Welcome to the world of online share trading in New Zealand! This guide aims to provide you with a detailed introduction to help you understand the ins and outs of online share trading. Whether you're a beginner or have some knowledge in investing, this guide will equip you with the necessary information to start your journey in the exciting world of share trading. This guide is brought to you with the support of Tiger Brokers. With over 9 million users worldwide, Tiger Brokers believe everyone should have access to the market, and everyone has the right to reach for the best and grow to their full potential as investors. Delivering knowledge, innovation, and next-generation technology, Tiger Brokers is putting the power of growth in the hands of everyday Kiwi investors.
The areas we cover in this comprehensive guide to online share trading include the following - to save you having to read it all if you just want some specific info, you can click below to jump to the relevant section - we also have a handy glossary of share trading terms that you should look at first if you aren't too sure on some of the terms we will use. Happy investing!
1. Understanding Share Trading - What are share? How do they work and what does it have to do with the stock exchange? Click here.
2. Benefits of Online Share Trading - Why online trading? Is it better than using a broker? Do I need broker? Jump to this section.
3. Getting Started with Online Share Trading - Who should I trade with and what do I need? EXCLUSIVE OFFER from Tiger Brokers available in this section - Click here.
4. Researching and Selecting Stocks - How to decide what stocks and shares you should invest in - Click here.
5. Placing Trades and Order Types - You know what you want to buy... but how do hyou do it? Find out here.
6. Managing Your Portfolio - Learn what to do once you own your shares and how to make the most from your assets - Click here to explore.
7. Risk Management and Strategies - Risky? Or a safer bet? Learn some strategies here.
8. Common Mistakes to Avoid - Don't get burnt where others have before - Click here for top tips on how to avoid mistakes.
9. Glossary of Terms - Understand more here!
Understanding Share Trading:
a. What are Shares?
Shares, also known as stocks, represent ownership in a company. When you buy shares of a company, you become a shareholder, which means you have a claim on the company's assets and earnings. Shares are divided into units, and owning shares allows you to participate in the company's growth and potentially receive dividends.
b. How Does Share Trading Work?
Share trading involves buying and selling shares in the stock market. Investors can trade shares through various methods, including traditional brokers or online platforms. When you decide to buy or sell shares, you place an order, specifying the quantity and price at which you are willing to trade. The order is executed when a matching buyer or seller is found. The price of shares is determined by supply and demand in the market, and it can fluctuate based on various factors such as company performance, economic conditions, and investor sentiment.
c. The Role of Stock Exchanges:
Stock exchanges serve as organized platforms where buyers and sellers can trade shares. In New Zealand, the main stock exchange is the New Zealand Exchange (NZX). The stock exchange provides a regulated marketplace that ensures fair and transparent trading. It facilitates the listing of companies, where they offer their shares to the public for trading. The exchange sets rules and regulations for companies, brokers, and investors, ensuring compliance and maintaining market integrity. Stock exchanges also provide essential functions like price discovery, liquidity, and market information, enabling investors to make informed decisions.
Understanding the basics of shares, how share trading operates, and the role of stock exchanges lays a foundation for diving deeper into the world of online share trading. By grasping these fundamental concepts, you can proceed with confidence and develop a better understanding of the broader dynamics of the stock market.
Benefits of Online Share Trading:
a. Convenience and Accessibility:
One of the significant advantages of online share trading is the convenience and accessibility it offers. With online platforms, investors can trade shares anytime and anywhere as long as they have an internet connection. This eliminates the need for physical visits to brokers or exchanges, allowing individuals to manage their investments from the comfort of their homes or on the go. Online share trading platforms provide user-friendly interfaces and mobile apps, making it easy to monitor portfolios, place trades, and access market information at the click of a button.
b. Lower Costs and Fees:
Compared to traditional methods of share trading, online platforms generally offer lower costs and fees. Online brokers often have competitive pricing structures, with reduced brokerage commissions and transaction fees. This cost-effectiveness is particularly beneficial for small investors, as they can trade in smaller quantities without incurring substantial expenses. Additionally, online platforms may provide access to a wide range of investment options, including exchange-traded funds (ETFs) and index funds, which often have lower expense ratios compared to actively managed funds.
c. Real-Time Market Information:
Online share trading platforms provide investors with real-time market information, enabling them to make timely and informed investment decisions. Users have access to live stock prices, market news, financial reports, and research tools that can help analyze market trends and company performance. With up-to-date information at their fingertips, investors can react swiftly to changes in the market and take advantage of potential opportunities.
d. Flexibility and Control:
Online share trading offers investors greater flexibility and control over their investment decisions. Investors have the autonomy to buy and sell shares based on their own research and analysis, without relying on intermediaries. Online platforms provide a wide range of order types, such as market orders, limit orders, and stop-loss orders, allowing investors to customize their trading strategies. Moreover, investors can diversify their portfolios and allocate their funds across different stocks, sectors, or asset classes as per their investment goals and risk tolerance.
By leveraging the benefits of convenience, lower costs, real-time information, and flexibility, online share trading empowers investors to actively participate in the stock market, manage their investments efficiently, and potentially achieve their financial objectives. However, it is essential to conduct thorough research, continuously monitor investments, and exercise caution while trading to mitigate risks and maximize returns.
Getting Started with Online Share Trading:
a. Setting Up a Trading Account:
To begin online share trading, the first step is to set up a trading account. This involves choosing a reputable brokerage firm or an online trading platform. You will need to provide personal information and complete the account opening process, which may include identity verification and funding the account. It's important to research and compare different brokerage options to find the one that suits your needs in terms of features, fees, customer support, and security measures.
b. Selecting the Right Online Brokerage Platform:
Selecting the right online brokerage platform is crucial for a smooth and successful trading experience. Consider factors such as user interface, trading tools, research resources, market data availability, and the platform's reliability. Look for platforms that offer a user-friendly interface, robust trading tools, educational materials, and access to real-time market information. It's also important to assess the platform's security measures, including encryption and account protection. Here at Money Compare we think that the service, technology and fees offered by Tiger Brokers make them one of the very best options around. Click through here for a great Tiger Brokers sign up promotion.
c. Know Your Investor Profile:
Understanding your investor profile is essential for making informed investment decisions. Assess your financial goals, risk tolerance, investment horizon, and knowledge of the market. This self-assessment will help you determine your investment strategy, whether you are a conservative investor focused on long-term growth or a more aggressive trader seeking short-term opportunities. Knowing your investor profile will guide your decision-making process and help you choose suitable investment options.
d. Risk Management and Diversification:
Risk management and diversification are vital aspects of online share trading. It's important to be aware of the risks involved in investing and to establish a risk management plan. This includes setting limits on how much capital you are willing to invest and being prepared for potential losses. Diversification is another crucial strategy that involves spreading your investments across different assets, sectors, or geographic regions. Diversifying your portfolio helps mitigate risk by reducing exposure to any single investment and potentially enhancing returns.
By following these steps, you can get started with online share trading in a well-informed manner. Setting up a trading account with a reputable broker, selecting the right online platform, understanding your investor profile, and implementing risk management and diversification strategies will provide a solid foundation for your journey into the world of online share trading. Remember to continuously educate yourself, stay updated with market trends, and make investment decisions based on thorough research and analysis.
Researching and Selecting Stocks:
a. Fundamental Analysis:
Fundamental analysis is a method of evaluating stocks by analyzing the underlying factors that can influence their value. It involves examining a company's financial health, such as its revenue, earnings, debt, and market position. Fundamental analysis also considers broader economic factors, industry trends, competitive advantages, and management expertise. By assessing these fundamental factors, investors can make informed decisions about the potential value and future prospects of a stock.
b. Technical Analysis:
Technical analysis focuses on studying historical price patterns, volume, and market trends to predict future price movements. Traders who use technical analysis analyze charts, indicators, and patterns to identify buying and selling opportunities. They look for signals such as moving averages, support and resistance levels, and various chart patterns. Technical analysis aims to uncover patterns and trends in market behavior and can be a valuable tool for short-term traders and those interested in market timing.
c. Reading Company Financial Statements:
Reading and understanding a company's financial statements is crucial for evaluating its financial performance and making informed investment decisions. Financial statements, including the income statement, balance sheet, and cash flow statement, provide insights into a company's revenue, expenses, assets, liabilities, and cash flow. By analyzing these statements, investors can assess profitability, liquidity, debt levels, and overall financial health. It's important to review financial ratios, such as earnings per share, price-to-earnings ratio, and debt-to-equity ratio, to gain a deeper understanding of a company's financial position.
d. Research Tools and Resources:
Numerous research tools and resources are available to assist investors in their stock selection process. These tools can range from financial news platforms and investment websites to specialized software and online research platforms. Utilizing these resources can provide valuable market insights, company news, analyst reports, and data analysis. Additionally, brokerage firms often provide research reports and recommendations, offering insights from their team of analysts. Taking advantage of these tools and resources can enhance your research capabilities and help you make more informed investment decisions.
By incorporating fundamental and technical analysis, understanding financial statements, and leveraging research tools and resources, investors can conduct thorough research and select stocks that align with their investment goals and risk tolerance. It's important to stay informed, continuously educate yourself, and develop a systematic approach to researching and selecting stocks. Remember that research is an ongoing process, and regular review and monitoring of investments are essential for long-term success in the stock market.
Placing Trades and Order Types:
a. Market Orders:
A market order is a type of order where you buy or sell a security at the best available price in the market at that moment. When placing a market order, the trade is executed immediately at the current market price. Market orders ensure swift execution but do not guarantee a specific price. They are commonly used when immediate execution is more important than price precision, such as during highly liquid market conditions.
b. Limit Orders:
Limit orders allow you to specify the maximum price you're willing to pay when buying or the minimum price you're willing to accept when selling a security. Unlike market orders, limit orders offer control over the execution price. If the market reaches or improves upon your specified limit price, the trade is executed. However, there is no guarantee of immediate execution, as the order is only filled when the market conditions meet your specified limit price.
c. Stop Orders:
A stop order is an order type that is triggered when the market price reaches or surpasses a specified stop price. There are two types of stop orders: stop-loss orders and stop-buy orders. A stop-loss order is placed to limit potential losses by automatically selling a security if its price falls below a specified level. On the other hand, a stop-buy order is used to enter a long position when the price rises above a predetermined level. Stop orders are executed as market orders once the stop price is reached.
d. Stop-Limit Orders:
A stop-limit order combines features of both stop orders and limit orders. This order type includes a stop price and a limit price. When the stop price is reached, the stop-limit order becomes a limit order with the specified limit price. The trade will only be executed at the limit price or better. Stop-limit orders provide control over both the trigger price and the execution price, allowing investors to manage risk and set specific price parameters for their trades.
Understanding different order types is crucial for executing trades effectively and efficiently. By using market orders, limit orders, stop orders, and stop-limit orders, investors can tailor their trading strategies based on their desired execution price, risk tolerance, and market conditions. It's important to familiarize yourself with each order type's characteristics and use them appropriately based on your investment objectives and trading preferences.
Managing Your Portfolio:
a. Monitoring Your Investments:
Monitoring your investments is an essential aspect of portfolio management. Regularly tracking your portfolio allows you to stay informed about the performance of your investments. It involves keeping an eye on market trends, news, and company updates that may impact the value of your holdings. By monitoring your investments, you can identify any changes in your portfolio's performance and take appropriate actions when needed.
b. Reviewing Performance:
Regularly reviewing the performance of your portfolio helps you assess its overall health and progress towards your investment goals. Evaluate the returns of individual securities and your portfolio as a whole over different time periods. Compare your performance against relevant benchmarks or indices to gauge your success. Analyze factors contributing to positive or negative performance and adjust your investment strategy accordingly.
c. Rebalancing Your Portfolio:
Rebalancing involves periodically adjusting your portfolio's asset allocation to maintain the desired risk-return profile. As market conditions change, certain assets may outperform or underperform, leading to a deviation from your target allocation. Rebalancing allows you to sell overperforming assets and buy underperforming assets, restoring the desired asset allocation. Regularly rebalancing ensures that your portfolio remains aligned with your investment objectives and risk tolerance.
d. Tax Considerations:
Tax considerations are an important aspect of portfolio management. Different investment activities can have tax implications, such as capital gains taxes on profits earned from selling securities. It's crucial to be aware of the tax laws and regulations in your jurisdiction and understand how your investment decisions may impact your tax liability. Consider strategies like tax-efficient investing, utilizing tax-advantaged accounts, and consulting with a tax professional to optimize your after-tax returns.
Effectively managing your portfolio involves continuous monitoring, performance evaluation, rebalancing, and considering tax implications. By staying informed about market conditions, regularly reviewing your portfolio's performance, rebalancing as needed, and considering tax factors, you can ensure that your investments remain aligned with your financial goals and objectives. Remember that portfolio management is an ongoing process, and it's important to adapt your strategies as your goals, risk tolerance, and market conditions evolve.
Risk Management and Strategies:
a. Understanding Risk and Volatility:
Understanding risk and volatility is crucial in managing investments. Risk refers to the potential for losses or unfavorable outcomes in investments. Volatility refers to the degree of price fluctuations in an investment over time. It's important to recognize that all investments carry some level of risk, and higher potential returns often come with higher risk. By understanding and assessing the risk and volatility associated with different investments, you can make informed decisions and align your investment choices with your risk tolerance and financial goals.
b. Asset Allocation:
Asset allocation is the process of distributing your investment capital across different asset classes, such as stocks, bonds, and cash equivalents. It is a key strategy for managing risk and optimizing returns. By diversifying your investments across different asset classes, you can reduce the impact of market fluctuations on your portfolio. The specific allocation will depend on your risk tolerance, investment goals, and time horizon. It's important to periodically review and adjust your asset allocation to maintain the desired risk-return profile.
c. Dollar-Cost Averaging:
Dollar-cost averaging is an investment strategy where you regularly invest a fixed amount of money into a specific investment at regular intervals, regardless of the market price. This strategy allows you to buy more shares when prices are low and fewer shares when prices are high. Over time, dollar-cost averaging can help smooth out the impact of market volatility and potentially result in a lower average cost per share. It is a disciplined approach that can help reduce the impact of short-term market fluctuations on your investments.
d. Stop-Loss Orders:
Stop-loss orders are risk management tools used to protect against significant losses in investment positions. A stop-loss order is a pre-set order to sell a security if it reaches a specified price, known as the stop price. This order is designed to limit potential losses by automatically triggering a sale if the security's price falls below a predetermined level. Stop-loss orders allow investors to set an exit point to limit downside risk and protect against significant declines in investment value.
Implementing risk management strategies such as understanding risk and volatility, practicing asset allocation, utilizing dollar-cost averaging, and employing stop-loss orders can help mitigate risks and protect your investments. By aligning your risk management approach with your investment goals and risk tolerance, you can make more informed decisions and potentially achieve more favorable long-term investment outcomes. Remember that risk management is an ongoing process and should be regularly reviewed and adjusted as market conditions and personal circumstances change.
Common Mistakes to Avoid:
a. Emotional Investing:
One common mistake to avoid in investing is making decisions based on emotions. Emotional investing occurs when investors allow fear, greed, or other emotions to dictate their investment choices. Emotional reactions to market fluctuations can lead to impulsive buying or selling decisions, often resulting in poor outcomes. It's important to maintain a rational and disciplined approach, basing investment decisions on thorough research and analysis rather than succumbing to emotional biases.
b. Overtrading:
Overtrading refers to excessive buying and selling of securities within a short period. This can stem from a belief that frequent trading leads to higher profits. However, overtrading often leads to increased transaction costs, taxes, and potential losses. It can also be a result of market timing attempts, which are challenging to execute successfully. It's important to avoid overtrading and focus on a long-term investment strategy aligned with your financial goals, rather than getting caught up in short-term market fluctuations.
c. Lack of Research:
Another common mistake is neglecting to conduct sufficient research before making investment decisions. Lack of research can lead to investing in unfamiliar or volatile securities without understanding their fundamentals. It's important to thoroughly analyze a company's financial health, industry trends, and market conditions before investing. Adequate research helps investors make informed decisions, assess risks, and identify potentially profitable opportunities.
d. Failing to Set Realistic Goals:
Setting realistic investment goals is crucial for long-term success. Failing to define clear and attainable goals can result in inconsistent investment strategies or unrealistic expectations. It's important to establish specific financial objectives, such as wealth accumulation for retirement, education expenses, or a major purchase. By setting realistic goals, investors can develop appropriate investment plans, allocate resources effectively, and evaluate their progress over time.
By avoiding emotional investing, refraining from overtrading, conducting thorough research, and setting realistic goals, investors can enhance their chances of achieving favorable investment outcomes. Remember to approach investing with a disciplined mindset, make decisions based on sound analysis rather than emotions, and align your investment strategy with your long-term goals. Continuously learning, adapting, and seeking professional advice when needed can also contribute to making more informed investment decisions.
Glossary of Share Trading Terms:
a. Shares/Stocks: Shares, also known as stocks, represent ownership in a company and are bought and sold in the stock market.
b. Brokerage: A brokerage is a firm or individual that facilitates the buying and selling of financial securities on behalf of investors.
c. Exchange: An exchange is a marketplace where securities, such as stocks and bonds, are bought and sold. Examples include the New York Stock Exchange (NYSE) and NASDAQ.
d. Dividends: Dividends are a portion of a company's profits distributed to its shareholders as a return on their investment.
e. Market Order: A market order is an order to buy or sell a security at the current market price, executed as soon as possible.
f. Limit Order: A limit order is an order to buy or sell a security at a specific price or better. It sets a maximum purchase price or a minimum selling price.
g. Portfolio: A portfolio refers to a collection of investments, such as stocks, bonds, and other assets, held by an individual or entity.
h. Bull Market: A bull market refers to a period of rising prices and optimistic investor sentiment, typically characterized by sustained upward trends in the stock market.
i. Bear Market: A bear market refers to a period of declining prices and pessimistic investor sentiment, often marked by a sustained downward trend in the stock market.
j. Volatility: Volatility refers to the degree of price fluctuations or variability of a security or market over time. Higher volatility indicates larger price swings and potential investment risk.
Summing Up Online Share Trading:
Online share trading in New Zealand offers exciting opportunities for individuals to participate in the stock market and grow their wealth. By understanding the fundamental concepts, conducting thorough research, and managing risk, you can navigate the world of share trading with confidence. Remember, it's essential to continuously educate yourself, seek professional advice when needed, and stay updated with market trends to make informed investment decisions.
So what are you waiting for? Ready to give online share trading a go? Don't forget our fantastic sign up offer with Tiger Brokers available through Money Compare - Click here or below.
Disclaimer: This guide is for informational purposes only and does not constitute financial advice. Always do your own research and consult with a qualified financial advisor before making any investment decisions.
