How to buy & sell shares

Buying and selling shares

The most common way to buy and sell shares is on the share market using a broker or broking service.

You can also buy shares through a prospectus when they are first put on the market or indirectly through a managed fund. Another way to buy shares is through an employee share scheme.

Using a broker to buy and sell shares

You can choose whether you want to a use an online broking service and make your own investment decisions, or use a full service broker who can give you advice and recommendations.

Online broking service

If you are looking for the lowest possible fees, an online trading account might suit you. The fee to buy or sell a parcel of shares starts from around $30. You're only charged when you buy or sell a share.

Full service brokers

A full service broker charges more but they can also advise you on what to buy and sell. The law requires brokers to have a reasonable basis for their recommendations. They must also tell you about any interests they have in investment decisions they recommend to you.

Brokerage fees are usually based on a percentage of the value of the purchase or sale. The percentage typically reduces as the amount of the transaction gets bigger. Most brokers have a minimum fee which they charge. Typically, the fee on a transaction of up to $5000 will be 2.5%. For large trades, it may only be 0.1%. Small trades worth a few thousand dollars can therefore be relatively expensive.

Use the Australian Securities Exchange's find a stockbroker tool to help you find a broker that suits your needs.

Buying shares directly

Initial public offerings (IPO)

Companies may decide to offer new shares to the market as a way of raising capital. This is called a 'float' or an 'initial public offering' (IPO).

Smart tip

If you don't understand something in the prospectus, speak to a stockbroker or financial adviser.

The best way to decide if you should invest in an IPO is to read the prospectus. This document must contain key details about the company and the float, and it must be lodged with the Australian Securities and Investments Commission (ASIC). To check if the issuer has lodged a prospectus, see ASIC's OFFERlist database.

All prospectuses must contain information on the features of the securities being offered, including how many are for sale, how you can apply to buy them; as well as information on the company, its operations and financial position; and the risks associated with the offer.

We recommend you read the whole prospectus, to help you decide if the company suits your investment objectives.

Video: What to look for in a prospectus

What is a prospectus video

Kate O'Rourke and Jane Eccleston from ASIC talk about what to look for in a prospectus before you invest.

Your prospectus checklist 

Check the prospectus to answer these questions:

  • Sector - Do you understand the sector the company operates in, or plans to operate in?
  • Competitors - Who are the business' competitors and why does the company think it can compete with them?
  • Financial prospects - Do you understand the financial statements? Have revenues/profits been growing? If the company is not profitable, do you get a clear sense of when (if ever) it might be profitable? Companies at an early stage of development are a much riskier investment proposition.
  • Relative value - What is the price-earnings ratio (P/E ratio) of the company? How does this compare with its competitors? The P/E ratio will help you to get a sense whether the IPO is fairly priced. Generally, a higher P/E ratio means investors expect higher growth.
  • Dividends - Does the company intend to pay a dividend? If so, when is this expected?
  • Purpose of float - How will the company use the funds raised through the IPO?
  • Licences - Does the company have all the necessary licences and permits to operate? If not, when will it get them?
  • Directors - Are the company's directors and managers paid what you would expect for the company's size and industry? Do the directors and managers appear to have appropriate skills and experience? Check that they are not listed on ASIC's Banned and disqualified register. The prospectus should disclose if any of the directors have managed a company that failed in the last few years.
  • Advisers - How much are independent advisers paid as a percentage of the funds raised by the IPO? If the fees exceed 10% then you should consider whether the company's advisers are being fairly remunerated. The more money that goes to advisers, the less that is available to the company.
  • Risks - Is the risk disclosure section detailed and specific to the company? Vague language or general disclosures (such as warning that the price of shares can go down) could be a sign the company is not telling you everything you need to know.
  • Profit estimate - Are the assumptions underlying the profit estimates (e.g. demand for the goods or services produced, or assumed economic conditions) reasonable? What will happen if they vary? Also think about your investment timeframe and how you may be affected if the projections turn out to be optimistic.

If the answers to any of these questions raise doubt in your mind about the company's prospects, get professional advice before investing. Alternatively, look for an investment you can understand more easily or, if you want to take a chance with the IPO, only invest money you can afford to lose.

Buying shares through crowd-sourced funding

Crowd-sourced funding (CSF) (also called 'equity crowd funding' or 'crowd-sourced funding of shares') is a way for start-ups and small and medium-sized companies to raise money from the public to finance their business. You can invest up to $10,000 a year in a company and in exchange you'll receive securities in the form of shares.

Crowd-sourced funding of shares is different from crowd funding

Crowd-sourced funding of shares is different from the donation-based crowd funding typically used by artists or entrepreneurs to raise money for one-off projects.

It is also different from investment-based crowd funding, which may involve investing in a managed investment scheme or be offered by someone who does not need an Australian financial services (AFS) licence.

If you want to invest in a company offering shares through a CSF website, you will be asked to acknowledge that you have read and understood the risk warning listed on the website and in the offer document.

You can only invest up to $10,000 per company in a 12-month period, so your application will be rejected if you try to invest more than the cap.

You have a cooling-off period of 5 business days to change your mind if you decide the investment isn't for you. During this time, you can withdraw your application to invest and receive a full refund.

Check the intermediary is licensed

Ensure the company has listed their offer on a website that is run by a licensed intermediary. Check ASIC Connect's Professional Registers to see if the website operator has an AFS licence that allows it to legally provide CSF services. If they do, the information will be listed under the section called 'licence authorisation conditions'.

Risks of crowd-sourced funding

Some risks of crowd-sourced funding include:

  • Lack of company track record - Some businesses that raise money through crowd-sourced funding are new or in the early stages of development, so there's more risk that the business will be unsuccessful and you may lose all the money you invested. Read all the information available on the CSF website to check specific risks associated with each business, as well as doing your own research on the company.
  • Shares may fall or be hard to sell - Even if the company is successful, the value of your investment might fall, and the return you receive could be reduced if the company issues more shares. Your investment is also unlikely to be 'liquid', so if you decide you need the money you've invested, you may not be able to sell your shares quickly, or at all.
  • Risk of fraud or insolvency - If your money is handled inappropriately or the intermediary operating the website becomes insolvent and hasn't met its obligation to keep your money separate, you may lose all the money you've invested.

Before investing, read the offer document issued by the company and use the portal on the CSF website to ask questions about the company or investment.

Employee share schemes

Employee share schemes give employees shares (or the opportunity to buy shares) in the company they work for. The shares might be offered without a brokerage fee or at a discount to the market price, but carefully read the terms and conditions in the offer, as there may be restrictions on when you can buy, sell and access the shares.

Indirect share investments

Managed funds

When you invest in a managed fund, your money is pooled with that of other investors. A professional fund manager buys shares and other assets on your behalf and tries to outperform the market. This is a convenient way to buy shares where someone else is responsible for the buy and sell decisions, but watch out for the fees charged by the fund manager.

Listed investment company (LIC)

A listed investment company (LIC) uses money from investors to invest in a range of companies and other assets. LICs pay dividends from their earnings and often have lower ongoing costs than managed funds. However, they may be less suitable if you invest small amounts regularly, as there are stock broking fees on each contribution.

Exchange traded funds (ETF)

An Exchange traded fund (ETF) invests in a basket of shares that make up an index, e.g. the ASX200 Index. An ETF allows you to diversify your portfolio without having a large amount of money to invest.

You can buy or sell ETFs just like any other share. They generally have lower ongoing costs than managed funds, but may be less suitable if you invest small amounts regularly, due to a stock broking fee on each contribution.

CHESS Depository Interests over shares

CHESS Depository Interests (CDIs) are used to allow shares of foreign companies to be traded on Australian exchange markets. You can buy CDIs on any of the public exchanges in Australia.

When you buy CDIs you own shares in the foreign company, but the shares are held by a depository nominee on your behalf.

CDIs can be swapped for foreign shares, and vice-versa, at any time. However, if you choose to swap your CDIs for foreign shares, you will not be able to sell them on an Australian exchange.

Generally, if you own foreign shares through CDIs, you will receive many of the same benefits as other shareholders, including entitlements such as dividends and the right to participate in share offers made by the foreign company to its shareholders. However, you will be unable to vote in person at a company meeting unless you are allowed to by the laws of the country where the company is established (but you can direct the depository nominee to vote on your behalf).

For more information about the differences between holding CDIs and directly holding shares in the company, read the prospectus or other disclosure documents prepared by the foreign company you wish to invest in.

For more information about CDIs, see the ASX publication Understanding CHESS Depository Interests.

Selling your shares

Regardless of how you buy shares, at some stage you may want to sell them.

If you hold the shares directly you can sell them by placing a trade online or contacting your broker. When your trade is executed you will be charged a brokerage fee.

Smart tip

When you sell your shares or units in a managed fund, keep a copy of the trade confirmation or receipt for tax purposes.

When you sell shares, the legal title of ownership is exchanged. Settlement for the sale and transfer of ownership occurs 2 business days after the trade takes place (this is known as T+2). Once settlement is completed, the money for the sale of the shares is transferred into your designated bank account.

If you hold shares indirectly through a managed fund, you can sell them by selling your units in the managed fund. Before you do this, check if there are any withdrawal costs. For more information see how to buy and sell managed funds.

Share buy-backs

Sometimes a company you own shares in may offer to buy back some of its own shares.

If you receive a buy-back offer, you have the right to decline if you wish. Before you decide, consider these questions:

  • Why does the company want to buy back its shares? - The company will send you a document explaining why it is making the offer to buy back its shares, and the steps it is taking to do this. For example, the company may want to distribute surplus money back to shareholders, or reduce administrative costs in a listed company by buying out holders of small parcels of shares.
  • Is now a good time to sell? - You're not obliged to sell, so if you're happy with the company's prospects, you can keep your shares. However, if you were thinking of selling your shares anyway, selling them back to the company as part of a share buy-back offer will save you paying broker's fees.

Unexpected offers to buy your shares

If you receive an unexpected letter offering to buy some of your shares, there are some checks you should do before you decide to accept the offer.

Find out who is making the offer and why

Check whether the offer is from a legitimate company by using ASIC Connect to search within 'organisation and business names' for the company's details and contacting them.

The company or person making the offer wants to make money, so perhaps there is public information about something that is about to happen to your shares that you may not know about. Check company announcements on the ASX or talk to a stock broker in case you missed important news that was released to the market.

What are the shares really worth?

Get an up-to-date market price for your shares and compare it with the price being offered. You can check with the company, the ASX or a stockbroker.

Check the contents of the offer 

The law restricts the way an offer can be made. For example, the offer document should be dated and identify who is making the offer and give you at least one month in which to accept. It must also state:

  • the price offered
  • if you will be paid in instalments
  • how and when those instalments will be paid.

If your shares are not sold on the ASX or any other exchange, the offer document must state a fair estimate of the value at the date the offer was made. It must also explain how they arrived at this estimate.
If your shares are sold on the ASX or another exchange, the offer document must state the market price for those shares the day the offer was made.

Report the offer

Although it is not illegal to make an unsolicited offer to buy your shares, it is against the law to mislead shareholders into making or accepting an offer. Check the contents of the offer carefully.

To report an unexpected offer which you believe is against the law, visit the ASIC website or call 1300 300 630.

Invest in shares only if you are happy with your understanding of the stock market and are prepared to research and manage your portfolio on a regular basis.

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Last updated: 12 Feb 2019