Trading shares is easy to do – but not for the faint-hearted

You might’ve heard that the Australian stock market has been on a bit of tear, jumping 15.3 per cent since the start of the year.

You might also be wondering: is the market going to keep rising, and how can you get a piece of the action?

First things first, nobody can ever say what’s going to happen to the All Ordinaries, which is an index representing 500 of the largest companies on the ASX (Australian Securities Exchange).

The All Ords might go up, down or sideways. Nobody knows. The stock market is volatile, as this performance table from the past 20 years shows:

How to trade shares

The second question – how to become a share trader – has a clearer answer.

If you want to buy or sell shares on the ASX, you need to go through a middleman (known as a stockbroker), who will charge a fee each time you make a transaction.

These stockbrokers come in two flavours:

Regardless of which type of stockbroker you choose, the broker will almost certainly allow you to buy and sell shares over the internet.

When you want to buy shares in a company, you use your online broking platform to nominate how many shares you want to buy and the price you’re willing to pay. If the broker finds someone who is willing to sell you those shares at that price – the deal goes through. (If not, the deal never gets completed.)

The same process applies in reverse when you want to sell. You nominate how many shares you want to sell and the price you’re willing to accept; the deal goes through if the broker finds someone who wants to buy your shares at your price.

Pros and cons of buying shares

As with all matters financial, investing in the stock market involves pros and cons.

On the plus side, it’s easy to set up a trading account, you can get started with as little as $100 and you could potentially make a lot of money.

On the minus side, it can be hard to know which stocks to choose, you have to pay to play and you could potentially lose all your money.

That’s why you should think carefully before taking the plunge. Other investment options include:

• Leaving your salary in a savings account
• Locking away your money in a term deposit
• Salary sacrificing into superannuation
• Buying an investment property

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