6 Steps for online share trading

Shares have shown the highest returns in the long-term, outstripping other assets such as bank deposits and even property. If you’re ready and willing to invest your hard-earned cash, you will need a strategy. Share trading can be tricky and has several risks associated with it, which means you need to know what you’re doing before you risk your savings.

What is online share trading?

Online share trading is when you buy and sell shares frequently to make short-term profits. Standard Bank defines a share as a slice of a company that, technically, means the owner has a small claim on that business’s earnings and assets.

Electronic stock exchanges provide investors with two advantages:

• It reduces the risk of investing by providing a transparent pricing mechanism for trades.
• The listed companies are policed. A stock exchange operates in a strict regulatory environment and businesses have to comply with a strict list of requirements.

If you’re new to investing, then a good place to start is to purchase an exchange-traded fund. This can be purchased through a good broker and will give you access to the top South African companies.

Steps for Online Share Trading

Read on to find out more about online share trading:

1. Find a broker
2. Open a trading account
3. Do your research before investing
4. Build a long-term share portfolio
5. Understand the risks
6. Speak to the experts

1. Find a broker

To start investing in shares, you’ll first need a brokerage or share trading account. As a new investor, selecting the right broker can be challenging. It requires some careful thought as not all brokers are suitable for all investors and their needs.

There are two types of brokers out there:

• Those who deal with clients directly.
• Those who act as intermediaries between you and a larger broker.

You’ll also need to decide on a level of service. A full-service broker will do a significant amount of the legwork, and provide you with advice, suggestions and research, but these services can be costly.

A discount broker is a stockbroker who carries out buy and sell orders at a reduced commission compared to a full-service broker but provides no investment advice. Discount brokers often make more sense for the average investor because they're more affordable.

• If you want to start investing directly, Standard Bank offers access to a product called AutoShare Invest (ASI), which allows you to trade more than 250 JSE Shares and ETFs on an ad-hoc or recurring basis.
• The account is linked directly to your Internet Banking profile, and you can invest directly or schedule monthly recurrences for investments as little as R250.
• If you want to become an active investor, investing in your education is important. You can watch videos on our webinar channel or read more on the Community to help you get started. 

2. Open a trading account

We offer three investing platforms for you to choose from:

AutoShare Invest: 
This platform is available within your Standard Bank Internet Banking platform and gives you access to highly liquid JSE listed shares and Exchange Traded Funds (ETFs). To open an account, you need to visit the Savings and Investment tab, find AutoShare Invest, then click on ‘apply’.

Standard Online Share Trading: 
If you’d like to broaden your trading experience to locally listed shares and derivative products, then Online Share Trading is the platform for you. You can invest in JSE-listed shares as well as derivatives such as contracts for difference and futures. Your OST account also comes with a free tax-free investment account, allowing you to invest in the stock market through ETFs. 

You can open an account by visiting the Standard Online Share Trading website.

Standard Bank Webtrader: 
Built for investors looking exclusively for offshore exposure, this trading platform is well suited for investors who are interested in accessing global markets such as the S&P 500 or FX spot trading. 

Webtrader also has a 20-day obligation-free demo account, which allows you to test drive the platform with USD100 000 simulated funds. You can visit the Standard Bank Webtrader site for more information and to register an account

3. Do your research before investing

Fortune favours the researcher. If you’re going to invest your hard-earned money, you need to do your homework. You can’t trust your intuition for two reasons:

• There is too much uncertainty when dealing with a company’s performance.
• There are too many factors involved in deciding whether stock is a good buy.

You need to understand exactly how a company makes money, its strengths and weaknesses, where it’s expanding to next and the environment it’s operating in.

To get started, check online trading platforms for broker consensus recommendations. These are typically a collation from brokerage and research houses. This will give you a strong indication which stock is good to buy. You shouldn’t rely on this information alone, but it’s a good starting point.

4. Build a long-term share portfolio

A sensible place to start is with some of SA’s top 20 companies. These are generally successful businesses that have a solid track record. You will also more than likely be familiar with them as they are household names.

Another reason to start with these businesses is that there is a large amount of information available on them, so you can find out which one you think is offering the best value for money. Another potential strategy is to buy shares in multiple sectors, so you have a diversified portfolio.

Why you should consider investing in a large-to-medium sized company:

• Large-to-medium sized companies are still growing and can offer more growth potential over time.
• While you save up additional funds, you can begin to add these types of businesses to your portfolio every few months.

Why you should consider investing in a smaller company:

• When it comes to smaller companies, they tend to be the riskiest because they may still undergo growing pains. On the other hand, this can also be where the real money is made.
• For example, say you invest R5 000 in a smaller business at R1.80 a share, and that business experiences significant growth, bumping up the share price to R180, your investment could be worth nearly R520 000. But if the company has a bumpy ride, you could also see the value of investment halved.

5. Understand the risks

Over time, shares have outperformed other asset classes, but this also comes at a cost. The old saying 'high risk, high return' means that an investor who takes on the higher risk of investing in shares expects a higher return for doing so.

Here are a few of the risks of investing in shares:

• Share prices also go down. Researching the business can mitigate a portion of this risk.
• Shares can be illiquid, which means that they can be challenging to trade. Avoid this by investing in more liquid shares.
• The company doesn’t pay dividends. This could mean that the business is reinvesting in itself for future growth, but it also means you won’t receive income.
• You could lose your entire investment if the business goes bankrupt.
• Companies can disappoint the market by reporting lower-than-expected earnings. This could result in the share price falling or lagging behind competitors.
• Mismanagement within the business, such as fraud or poor corporate governance, can hurt the share price.

Although a large portion of listed companies is well-run, it’s safer to dip your feet into online share trading with both eyes open and a lot of research under your belt.

6. Speak to the experts

To ensure you’re on the right track, Standard Online Share Trading offers courses and training as well as ongoing assistance.

You can also contact our knowledgeable call centre agents with any enquiries, such as how to trade derivatives, what education we offer, or for more information on a specific product. You can either submit a general query from the website or contact a consultant directly by calling our client centre on 0861 121 161 or by emailing [email protected].