this step-by-step guide on how to buy shares
Thanks to online share trading platforms, buying and selling shares online is easier for the average Joe than ever before. This step-by-step guide explains how you can start buying and selling stocks on exchanges around the world, and also has plenty of tips to help you get the most out of your online trades.
Let’s get started.
Open a share trading account
Step 1: Choose an online share trading platform
Choosing an online share trading platform (aka online broker) can be one of the most difficult parts of the process. There are dozens of platforms available to investors – many provided by specialist share brokers.
Make sure you compare the features and fees of a number of platforms before choosing the right one for you. Depending on what you’re after, it may save money to have more than one platform; for example, one for New Zealand shares and the other for another market such as US stocks or forex.
What you need to consider when picking a broker:
- Brokerage fees. This is the fee that applies to each buy or sell transaction. Depending on the platform you choose and the size of your transaction, this could be a flat fee or a percentage of the total transaction cost.
- Other fees. Brokers can charge all kinds of additional fees to use their platform. Some of the most common include an inactivity fee, subscription fee and foreign exchange fee.
- What you can trade. Some platforms offer access to the NZX only, while others also allow you to trade on stock exchanges all around the world.
- Ease of use. Consider how easy each platform is for the type of trading you want to do. Most providers give you the option of a free demo account for a short period so you can trial the features they offer.
- Who the platform is suited for. Some share trading platforms are designed with casual investors in mind, others are more suited to active and experienced traders.
- Customer support. How easy is it to get in touch with the provider if you ever have any issues? Is their customer service team based in New Zealand?
There are plenty of other factors you’ll need to take into account, so check out our guide to choosing the best online share trading platform for more details.
Step 2: Sign up for an account
Once you’ve chosen a platform you’ll need to register for an account. This step is usually free, but keep in mind that some providers may charge subscription fees or ongoing fees for features such as market research.
The registration process takes place online and if you’re a new customer you’ll need to provide:
- Your name, address, date of birth and contact details
- Your IRD number
- Proof of ID
- Linked bank account details
You’ll usually be asked to deposit a specified minimum amount in order to open an account. Once your application has been assessed and approved, it’s time to start trading.
Step 3: Choose the shares you want to buy
You may have already decided what shares you want to buy but if not, now’s the time to start researching stocks that match your investment goals. You’ll often be able to access a wide range of market research, analysis and even trading recommendations through your platform, so use this info to help make an informed decision.
You’ll also need to consider the number of shares you want to buy. This will obviously be down to your budget and your investment goals, but keep in mind that issuers of securities on the NZX may have their own minimum holding requirements.
It’s also worth pointing out that larger purchases may incur higher fees or involve different fee structures depending on the trade. For example, your platform may charge you $30 as a brokerage fee to buy a smaller number of shares, but will change the fee structure to 0.1% of the trade value when larger amounts are purchased.
Step 4: Place your order
This is where things can get a little confusing for novice share traders. You have two main options when placing a trade to buy shares: you can place the trade “at market” or “at limit”.
- Market orders. You place a market order when you want to buy a share immediately at the best price currently available.
- Limit orders. Placing a limit order allows you to set a maximum purchase price for your buy order. If that price becomes available within your specified time period, your trade will be executed.
Depending on the platform you choose, you may also be able to take advantage of a range of conditional orders that allow you to take advantage of market opportunities. For example, by placing a rising buy order, you can instruct your online trading platform to buy shares in a particular company once its stock price reaches a certain level.
Once you’ve entered all the specifics of your transaction, you’ll then get a chance to review all those details before placing your buy order.
Step 5: Pay for the transaction
You’ll need to have sufficient funds in your online share trading account to cover the cost of the transaction, including the brokerage fees that apply. The trade settlement period on the NZX is two business days, commonly referred to as T+2.
Step 6: Monitor the performance of your shares
Now you’ll need to monitor the performance of your shares in regard to your investment plan. However, the frequency with which you monitor them will depend on your strategy. For example, if you have a long-term investment strategy, you may only check in and see how your shares are performing every month. If you have a medium-term strategy, it may be a good idea to check each night or each week.
Whichever option you choose, you can review the performance of your investments by logging into your trading account.
Step 7: Sell your shares (if you want to)
When you decide to sell your shares, the process is very similar to the method of buying shares described in Step 4. Once again, you can choose whether you want to sell them via a market order or a limit order. A market order means the shares will be sold immediately at the best available price, while a limit order allows you to set the minimum sale price you’re willing to accept.
Tips when buying shares
If you want to get more out of your online share trading, try to keep the following tips in mind:
- Do your homework. Making informed trading decisions is crucial to the success of your investments. Research the financial health and growth prospects of companies by poring over annual reports, keeping an eye out for company alerts, reading share prospectuses and accessing research reports.
- Stay up to date with the economy. Keep an eye on the health of the economy, RBNZ interest rate decisions, government policy changes, levels of investor confidence, exchange rates and the performance of share markets. All of these can influence when is and is not a good time for you to invest.
- What about speculative shares? Speculative companies have a shorter history doing business. Some investors are attracted to buying shares in these companies because they offer the potential for large returns, but be aware that they also have the potential to suffer large losses.
- Buy what you know. Rather than diving in at the deep end and investing in a company which operates in a field you have little or no understanding of, start with industries and businesses you have some sort of background knowledge of.
- Diversify. If you want to minimise your exposure to risk, diversify your portfolio across a range of different industries. If you buy shares across five or six industries instead of just one or two, you can be better protected against losses if one particular industry experiences a sharp downturn.
Risks of online share trading
Before you start buying and selling stocks with abandon, make sure you’re aware of all the risks involved, including:
- Financial losses. A company’s share prices can fall dramatically and even drop as far as zero. This can mean significant financial losses for investors.
- Last in line. Shareholders are usually the last in line to be paid when a company goes broke. When this happens, there’s a definite chance that you won’t get your money back.
- Stress. The share market fluctuates on a daily basis, which can cause plenty of stress for investors. If you can’t handle the ups and downs you may be better off looking for a safer and steadier investment option.
- Unexpected problems. Even if you do an enormous amount of thorough research into a particular company, it’s simply not possible to predict the future. Natural disasters, terrorist attacks, bad company news, major global events like the coronavirus pandemic and even changes in government policy can all occur unexpectedly and adversely affect the price of shares.
- Lack of expertise. While investing in the share market sounds quite easy in theory, it can get quite complicated if you don’t know what you’re doing. First-time investors should be wary of getting ahead of themselves.
- Getting in over your head. A final word of warning if you’re thinking of investing in shares: don’t bite off more than you can chew. Make sure to use your common sense and take a cautious approach – good advice no matter whether you’re planning on investing in shares, property or anything else.
Frequently asked questions about buying shares online
Disclaimer: This information should not be interpreted as an endorsement of stocks, ETFs or any specific provider, service or offering. It should not be relied upon as investment advice or construed as providing recommendations of any kind. Stocks and ETFs trading involves substantial risk of loss and therefore are not appropriate for all investors. Past performance is not an indication of future results. Consider your own circumstances, and obtain your own advice, before making any trades.
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