How to 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 in those a large impact on the share price.

Companies generally go public through an IPO. 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 to go public include direct listings and special purpose acquisition companies (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 – 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.

Buying shares can refer to two different activities: investing or trading. When investing, you buy shares to own them, often holding them long-term for potential growth and dividends. This is also known as ‘buy-and-hold’ investing.

Trading, on the other hand, focuses on speculating on share price movements, often using products like CFDs. Traders typically aim to profit from both rising and falling prices over shorter periods, using leverage.

With our share trading account, you'll be investing – buying and owning actual shares. For trading with CFDs, we offer a separate trading account.

Every person 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 shares 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.

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, you must reinvest any interest earnings from your investments – which increases your total investment pot – and you must leave this pot to earn further returns over time.

As an example of compound interest, let’s say you save or invest $1,000 and you achieve a return of 5% a year. In year one, your $1,000 earns $50. You keep that in your savings or investment pot. In year two, your pot of $1,050 earns $52.50.

Again, you leave the interest in your pot. In year three, your pot is now $1,102.50 and it earns an interest of $55.13. By the end of year five, your pot is worth $1,276.29 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.