Questions from a stock market beginner

[SilverXX90]

Hello Aussiestockforums!

I am an absolutely newbie share market investor. I'm a kiwi and we don't appear to have much of an online presence for share trading discussions here and this forum was recommended. I take it a few kiwi's are on here also?

I am completely new to share trading and want to buy some stock on the NZX50, I've just recently completed and have an ANZ Securities account. I've been researching a bit but there is a lot to grasp. I've decided investing in an ETF would be appropriate for a longer term investment and am thinking probably the FNZ Top 50 Fund... Any ETF traders here? What was your approach?

Of course people recommend to diversify your investment profile also where is where I'm a little stuck. I'm interested in short term trading and trading for income via dividends also but aren't really sure where to go with that. Can anyone offer any advice? Would be much appreciated.

Now I'm so newbie that I don't understand how to place an order! I've put some funds into my ANZ Securities account and I'm thinking maybe the sooner I get an ETF up running the better... Thing is I don't even understand how to place an order! For example, on the Buy Order page I've chosen FNZ which is the TOP 50 Fund ETF. Then I have to choose a quantity and a price limit, what? What is the quantity and price limit? Here is the blurb from ANZ on price limit:

"Price Limit
When placing an order, this is the price you are not willing to pay more than if buying or receive less than if selling.
ANZ Securities will accept the best price available if it is within or equal to your specified Price Limit."

I still don't really get that... How do I work the quantity out? The Quote is 228 cents. Expiration I assume I choose until cancelled as I plan to just leave this...

I appreciate the help for a newbie and I look forward to getting started in shares!

 

[pixel]

Welcome on board, Silver
yes, well - you are a newbie, but then again, we all were once. So, don't let that discourage you to persist, ask questions, and learn.
Obviously, I can't give you a considered opinion about the quality, outlook, or otherwise, of FNZ. I trust you have done your homework and formed an opinion as to why you want to buy some and how much you want to invest and what kind of profit you reckon you can reasonably expect.
On the flip side, however, you should also consider the likelihood of the trade going pear-shaped. How much pain can you stand? When would you be better off to cut your losses and preserve as much as possible of your invested capital?
Those two consideration must always go hand-in-hand.

Now to the technical bits of ordering:
So, you know the current quote for one unit of FNZ is 228c. Do your sums (or multiplications). 1,000 units would cost $2,280, plus brokerage - that's the amount ANZ will charge you to buy those shares for you and hold them in your name.
Want to buy only $2,000 worth? No problem: Buy 120 less. So, that's your quantity.
If you want to buy at the quoted price, you will set the "limit" price at $2.28. Or you could hope to get them a little cheaper, bidding $2.25. That's your decision.

Once they're yours, don't ignore watching them and tracking the progress. While it's true that nothing moves up in a straight line, it must also be remembered that not every stock goes up forever. So, even if a share holding has gone up and is in profit, I will consider taking the money - plus gain - off the table if I notice it's starting to turn. Check out the charting section at your ANZ trading website. Or pick any free charting package, e.g. http://bigcharts.marketwatch.com/quickchart/quickchart.asp?symb=nz:fnz&insttype=&freq=1&show=&time=7 to see how your stock is faring.

Good luck and many happy profits.

 

[SilverXX90]

Hi Pixel,

Thanks for the welcoming.

The FNZ is an ETF comprising of the top 50 NZ companies. My understanding is that an ETF is suitable as a long term investment spreading the risk etc.

Great the ordering makes sense and I placed an order today. I put a bid in of $2.25 which is valid for 28 days, question is what determines whether they accept my bid? Should you always only hope for a little cheaper?

The part about watching, tracking and selling if you hint a turn is about to happen, is that more applicable to stocks in single companies rather than ETF's?

Wow I feel like I have so many questions, should I direct my newbie questions to this thread for the time being? Can anyone tell me how income and dividend shares work? It's something I'm also interested in. Do these deal more in bonds and paying interest rather than tracking a company or ETF?

 

[Indoril]

I always put a limit of a point or two above the last price depending on the quantity and liquidity of the stock. This way it will get filled quicker.

what determines whether they accept my bid?

They will accept your order and it will be filled when someone else enters an order to sell at that price.

I don't know a lot about ETF's compared to stocks but I imagine you would want to keep an eye on it somewhat. Like pixel said, you have to know how much you are willing to allow the value of the ETF to drop before you cut your losses. So consider entering a stop loss order to protect yourself. Although having said that, a company's value can always reach 0 whereas an ETF shouldn't...but still, I'd have a stop loss.
http://www.investopedia.com/terms/s/stop-lossorder.asp
Not sure if ANZ allow you to enter stop loss or conditional orders.

 

[SilverXX90]

Thanks Indoril. So is it always realistic to only put a bid in a few cents below the current sell price?

I've decided to do my ETF trading through a place called Smartshares which allows ongoing monthly payments into the fund without brokerage fees.

I'm interested in trading normal stocks also but have no idea where to start. Do we trade normal stocks more for short term gains? Can you give some starting tips for normal stock trading? Do I look at companies that are potentially high gainers?

 

[Wysiwyg]

I'm interested in trading normal stocks also but have no idea where to start.

Then don't until you do have an idea. Search for Nick Radge - Successful Stock Trading - as a reality. As a beginner you probably won't understand the guidance but if you try to practice it with an electronic/paper test then it will become clearer. Give yourself time to absorb.

 

[pixel]

Thanks Indoril. So is it always realistic to only put a bid in a few cents below the current sell price?

I've decided to do my ETF trading through a place called Smartshares which allows ongoing monthly payments into the fund without brokerage fees.

I'm interested in trading normal stocks also but have no idea where to start. Do we trade normal stocks more for short term gains? Can you give some starting tips for normal stock trading? Do I look at companies that are potentially high gainers?

Hi again, Silver;
I have to agree with Wysiwyg: Don't buy something you don't know anything about.
That holds true for all kinds of financial instruments, be they stocks, ETFs, Futures, or Bonds. From your initial query I got the impression that you had already formed an opinion of the FNZ and wanted to participate in its expected rise. Why else would you want to buy? Paying too much and watching the value fall lower is a Mug's Game

If you know of a share (which really is a part-ownership in a company) where you have a good understanding of what the company is doing, and you are reasonably confident they will continue to do well, then by all means buy some. The process itself is the same as with your ETF: Study the recent trading, know bids and offers, liquidity and daily course of trading in their shares. If you then still want to buy some in order to watch your money grow at a better rate than bank interest - buy some. But be aware that an ongoing rise is never guaranteed, and be prepared to sell - regardless whether with a profit or a small loss. If the share price turns from a rising trend to a drop, selling for a small loss beats waiting and copping a much bigger loss.

 

[SilverXX90]

Hi guy's,

Sorry for the late reply, I get quite busy on forums sometimes.

I have read about the FNZ ETF and it is positively talked about with rises expected. In fact price history charts show a very steady rise over 5 years. I have brought into it.

I'm starting to realise the importance of researching companies and the overall market trend. We have a NZ trading forum that has a lot of discussions but is difficult to sign up for, but with the information that is available I can see what companies and trends are being talked about and then make a personal decision on whether to buy a company. I have got my feet wet and brought my first individual company shares in a retail company.

It is talked about that you should try to diversify your portfolio into to foreign markets also which are more robust. There is not a lot of discussion around ETF's especially the Australian Top 20 (OZY). I think this is the ASX 20 on the ASX? Has the ASX 20 not been so good of late? Would it be worth getting into for some Australian exposure? A lot of people seem to like the US 500 (Vanguard) so that is another I will look into.

I find the ASX website difficult to navigate, how can I get a market run down as I do on the nzx website?

 

[_neon_reflected]

Hi Everyone,

My wife has started to trade recently via Plus500 as recommended to her from a friend at her work. After showing a month of positive trades on a trial account, we placed a cautious $200 into a real account. She mostly trades ASX-200, buying into it many mornings, selling mid-morning or (depending on her feeling, the news, her available time to watch the market) early afternoon.

After 3 months, she had a clear $1,500 in the account. We had a financial emergency, so pulled out 1K, and in the past 2 months she took the account from $500 to $2,500.

This got my attention.

I started looking into this, and realized that she was heavily using leverage. If a trade goes poor, will this ever take more from us than what we have in the Plus500 account?

Plus500 seems to be fairly limited, are there better platforms (? terminology)

My wonderful wife spends a good 30-45 minutes at the end of the night putting all the movements of the day into Excel along with her activity. She compares this the next day to help generate her position. Is there an automatic way to do this?

Thanks in advance!

 

[tech/a]

Bronte?

 

[cynic]

Hi Everyone,

...
I started looking into this, and realized that she was heavily using leverage. If a trade goes poor, will this ever take more from us than what we have in the Plus500 account?

When trading with leverage, the potential to incur losses greater than the funds in one's account certainly exists. Some FSPs (Financial Service Providers) may have policies in place which allow forgiveness of account deficits, within a specified limit.
However, in the absence of written communication to the contrary, it is more prudent for leveraged traders to presume themselves fully liable for any account deficits that may occur.
Market gaps, illiquidity and/or technological issues, are amongst just a few of the banes of the leveraged trader. Such events, can at times prevent timely extrication, of the trader from market exposure, during highly unfavourable moves.

Plus500 seems to be fairly limited, are there better platforms (? terminology)

There are a number of other CFD providers offering services within Australia, many of which offer free demo accounts via which a prospective new client may investigate the platform features on offer.
In choosing a provider, it is important to remember that, the vast majority of providers are offering OTC CFDs. Many such providers have earned a reputation for deriving greater profits by betting against their own customers. This might not be too much of a problem, if it were not for the fact that the client agreement documentation usually contains clauses allowing the provider(rather than an exchange traded market) to decide the reference price of their CFD products.

My wonderful wife spends a good 30-45 minutes at the end of the night putting all the movements of the day into Excel along with her activity. She compares this the next day to help generate her position. Is there an automatic way to do this?

Thanks in advance!

There might be ways in which your wife's process could be partially (or perhaps even fully) automated. Things to consider would be, the electronic sources of the information, available tools for importation, of relevant data, from those sources, into a spreadsheet, and ways in which an excel user might record (or write in VBA) excel macros that can perform the rest of the process.

 

[Wysiwyg]

Hi Everyone,
After 3 months, she had a clear $1,500 in the account. We had a financial emergency, so pulled out 1K, and in the past 2 months she took the account from $500 to $2,500.

Your CFD platform would have a trade history. Any chance of posting that because profit and loss on each trade tells a lot?

 

[_neon_reflected]

Bronte?

Hey, can you explain this please? Sorry!

 

[_neon_reflected]

Your CFD platform would have a trade history. Any chance of posting that because profit and loss on each trade tells a lot?

My wife uses the Plus500 app... I have never even looked at it. Can you tell me how to do this? I mean, I can screenshot the app, but besides that???

 

[_neon_reflected]

Ok... I've just spoken to my wife a little more specifically about this. She's been doing this in the background and I was pretty much taking this as a game or short-lived hobby until recently. We've deposited $200. That's it.

We've pulled out $170 once and $1,500 once and now have $400 in the account. There was a recent loss of around $600 over last week and we've lost that before.

Total timeframe is around 4-5 months. We stopped trading for 7 weeks because we were out of the country, and the app recognized that and didn't allow us to continue until we landed back in Australia. I suggested to my wife to use a VPN at that time, however she rejected the idea.

I don't know if her results are good, bad, or average. Personally, I'm pretty damn happy and proud of her, however I'm a little cautious and conservative. I don't wish to clip her wings here. Neither do I wish to put our finances at risk.

Also... I'd like to build on her work.

Forex Peace Army gives Plus500 a crap review. I was hoping that I could get a "Hey, look at...." suggestion here. My own research has led me to look at Blueberry Markets and Ava. I started a free trial account with Blueberry yesterday, and I'll mess around with trading the ASX tomorrow, however that platform looks to be more focused on forex. I like the idea of looking at indices and specific stocks too.

Thanks!

 

[Wysiwyg]

My wife uses the Plus500 app... I have never even looked at it. Can you tell me how to do this? I mean, I can screenshot the app, but besides that???

My wonderful wife spends a good 30-45 minutes at the end of the night putting all the movements of the day into Excel along with her activity.

 

[_neon_reflected]

When trading with leverage, the potential to incur losses greater than the funds in one's account certainly exists. Some FSPs (Financial Service Providers) may have policies in place which allow forgiveness of account deficits, within a specified limit.
However, in the absence of written communication to the contrary, it is more prudent for leveraged traders to presume themselves fully liable for any account deficits that may occur.
Market gaps, illiquidity and/or technological issues, are amongst just a few of the banes of the leveraged trader. Such events, can at times prevent timely extrication, of the trader from market exposure, during highly unfavourable moves.

Hi Cynic, thanks... I've just finished reading older forum posts and already feel we've chatted already. You've given a wonderfully truthful answer here, however I'd like to know if there is either an answer for the platform mentioned, or if there is specific wording in the ToS I should look out for. Then again, the more I type, the more I realize that ToS agreements change and each company will have their own cleverly worded agreements....

Without going through a lawyer, can I look for specific wording or read an up-to-date honest review site, or even properly word a Google search to gain this information myself? I don't feel right moving forward unless I get at least this part right in my head... can I loose my house if I use leverage?

There are a number of other CFD providers offering services within Australia, many of which offer free demo accounts via which a prospective new client may investigate the platform features on offer.
In choosing a provider, it is important to remember that, the vast majority of providers are offering OTC CFDs. Many such providers have earned a reputation for deriving greater profits by betting against their own customers. This might not be too much of a problem, if it were not for the fact that the client agreement documentation usually contains clauses allowing the provider(rather than an exchange traded market) to decide the reference price of their CFD products.

Thank you for mentioning OTC CFDs... I've been reading a lot of terminology and its difficult to determine which acronyms are important. I seem to also think that your last sentence in this paragraph is something I should specifically look out for...

There might be ways in which your wife's process could be partially (or perhaps even fully) automated. Things to consider would be, the electronic sources of the information, available tools for importation, of relevant data, from those sources, into a spreadsheet, and ways in which an excel user might record (or write in VBA) excel macros that can perform the rest of the process.

This is not the answer I wanted, but it is great direction. Yes, I suppose I wanted someone to say, "Use Platform X and they do it all for you" however (as I grind my teeth) learning a manual system always has unforeseen benefits. Cheers.

 

[Triple B]

I believe plus 500 is a Market Maker Model [MM] t
hey set their own market prices and may or may not hedge your wifes trades on the actual stock market.
They also may have guaranteed Stop losses which are major benefit of the Market Maker Model.
The other type is Direct Market Access[DMA] Model
The broker puts an equivalent trade for all your wifes positions on the stock market .
Usually no guaranteed Stops, possibly slightly higher commission and slightly lower leverage.
I suggest at least one account of each model
May I suggest some reading Here.
http://www.learncfds.com/
Leverage is a two edged sword . great way to start with a small amount and grow quickly.
also can be wiped out quickly if risk is not managed well.
You also need to work out costs before trading as they can add up and chew into profits.
Hope this helps. there is plenty of info out there to help you understand these products

 

[_neon_reflected]

My wonderful wife spends a good 30-45 minutes at the end of the night putting all the movements of the day into Excel along with her activity.

Does this help?

 

[cynic]

Hi Cynic, thanks... I've just finished reading older forum posts and already feel we've chatted already. You've given a wonderfully truthful answer here, however I'd like to know if there is either an answer for the platform mentioned, or if there is specific wording in the ToS I should look out for. Then again, the more I type, the more I realize that ToS agreements change and each company will have their own cleverly worded agreements....

Without going through a lawyer, can I look for specific wording or read an up-to-date honest review site, or even properly word a Google search to gain this information myself? I don't feel right moving forward unless I get at least this part right in my head... can I loose my house if I use leverage?
...

The best advice I can give you, is to first google for independent customer reviews and find out what complaints are typically being made about the various providers, and then upon thus narrowing your candidate list, for each provider in that list, read all the documentation (i.e. PDS,FSG etc.) outlining the business terms that clients must agree to when opening an account. (Although my research in this area has not been exhaustive, I have yet to discover a single OTC CFD provider , with documentation that doesn't allow the potential for flagrant conflicts of interest to occur!)

In answer to your question regarding the potential to lose one's house - yes!

Here's one news article concerning the plight of some Australian retail FX traders, during the aftermath of a surprise market event:
http://www.abc.net.au/news/2015-02-12/foreign-exchange-traders-fight-to-save-millions/6087976

Please do not make the error of presuming that it takes extreme market events, like the one mentioned above, for a trader to become financially imperilled via use of leverage.

For example, with 100:1 leverage, a trader of long positions, could quite easily have the misfortune of transforming an account worth $1k, into a loss of up to $99k in the event of unfavourable (outside of market hours) announcements.
And for the trader of short positions, potential losses from adverse out of hours events, are theoretically unlimited (for many markets)!