What a trading platform does, step by step

When you buy shares in Australia, you generally do it through a broker: a licensed business that gives you access to the ASX and other markets so your trades can be placed. The platform is how you talk to that broker. It holds your account, takes your orders and shows you the records that come back. Most people who buy shares use an online broker, so for most people the platform is where share investing begins.

It helps to keep the layers apart. The market, mostly the ASX, is where buyers and sellers meet. CHESS, run by ASX, is where trades settle, and its subregister records who owns broker-sponsored holdings. The platform sits in front of both. A good screen does not change what happens behind it, and a plain one does not make it worse.

The broker behind the screen

Moneysmart separates brokers into two kinds.

If you need a starting list, Moneysmart points to the ASX’s find a broker tool. This paper does not name or rank brokers. Whatever list you start from, check the licence on ASIC’s register yourself.

How an order travels

Moneysmart sets out the steps for an online broker, and ASX describes what happens after the trade. Put together, the journey looks like this.

1. You open an account. Moneysmart says this usually takes less than 15 minutes online, although identity checks can sometimes take a day or two.
2. You add money. Most online brokers need money in your account before you place a trade. Some let you settle a trade from a linked bank account within two business days, so check how yours works.
3. You place the order. You pick the company, the number of shares and an order type, such as a market order or a limit order. Your broker may offer other order types; Moneysmart suggests asking the broker to explain them before you use them.
4. The trade happens on the market. On the ASX, shares are traded electronically on the ASX Trade platform.
5. The trade settles. CHESS settles equity trades two business days after they take place (T+2), moving the money from buyer to seller and the ownership from seller to buyer at the same time. When you sell, the money reaches your brokerage account on that same timetable.
6. The paperwork arrives. You get a confirmation showing the price, the number of shares and the fees; Moneysmart suggests keeping it for tax time. You may also get a holding statement, in the post or by email, confirming the shares are registered in your name.

Market orders and limit orders

The two order types Moneysmart describes trade one certainty for another. A market order buys or sells at the next available price, and usually goes through quickly. You know the trade will happen; you do not know the exact price until it has.

A limit order sets the most you will pay when buying, or the least you will accept when selling, and only goes through if the market reaches your price. You know the worst price you will get; you do not know whether the trade will happen at all. Neither is better in general. They answer different questions.

When “platform” means something else

The same word covers products that work very differently from buying shares through a broker. Three are worth telling apart.

CFD trading platforms

A contract for difference is a contract between you and the CFD issuer, traded over the counter rather than on a licensed exchange. The issuer sets the prices on its own trading platform and the terms for opening and closing positions, and the price shown when you place an order may not be the price you receive. That is a different arrangement from an order sent to the ASX. CFDs and leverage are on page 5.

Fractional share trading

Some platforms let you buy part of a share. With fractional trading, the shares may be held on your behalf by the platform or a custodian, in a shared account, and your rights can differ from those of a direct shareholder. Page 3 compares the ways of holding shares.

Investment platforms

In Moneysmart’s usage, an “investment platform” is an administrative system for many investments in one place, such as a wrap account or a master trust. These are generally only available through a financial adviser.

Before you open an account

Moneysmart is plain that shares are not an appropriate investment for everyone, and that your time frame and your tolerance for risk matter. A platform cannot tell you whether shares suit you; a licensed financial adviser can give advice about your own circumstances.

Costs deserve a look before the first trade. Moneysmart lists brokerage, platform or inactivity fees, foreign exchange fees on overseas shares, and tax, and notes that fees can be a big share of a small trade. Page 4 works through the arithmetic.

One more thing that arrives by post rather than through the platform: an unexpected letter offering to buy your shares. Moneysmart suggests checking who is making the offer, why, what your shares are actually worth and how you would be paid. Such a letter must be dated and give you at least one month to accept.