How to trade and invest in shares in Australia

The stock market works by facilitating the buying and selling of different companies’ shares between institutional and retail investors. Companies are in control of the number of shares that they’d like to be released – and the level of interest that a company’s shares draws in has a large impact on the share price.

The ‘traditional’ way to go public is through an IPO, in which an underwriter will sponsor a company’s public listing, setting a target share price. In this IPO process, a company’s financials will be heavily scrutinised before the listing, which helps to eliminate certain risks for institutional and retail investors because they’re able to make a more-informed decision.

Other ways that companies can go public include direct listings and SPACs. Direct listings enable a company to go public directly through a stock exchange. The company’s current employees and stakeholders will be able to convert their equity in the company into tradeable shares, which can then be issued through a stock exchange to the general public.

SPACs (special purpose acquisition companies) – sometimes known as reverse takeovers – are a more unorthodox way to go public, but there have been some high-profile examples in recent years. In basic terms, a SPAC is a shell company that’s set up with the sole purpose of carrying out an IPO, and then merging with a private company – taking the private company public in the process. Virgin Galactic is perhaps the most well-known company to have gone public through a SPAC.

As for why companies go public, there are several reasons. Most importantly – it’s a way to raise capital, which can help to fund expansion and further growth. Going public also carries a certain amount of prestige, especially if the company becomes a ‘blue chip’ – generally seen as the most stable companies in their sector.

Stability brings increased shareholder confidence, which will help to increase the company’s share price and subsequent market capitalisation. Eventually, a publicly listed company may start to look at acquiring other companies in its sector, and this can help to boost its own talent base – facilitating still further expansion.

For most people in Australia, there's no difference between buying, trading and investing in shares. With us, you'd open a share trading account which allows you to buy shares and own them. This is also known as trading or investing in shares.

We also offer CFD trading which is different and involves trading on leverage. This carries greater risk of gaining or losing money more rapidly. That's why you might hear some people talking about trading shares with CFDs.

Every trader has a different preference for the share opportunities they choose. For example, some people prefer the low risk and potentially high reward opportunities that blue-chip stocks bring, or the additional income and compound returns of dividend stocks. Others might prefer the volatility of penny stocks.

You should carry out analysis – both technical and fundamental – when you’re trying to find a company to take a position on.

We’ve got a market-leading out-of-hours trading offering. You’ll be able to speculate on the price movements of over 140+ key US shares when you might not otherwise be able to. Volatility doesn’t wait for the main market session – so we’ve made it so you can trade the pre-market open and post-market close.

DMA is direct market access, and it’s available with share trading. DMA lets you open a position directly through the order book of an exchange, giving you deep liquidity, full market visibility and advanced execution.

Our DMA platform is called L2 Dealer, and it enables you to trade shares with DMA. You’ll get access to Level 1 and Level 2 pricing data. Level 1 data will give you the pricing direct from an exchange, while Level 2 will also show the exchange’s order book.

Liquidity determines how easily something can be bought and sold. High liquidity makes it easier to quickly buy or sell, low liquidity makes buying and selling quickly more difficult. In share trading, you might want to pick shares with high liquidity if you’re planning on opening and closing a lot of positions in a short period of time.

Execution is the ease with which your trades are placed and filled. Our execution has been built to ensure that your trades are filled how you want, when you want – every time.

Compound interest is the interest that you earn on your interest. When investing, compounding lets you generate returns from reinvested earnings – things like dividends. To take advantage of compound interest, an investor must reinvest any interest earnings from their investments – which increases their total investment pot – and they must leave this pot to earn further returns over time.

As an example of compound interest, let’s say you save or invest $1000 and you achieve a return of 5% a year. In year one, your $1000 earns $50. You keep that in your savings or investment pot. In year two, your pot of $1050 earns $52.50.

Again, you leave the interest in your pot. In year three, your pot is now $1102.50 and it earns an interest of $55.13. By the end of year five, your pot is worth $1276.29 and you have earned $276.29 in interest.

By leaving the interest payments on investment earnings in your pot, it is generating more interest itself. Over time, this effect can be amplified because you’ll be reinvesting more earnings from your interest into your total investment pot.