Trading basics
Learn how to trade shares and set up a trading account in Australia.
What is trading?
Trading involves buying and selling financial assets like shares, bonds or other securities. In Australia, most individual investors trade shares (also called equities or stocks) through a broker.
Trading is different from investing. Trading typically involves shorter timeframes and more frequent buying and selling, while investing focuses on long-term wealth building.
Setting up a trading account
To start trading shares in Australia, you need to open an account with a licensed broker.
What you need to open a trading account
- Be at least 18 years old
- Have a valid form of identification (driver's licence or passport)
- Have a Tax File Number (TFN) – though you can still open an account without one
- Provide bank account details for funding your account
- Complete the broker's application form and identity verification
Types of brokers
Full-service brokers
These brokers provide advice, research and personal service. They typically have higher fees but offer more support to clients.
Online or discount brokers
These brokers have lower fees and run off a self-service platform. You make your own decisions without advice.
Understanding CHESS
CHESS stands for Clearing House Electronic Subregister System. It's the system used by the Australian Securities Exchange (ASX) to record share ownership.
How CHESS works
When you buy shares through a broker, CHESS records your ownership. Your shares are held in your name (or your broker's name on your behalf) in the CHESS system. This provides security and makes it easy to transfer shares between brokers.
Benefits of CHESS
- Direct ownership: your shares are registered in your name
- Portability: easy to transfer shares between brokers
- Security: your shares are protected even if your broker has issues
- Dividends: you receive dividends directly from the company
About Holder Identification Numbers (HIN)
A Holder Identification Number is a unique identifier assigned to you when you open a CHESS-sponsored account.
Your HIN is like a bank account number for your shareholdings. It's typically 10 digits and starts with an 'X' (for individual investors) or 'I' (for companies).
Where to find your HIN
- On your broker's account statement
- On dividend statements from companies
- In your broker's online platform
- On your CHESS statement (if you receive one)
Note: Not all brokers use CHESS. Some use a custodian model where shares are held in the broker's name. Check with your broker which system they use.
Comparing CHESS and Issuer Sponsored holdings (ISS)
Issuer-sponsored is an alternative system for managing assets.
CHESS-Sponsored
- Shares are held through CHESS system
- You have a HIN
- Easy to transfer between brokers
- More common for active traders
Issuer Sponsored
- Shares are held directly with the company
- You have a Security Reference Number (SRN)
- Less flexible for transfers
- More common for long-term investors
If you have issuer-sponsored shares and want to trade them, you may need to convert them to CHESS-sponsored first. Your broker can help with this process.
What brokers do
Brokers act as intermediaries between you and the share market. Their main functions include:
- Order execution: placing buy and sell orders on your behalf
- Account management: holding your funds and shares
- Settlement: ensuring trades are completed and money/shares are transferred
- Reporting: providing statements and tax reports
- Market access: connecting you to the ASX and other markets
Broker fees
Brokers charge fees for their services. Common fees include:
- Brokerage: fee per trade (typically $5-$30 for online brokers)
- Account fees: monthly or annual account keeping fees
- Inactivity fees: charges if you don't trade for a period
- Market data fees: charges for real-time market data
Always compare broker fees before opening an account. For frequent traders, lower brokerage fees can make a significant difference to your returns.
How to place a trade
Order types
Market order
Buy or sell immediately at the current market price. Fast execution but price may vary.
Limit order
Set a specific price. Order only executes if the price reaches your limit. More control but may not execute.
Key takeaways
- You need a broker account to trade shares in Australia
- CHESS is the system that records share ownership
- Your HIN is your unique identifier in the CHESS system
- Brokers charge fees - compare options before choosing
- Trades settle 2 business days after the trade date
- Understand the difference between market and limit orders