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What you need to know about investing in Australian stocks

We’ll look at what investing is, what the ASX is and how it operates, what companies make up the ASX, other exchanges you can invest in, what a broker does and how to enact a trade, and what investment classes there are to choose from.

What you need to know about investing in Australian stocks

Australia is a nation of investors.

In 2021, almost nine million Australians held investments beyond their superannuation accounts.

That’s almost half the population.

More than half that number had invested in direct shares.

The advent of investing apps such as Superhero have certainly had an impact on that number. There are a range of investment apps that now make it easy for a retail investor new to investing to understand.

Yet, investing is far more complicated than just pressing a buy or sell button on an app.

In this article:

While this article is not about the fundamentals of investing, when to buy, what to buy, how to read a chart etc…, it is directed at giving you a better understanding of the Australian investment landscape. We’ll look at what investing is, what the ASX is and how it operates, what companies make up the ASX, other exchanges you can invest in, what a broker does and how to enact a trade, and what investment classes there are to choose from.

What is investing?

Put simply, investing is putting money or resources (in the case of the stock market it is money) into an asset that through potential price appreciation will net you a tidy profit.

It doesn’t always work that way, sometimes when you invest in an asset it will depreciate and you’ll suffer a loss.

To mitigate against this, you should know what your risk-reward appetite is: how much money you will put into a stock and how much you are prepared to lose? Further to this, will you invest in low risk or high-risk assets? Note, the lower the risk, the lower the profit. That is, investing in blue-chip stocks will likely make you steady gains, but investing in a small-cap company could provide you with a ten-bagger (an investment that appreciates in value by 10 times its initial purchase price, or one that has the potential to be an explosive growth prospect).

There is no one size fits all approach to investing: successful investing comes down to knowing your investment goals, the level of risk you’re willing to take, your investment timeframe and how macro factors affect industries and the stocks within them.

Different asset classes

You can invest in different asset classes including stocks, bonds, funds, trusts, options and derivatives, commodities, alternative investments such as art and real estate.

Each class has its own associated risks and levels of return.

The four main investment types are:


Shares, aka equities or stocks, are a piece of a company. Essentially, you buy a piece of a company to become a shareholder in that company. The profit or loss you make then depends on whether the company increases or decreases in value.

You can purchase shares in several ways including but not limited to:

  • Initial public offerings (IPOs) – Investors buy shares of a new company that is raising capital before it launches on market;
  • Managed funds – A fund manager will pool your money with funds from other investors buy shares on your behalf; and
  • Exchange-traded funds (ETFs) – A group of shares that make up an index, such as the ASX200 (the benchmark for Australian equity performance).

Growth investments

Growth investments are suitable for long term investors. These stocks are usually young or small companies whose earnings are predicted to rise at an above-average rate compared with the industry sector they are in or the overall market.

These are usually higher risk investments that are attractive to more seasoned investors who are looking for emerging companies with potentially impressive returns. These companies are usually defined by historical and future earnings growth, profit margins, returns on equity and share price performance.

Note that shares are considered a growth investment that can attract gains over the medium to long term.

Day-to-day prices may vary.

Blue chips

Blue chip stocks are safer investments for those who want to build steady wealth.

These are often quite large companies that have been operating for more than 25 years with higher stock prices. They are very popular with investors, even though they are often less affordable.

Blue chip stocks are popular as they have a history of generating profits and paying steady dividends which generally increase over time.

Value stocks

Seen as the opposite of growth stocks.

A value stock is a security trading at a lower price than what the company's performance may otherwise indicate. That is they are less than their intrinsic book value and the price does not correspond to long term fundamentals. Value stocks are usually affected by good or bad news, which results in price swings.


Property is a type of growth investment as houses, units, flats, and apartments do tend to appreciate in value over the mid to long term.

Of course, like any investment there are risks market factors such as inflation can dictate upwards or downwards movements.

You can invest directly by buying a property, or indirectly through a property investment fund.


Your savings are a form of investment, as they accrue interest (albeit very low interest at the present) and carry the lowest potential returns.

Cash investments include everyday bank accounts, high-interest savings accounts and term deposits.

They can deliver regular income and can play an important role in protecting wealth and reducing risk in an investment portfolio, however, they offer no chance of capital growth.

Fixed interest

You may have heard of bonds. Not James Bonds, but they do work for the government.

Bonds are the most common form of fixed interest investments. They're essentially when governments or companies borrow money from investors and pay them a rate of interest in return.

Bonds are seen as a defensive investment that offers lower potential returns but has lower levels of associated risk than shares or property.

They can also be sold quickly, but do come with some risk of capital losses.

What is the ASX?

The Australian Securities Exchange (ASX) is one of the world’s top 10 listed exchange groups measured by market capitalisation (the total dollar market value of a company’s outstanding shares), or the market value of a company.

It is the leading exchange in Australia and offers listings, trading, clearing, settlement, technical and information services, technology, data and other post-trade services.

It also acts as a market operator, clearing house and payments system facilitator and promotes standards of corporate governance among Australia’s listed companies and helps to educate retail investors.

ASX operates markets for several asset classes including equities, fixed income, commodities and energy.

There are currently 2000 companies listed on the ASX and you can search by industry including technology, resources, biotechnology, energy, ESG etc… or by the top 20, top 100, top 200 or top 500 companies.

The S&P/ASX 200 (XJO) is Australia’s primary stock market index and is comprised of the 200 largest ASX listed stocks. It is the benchmark for Australian equity performance and companies range in size from roughly $380 million to more than $100 billion and account for around 82% (March 2017) of Australia’s sharemarket capitalisation.

All companies are liquid and considered suitable for institutional investment.

The ASX is broken up into 10 sectors, 24 industry groups, 69 industries and 158 sub-industries. 

Source: Morgans

Are there other exchanges?

There are two other exchanges in Australia:

  • National Stock Exchange of Australia (NSX)
  • Chi-X Australia.


The NSX started out as an agricultural market in 1937 as the Newcastle Stock Exchange when exchanges were regional, not central.

As a provincial exchange, it become redundant and in 1985 closed. In 2000, the exchange re-opened. It merged with the Bendigo Stock Exchange five years later before becoming the National Stock Exchange.

It is a secondary market that is suited better to smaller companies and is the second official exchange in the country approved under the Corporations Act in Australia.

The NSX has developed a unique set of listing rules to assist small, medium and regional or national businesses to list their securities on an approved stock exchange.

To trade securities on the NSX, you must trade via a member broker, such as Morgans.


Chi-X Australia is the securities and derivatives exchange focused on customers and innovation and delivers easy, cost-effective access to local and global investment opportunities. It bills itself as the most cost-effective exchange for brokers and investors and has a range of global and local products traded alongside ASX securities.

How to invest in Australian stocks

It used to be that the best way to invest in stocks was to seek the advice of a broker, but with so much information available and many online platforms to choose from, trading has never been easier.

That said, due diligence is paramount to any kind of success in trading stocks and you should thoroughly educate yourself before making an investment decision.

As stated, the more traditional way to use the market is through a broker.

Full service broker

Full service brokers trade for you and may advise you on what to buy and sell. Any recommendation a broker makes must have a strong thesis behind it. It is also worth noting that brokers must disclose their own interest in any stock recommendation.

These types of brokers provide research and compile tailored investment plans. They typically charge a higher brokerage fee because of the advice they give and full service they offer. This can include helping you assess your current financial situation and set your financial goals.

Online broker

If you feel you can go it alone and don’t necessarily need to pay for advice or recommendations, then an online broker could be the go.

This is also a great way to enter the market in a low-cost environment.

Online brokers are typically either internet-based or telephone-based. 

There is now a proliferation of internet-based trading platforms that have added to the online trading services offered by the big four banks.

We won’t go into detail here — that’s another article coming soon — you can use Westpac, Commsec, ANZ or NAB online trading services to trade shares or try some of the newer kids on the block such as Superhero, eToro, SelfWealth, IG Markets, Sharesies and CMC Markets among others.

The ASX has a full list of full service and online brokers here.

How to buy shares

You can buy shares directly, as in make a direct investment into the company, or indirectly through a managed fund (pool your money with other investors and let the fund manager do the work), Exchange Traded Fund (ETF – a group of shares that make up an index), listed investment company (invests in a range of company and assets but is usually more expensive than a managed fund) or chess depositary interest (allows shares of a foreign company to be traded on Australian markets, such as the ASX).

When buying shares you can buy ‘at limit’ or ‘at market’.

A limit order asks you to set a maximum purchase price for your buy order. Trades are automatically executed when the shares reach that price.

The limit order works for those who want to buy shares when a share price dips, but don’t want to have to stare at their computer screens all day watching the stock.

A market order is when you buy shares immediately at the current market price.

How much does it cost?

You can generally start investing for as little as $500 on some platforms including Superhero.

However, you must keep in mind that your initial amount should factor in brokerage fees. Meaning if you start with $500, you will need to factor in the extra costs.

Let’s say you invest $1000, and the fee is $20, you will need the stock to rise by 4% or $40 to break even.

Some fees are as little as $5.

How to sell shares

If you hold direct investments, you can sell them the same way you bought them: through your broker or your chosen online platform.

You will pay a fee for each sale you make.

Selling shares is like any other sale, it transfers legal ownership to another person.

Settlement for the sale and transfer of ownership happens two business days after the trade (known as T+2), a which point the sale proceeds are transferred into your bank account.

To sell indirectly owned shares, contact the managed fund, LIC etc. holding your shares and ask them to sell your units.

Again, there will be withdrawal costs.

Note, always keep a record of your transactions.

Why invest?

Essentially you invest to make money, although I’m sure some people just love the thrill of the trade.

However, it’s not so easy to make money and you need to understand the market before you take the leap.

The last thing you want to do is put your hard-earned dollars into a stock thinking it will go up in price, only to find it tanked because you didn’t do your research into the fundamentals.

To make a smart investment, take time to get to know the company, the industry and the sector it resides in and then decide what your risk appetite is.

A smart investment can outpace inflation, increase in value and be an effective way to make money and build wealth.

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