Since you found your way here, you are probably a stock trader who is curious about finding out more about the ups and downs of trading in the Australian Stock Market. You want to know how to start trading Australian stocks, where to get the latest news affecting your future Australian stock portfolio and more. International diversification is a good idea, and choosing Australia is a great market to start diversifying with.
THE AUSTRALIAN STOCK MARKET – HOW TO START TRADING AND KEEPING YOURSELF UPDATED
The Australian economy is quite heavily affected by its strongest industries, mining and industrial manufacturing. Where S&P 500 is comprised of 20% IT stocks, the ASX which we speak of below is comprised of 1% IT stocks. The Australian Stock Exchange is also quite heavily exposed to the financial markets. These differences in which industries dominate an exchange helps to decrease correlation among markets, and makes the Australian Stock Market a good candidate to diversify your stock portfolio with.
We can’t talk about the Australian Stock Market without mentioning the Australian Stock Exchange (ASX), the largest and most influential exchange in the country and one of the world’s leading top 15 stock exchanges.
The main indices to keep track of in the Australian market are the ASX indices (such as the ASX 200, ASX 50 etc) and the All Ordinaries (more known as the “All Ords.”). The All Ords is the oldest index in Australia, and is made up of all the largest 500 shares listed on the ASX. As these 500 companies making up the All Ords account for 95% of the market capitalization on the ASX, it would be quite advised to keep track of this index and its day-to-day changes and the reason for these changes taking place.
The ASX indices such as the ASX 200, which is a bit similar to the All Ords. in size, are weighted indices from the S&P. The index ASX is made up of the 200 largest firms traded on the ASX, the ASX 50 based on the 50 largest and so forth.
To be able to keep track of information and news that are important for the Australian economy and markets, you need to have the tools to do it. News site Sare of course a great help in keeping up to date, and we have listed a few interesting suggestions on news sites:
- http://www.smh.com.au/business/markets – Australia based economic online news paper
- http://www.theaustralian.com.au/business/markets – Australian business news
- http://www.businessinsider.com.au/ – also an Australia focused business online news agency
- http://www.tradingeconomics.com/australia/indicators – economic indicators connected to the Australian economy
Some of these sites might offer you to follow them live via RSS feeds or newsletters, and for those that prefer even quicker updates via push notices might want to explore the apps available out there with Australian news relating to economic data and share prices. The number of Australia Stock Market oriented apps out there are numerous, so it is for you to test your way to the ones fitting your needs. The ASX offers one for free, but the app only works with iPhones. The ASX apps offer real time news relating to the ASX and the companies listed on it.
HOW TO TRADE AUSTRALIAN STOCKS
Now that you know the basics and have a few ideas of which Australian companies you are interested in, how do you trade them as a non-native? Most international brokers will offer access to Australian stocks, but not all. The ones offering the possibility may do so directly via their trading platform online or by phone. The trading costs associated with different brokers is important to compare when choosing between brokers; these costs can easily eat up any profits you make after a good trade.
There are other ways to trade Australian stocks. American Depository Receipts (ADRs) are stocks trading in the US and represent a set of stocks connected to a foreign company. NYSE and NASDAQ have Australian ADRs listed, and it would be a good idea to check for your favorite Australian stocks there. Don’t worry, Depository Receipts are available in other countries, in the case you are not a US based trader.
Exchange Traded Funds (ETFs) are funds that are traded as stocks on exchanges. There are ETFs focusing on buying shares tied to Australian companies, and with different industry focus and niches. Depending on your trading needs, it might be enough to buy ETFs instead of buying Australian shares directly, and possibly easier.
WHAT ARE THE MAIN RISKS?
If you are trading Australian stocks directly and not via ADRs or ETFs, you will have a currency risk connected to your trades. When buying and selling in US dollars or other currencies and exchanging for Australian dollars, you might find yourself in the situation of losing money just because of currency movements.
As with many other markets, the Australian Stock Market is quite influenced by the economic and financial developments in the world, from foreign policy changes, to Fed hikes, to volatility spillover effects from the Chinese markets. With 40% of its listed shares owned by foreign investors, the decisions of these investors to invest more or leave their positions can impact the Australian Stock Market quite heavily.
It’s not as difficult as you may think it is to trade Australian stocks and to follow the Australian market. Given that the ASX doubled its value between 2003 and 2007 and continues to be an interesting exchange, the Australian market is worth looking at in terms of creating interesting returns.
The Australian market is focused on mining and industrial firms, making it a good tool for diversifying your portfolio if you are not already exposed to such companies. In either case, the ASX and Australian Stock Market will offer you the possibility to diversify from a geographic perspective as well.
As we have described, it is fairly easy to buy directly into Australian shares, and the possibility to buy indirectly via ADRs and ETFs is an even easier exercise. Research the Australian market, keep track of share price moving news and start trading!