How do Share Broking Accounts Work?
Think of share broking accounts as the lovechild of an auction site like Ebay and your online or internet banking. You can apply to open the account, fund it, and start buying and selling shares, usually in just a few days.
Online share broking accounts allow you to buy and sell shares and other investments online.
Are share broking accounts safe?
The company that runs the share broking account, called a brokerage, has been given permission to access the stock exchange and must abide by the exchange's rules at all times. Most stock exchanges have rules in place to protect investors from bad brokerage providers but that's not always the case, so take your time and visit the website of the stock exchange that you want to access. In addition, investing is risky and the value of your investment can rise and fall, sometimes very quickly.
Do I need more than one share broking account?
Most brokerage accounts give you access to one exchange, like Australia's ASX. However, some brokerage accounts can give you access to many markets from one platform.
How do I open an account?
Usually, you can apply via the brokerage's website.
When you apply to open your share broking account, they will often ask you to open a bank account which can be used to fund your share purchases and to receive dividends or the proceeds from the sale of your shares. Sometimes, the brokerage will allow you to use your current bank account.
It usually takes a couple of days to open an account and begin buying and selling investments.
What about fees?
In addition to brokerage fees (e.g. $20 to buy or sell), which are normally taken out of the money you use to buy or sell shares, you could be paying account keeping fees or fees for extra services that you don't use.
Don't be afraid to shop around because some brokerage accounts don't charge ongoing account fees. Or, at the very least, they are optional.
Also, be sure to check the fees on the bank account which funds your brokerage account. Then take note of the interest you'll earn when you have spare cash in the bank account that is waiting to be invested.
Test Your Knowledge
Margot Mango says to you, "brokerage accounts are safe -- you can't lose!" Is Mrs Mango right?
Mrs Mango is wrong. Although there are rules in place to uphold the integrity of most stock exchanges, no investment can be guaranteed (otherwise it would be 'savings', right?). Because each exchange and brokerage is different, you should read the disclosure documents before depositing your money.
Will I pay brokerage fees when I buy or sell shares, or later?
Share brokerage fees are often deducted directly from the amount of your investment, which could be a buy or a sell. For example, when you submit an order through your brokerage account to buy $1,000 worth of shares the brokerage might charge you, say, $10 to process the trade on the stock exchange. This usually takes place in a few seconds. The $10 is deducted from your $1,000 -- leaving you with around $990 in shares.
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