Compare Online Share Trading Platforms | Canstar (2024)

What is online share trading?

Online share trading allows you to use a web-based or app platform to buy and sell shares in companies and funds that are listed on a stock exchange. Online share trading platforms can be a relatively simple and inexpensive way to invest in the sharemarket.

In Australia,you can start online share trading with a relatively small amount, generally $500 for an initial trade, often referred to as the ‘minimum marketable parcel of shares’. (You can invest smaller amounts through fractional share investing.)

How does online share trading work?

Online share trading platforms offer accounts where you can deposit cash and then use those funds to invest in shares. In return for a fee (known as brokerage), online share trading providers act as a go-between or broker, enabling you to buy and sell shares in companies and other investment options, such as exchange traded funds.

Your investments, or holdings, are typically listed when you log in to your account. Many platforms allow you to monitor your portfolio’s performance over time, access market research and other data to help you make investment decisions.

Most online share trading platforms in Australia offer access to the Australian share market (predominantly via the ASX), while some enable you to invest in certain international markets too.

What are the fees and costs for online share trading?

It’s a good idea to be aware of any fees and other costs that an online share trading platform may charge. Some of the more common fees include:

Brokerage fees

A brokerage fee is charged by online share trading platforms to process any transaction you make to buy or sell any shares. The fee is often calculated based on the amount of the total transaction or set as a fixed fee.

Ongoing fees

Some platforms may charge you a regular fee for managing your online trading account. For example, this could be a monthly or annual maintenance fee, or an optional subscription fee to provide you with regular market data. Not all platforms charge this.

Custody fee

Some trading platforms may charge a custody fee if you don’t make any trades in a set period of time (e.g. a year). This is also known as an inactivity fee.

How do I trade shares online?

To trade shares online, you use your chosen online share trading platform to place orders on particular stocks or groups of stocks in a fund, such as an exchange traded fund (ETF).

You will usually be given an option of whether you wish to buy at market value, when the particular market is open and trading, or limit the order to a particular price set by yourself.

You need to make sure you have sufficient funds in your online account to cover any purchase costs, including any brokerage fees or other charges. If you don’t, you may incur an additional charge.

If your order is successful, the shares you’ve bought will appear in your online account so you can track their price and performance, and that of your overall portfolio. If you decide to sell your shares, you can place a sell order via your online share trading platform.

Can I make money from trading shares?

There are two ways you can typically aim to make money through shares: capital growth and dividends. Here’s an overview of each.

Capital growth

The old adage of “buy low, sell high” sums up one way investors aim to make money on the sharemarket.

The idea is that you buy shares in a company (or group of companies through a fund) that you believe will increase in value over time, then sell them for a profit if that happens.

This increase in the value of an asset is known as capital growth.

Of course, shares can fall in value too, resulting in a capital loss if you sell them for less than you paid initially.

This is why it’s important to research your investments carefully and why you may consider seeking independent professional advice before making big financial decisions.

Dividends

If you own shares in a company, you may receive a regular payment from the company based on any profit it has made. These payments, based on the number of shares you own, are known as dividends. For some investors, this can provide a stream of income.

But not all companies pay dividends. Some may choose to reinvest any profits they make.

Bear in mind, too, that companies don’t always make a profit, so when times are tough, companies may pay smaller or fewer dividends, or none at all.

Remember, you may need to pay tax on any income you receive through investing, either from dividends or capital gains. Speak to a financial advisor or tax accountant if you need help navigating these tax implications.

What are the risks of investing in shares?

Before investing in shares, it is important to consider the risks and to seek professional advice if you need it. Some of the possible pitfalls to consider include:

Losing your money

If you invest in shares, there is always a risk that you will lose some or all of the money you have invested. For example, if the company whose shares you have purchased goes out of business, you may not get any of your money back.

Volatility

Unlike keeping your money in a bank account, with shares, the value of your investment can go up and down quite frequently. If you need to sell your shares at a time when the market is down, this could mean losing money.

Complexity

While the process of buying shares can be relatively straightforward, knowing how best to invest can require expertise and extensive research, particularly if you are investing in individual companies rather than through a fund.

Liquidity

If you have purchased shares, converting them back into cash can take several days, meaning you may not be able to access those funds at short notice in the case of an emergency. For this reason, investing in shares is generally viewed as a long-term way of building wealth, rather than a way of keeping your savings secure.

How to manage risk when investing in shares

Investing in shares can be risky but there are a number of things you should consider to help manage that risk.

Diversify your investments

The idea is to spread your investments across multiple companies and even different asset types, such as cash, shares, bonds and property, to avoid the overall value of your investments dropping should a single company’s share price fall.

You may also consider spreading your investments out over time so you reduce the risk of investing all your money in one go, say for example, the day before a market crash. This strategy of spreading your investing out over time, to smooth out the impact of volatility on your investments, is known as dollar cost averaging.

Research your options

Reading up on the companies and sectors you are interested in can help you invest with your eyes open rather than simply hoping for the best.

The Australian Investors Association says investing without knowledge “is just speculation and relies on luck”.

Fortunately, it says there are plenty of resources available to help you. It’s important to look to reputable sources of information, and to seek professional advice if you are unsure about how best to invest.

Do a dry run first

If you’re tempted to dip your toe in the share market, you might first want to consider an investing simulator, before opting for the real deal. A simulator allows you to try investing using virtual cash to see how the process works.

The ASX’s Sharemarket Game is one example of an investing simulator you could try out, or you could create a practice portfolio using any of the online tools, such as Yahoo Finance, MSN Money or Google Finance.

How to stay safe online when investing

As with all aspects of your finances, if you decide to use an online share trading platform it’s important to be vigilant for potential scams and to take steps to keep your personal information secure.

There are many different types of scam, and scammers are always devising new ways to target and trap you. But the Australian Government’s Moneysmart website says there are three main types of investment scam you should be aware of:

1. The investment offer is completely fake.
2. The investment exists, but the money you give the scammer doesn’t go towards that investment.
3. The scammer says they represent a well-known investment company – but they’re lying.

Scammers may promise high returns and no or limited risk to entice you into investing and parting with your money.

To avoid falling victim to an investment scam, you could consider taking precautionary steps such as:

• safeguard yourself from identity theft
• get independent financial advice before investing
• do your own checks on investment opportunities, to verify they are genuine
• ignore messages and friend requests on social media from people or groups you don’t know
• check your privacy settings are up to date on your social media accounts
• be suspicious of random or unexpected contact from individuals or companies, particularly if you have replied to something on a website or social media platform.

You can find out more about scams and how to protect yourself from Scamwatch, run by the Australian Competition and Consumer Commission (ACCC).

What to look for in an online share trading platform

Canstar Research assesses and rates a wide range of platforms to determine which offers 5-Star value for a range of investors, from the casual to the regular trader. The two general areas Canstar bases its Ratings on are price and features.

Price

One of the most crucial factors in terms of value for money for online share trading is how much it costs to invest and trade. This includes the cost to place a trade (brokerage) and any ongoing costs for maintaining an account with that platform.

Features

The main features that Canstar assesses in determining its Star Ratings include:

• the process for opening and closing the account
• facilities for depositing cash into the account to trade and settling trades
• research options, such as charting and access to company and market information
• trading features, including market access and whether the platform offers margin loans to investors
• CHESS sponsorship which is a facility that registers the shares you have bought in your name through the Australian Securities Exchange (ASX) so you have proof of ownership (CHESS is the Clearing House Electronic Subregister System)
• account management services, such as the different ways in which you can access the account, plus the security and reporting features
• customer service and education resources on offer

You can compare online trading platforms using the table above.