You’ve decided on an investing strategy, you’ve documented your plan, you’ve sourced your broker and set up an account.

Now it is time to put your strategy into action – make an investment and buy a parcel of shares.

Explore this section for a practical ‘how to’ guide to get you started.

• Market basics
• Position size & costs
• Types of orders

 Market basics

Market depth

Market depth is the term given to the number of buyers and sellers and the quantity each is offering to buy and sell for a particular share.

You can generally access the market depth screen, usually to a limited depth of 10 or 20 levels, on your broker’s website when you open a trading account. The market depth screen is a snapshot of the supply and demand for a particular stock at a particular point in time. It shows the:

• bids – what each buyer is prepared to pay
• offers – what each seller is prepared to sell for
• numbers of buyers and seller at each price level.

This information allows you to fine tune your buy or sell decisions based on current information or you can choose to enter a market order.

Spread

Another term you might come across is the spread. This is just the gap between the highest bidder and the lowest offer and usually is the minimum tick size (see below).

Tick size

The tick size is the minimum price increment in which a particular stock trades and for which the ASX integrated trading system accepts orders. Currently the ASX has 3 different minimum price increments:

Market times

You can generally access your online broker platform at any time which means you can place some forms of buy and sell orders at times that suit you. (See Types of orders for more information on the restrictions.)

However, usually, trades will only transact during normal market opening hours which is 10.00 am to 4.00 pm on business days.

If you are using a full service broker you can send requests for orders at times that suit you, however these orders won’t go into the market until the broker processes them and the market next opens.

 Position size & costs

Some consideration needs to be given to the size of the parcels of shares you purchase for your portfolio, especially when the portfolio is relatively small.

Brokerage is generally charged with GST included in the transaction cost and at the time of writing the average minimum charge for an online broker is $20 and for a full service broker charges range from $55 upwards.

If you buy a relatively small parcel of shares the average cost per share can be adversely affected as shown by the following table:

You can see that the average cost per $1 of shares purchased reduces as the parcel size increases but the law of diminishing returns comes into effect with the difference becoming so small that it becomes unimportant.

Using an online broker with $20 brokerage this economical point is between $1500 and $2000 parcel size but with a full service broker the point is higher at around the $4000 to $5000 parcel size.

 Types of orders

There are 3 different approaches you can take when it comes to buying and selling your shares.

Limit Order

You specify the price at which you are prepared to sell or prepared to buy.

You specify a price limit, either a:

• maximum buy price
• minimum sell price

You would determine this price by analysing the market depth or using a technical analysis approach.

Brokers generally set time limits on these type of orders and if your order does not transact during the time period then the order is purged.

With some brokers you can also set a specific time limit for the order – perhaps a ‘good for day only’ order which is purged at the end of the day that you placed the order.

Note that automatic purging of orders can also occur when the status of the stock changes, for example when the stock goes ex-dividend.

Market order

You can buy or sell shares at the market price by placing a ‘market order’. This means that you are prepared to accept the best price available at the time you place the order.

If you are:

Both types of orders have their advantages and disadvantages:

A market order might be useful when the market is moving rapidly and you want to either buy or sell without delay.

A limit order is useful most of the time, even when you want to buy close to the market price as you gain both time to re-consider and certainty of price.

Conditional order

Conditional orders are orders that only transact when certain conditions or criteria are met. They provide:

• a controlled entry and exit strategy for a stock
• a considered decision made before you feel the pressures of a volatile market
• the freedom to not have to constantly watch the market.

The four common conditional orders are: