How to invest in the ASX

• Learn about investing in ASX-listed index funds, ETFs, and shares.
• Compare ASX online brokers and set up your first order.
• Discover the pros and cons of investing in the ASX.

ASX is an abbreviation for Australian Securities Exchange, formed in 2006 through the merger of the Australian Stock Exchange and Sydney Futures Exchange. Its headquarters are in Sydney. Like most other major global exchanges, it acts as a securities market operator, clearing house and payments facilitator, and provides educational material for investors.

The ASX is a listed company (ASX: ASX), and you can buy shares in it, but ‘investing in the ASX’ usually refers to buying other Australian securities listed on the ASX, which is what this article covers. But before you start, you need to know which types of investment and which broking platforms are available, the step-by-step procedure to follow and the pros and cons to watch out for.

This is your complete guide to investing in the ASX.

The most popular types of ASX-listed securities are index funds, ETFs and individual shares.

Index funds

You can’t buy a share of a stock exchange’s entire listing, but the next best thing is to buy units in an index fund which closely mirrors the performance of major companies listed on the exchange, by pooling investors' funds to buy shares in those companies.

Some of the best-known ASX index funds are:

• SPDR S&P/ASX 200 (ASX: STW). This fund tracks the performance of the S&P ASX 200 index, the 200 largest companies (by market capitalisation) listed on the ASX.
• SPDR S&P/ASX 200 ESG (ASX: E200). Also tracking the performance of the S&P ASX 200 index, but with special consideration for companies meeting sustainability criteria.
• SPDR S&P/ASX 50 (ASX: SFY). Tracks the performance of the S&P ASX 50 index.
• Vanguard Australian Shares Index (ASX: VAS). Tracks the performance of the S&P ASX 300 index.

When you invest in an index fund, the value of your investment will rise and fall almost exactly in line with the index it tracks, and approximately in line with the broader ASX market.

Exchange Traded Funds (ETFs)

While index funds are a type of ETF, there are other ASX-listed ETFs that offer broad exposure to companies listed on the ASX without directly tracking an index. ETFs track the performance of a basket of shares, selected by a management group to follow a specific market sector or strategy.

Here are some examples:

• BetaShares Australian Quality ETF (ASX: AQLT). The fund aims to track 40 Australian companies with a high return on equity, earnings stability and other measures of high quality.
• VanEck Vectors MSCI Australian Sustainable Equity (ASX: GRNV). A basket of sustainable Australian companies selected by MSCI ESG Research.
• iShares S & P /ASX Dividend Opportunities ETF (ASX: IHD). Designed to measure the performance of 50 ASX-listed stocks offering high dividend yields and meeting diversification, stability and tradability requirements.
• BetaShares Australian Resources Sector ETF (ASX: QRE). Diversified exposure to the biggest companies in the Australian resources sector, including BHP, Rio Tinto, Woodside Petroleum and more.

Individual company shares

If index funds and ETFs don’t appeal, you could try investing in the shares of one or several ASX-listed companies. But be aware that this is a more risky form of investment, where significant short-term losses are possible as well as short term gains.

Buying shares in individual companies is best undertaken by investors with a reasonable degree of market knowledge and research capabilities, or investors acting on the advice of an extremely competent broker or other share trading expert.

However, if you do decide to follow this route, some major Australian companies you might consider are BHP Group Ltd (ASX: BHP), Commonwealth Bank of Australia (ASX: CBA), Fortescue Metal Group Ltd (ASX: FMG), and Telstra Corporation Ltd (ASX: TLS).

Step 1: Choose a broker

When you buy shares online, you do it through an intermediary called a broker. There are hundreds of online brokers available, offering various options.

Some key features to look for when choosing an online broker:

• Low-cost brokerage
• Easy-to-use trading platform
• Research and reporting
• Demo account so that you can practice trading first without risking real money

If you would like to invest in the ASX, you also need to make sure that you choose a broker offering access to the Australian share market. Those listed on this page do.

Step 2: Decide how much you want to invest

You should always have an investment budget based on what you can afford. You can always buy more later if the price drops, or when you have more funds available.

Step 3: Fund your account

Share trading accounts need money added to them to become fully active, but in the early stages, it's a good idea to be cautious about how much you add.

Step 4: Choose between shares, ETFs and index funds (or opt for a combination)

ETFs and index funds are usually diversified across multiple companies, so they typically experience lower price volatility than individual company shares and can be better for long-term investment.

• Short-term investors hoping for rapid capital gains (but also prepared for losses) may prefer to buy shares.
• ETFs can often be traded commission-free.

Step 5: Decide your order type

Orders are your method of telling your online broker what sort of trade to make, and how you'd like your money to behave. Depending on the broker you use, you can configure many different kinds of order.

• A market order is the most straightforward, requiring virtually no setup. Once executed, you’ll get shares at the next market price for the share or fund unit.
• If you have a specific strategy, then you’ll probably want more options in terms of configuration. Some brokers have highly customisable orders that can be triggered by events, meaning you can buy or sell when your chosen share or fund hits a price target.

Step 6: Place your order

Once you're happy with your strategy and with funds in place, it's time to trade. On most platforms, you can place your order with the click of a button.

Step 7: Monitor your investment

Whether you are investing to gain from speculation on price fluctuations or as a long-term investment, you should keep monitoring the fund’s or company’s performance and its price movements.