Share Trading New Zealand – A Beginner’s Guide

Buying and selling shares of a company is one of the most popular forms of trading. You can profit from shares by holding the asset until the value increases and sell the shares to make a margin, and when you buy shares, you’re eligible for dividend payouts and a seat at a company’s shareholder meetings. So there are plenty of potential benefits to share trading in New Zealand.

If you’re wondering how to trade shares in New Zealand, this guide has you covered. We’ll explain everything you need to know about NZ share trading, including how to develop a successful share trading strategy. We’ll also compare the best share trading platforms for 2024 that you can use to open a New Zealand share trading account today.

How to Start Online Share Trading in NZ in 3 Quick Steps

Can’t wait to start share trading? Just follow these three steps to place your first share order:

Step 1: How to Pick a Share Trading Account in New Zealand?

In order to trade shares in New Zealand, you’ll need a share trading account. Choosing the right New Zealand share broker is key since your broker determines how much trading will cost and what companies you’ll be able to trade.

To help you find the best share broker, let’s take a closer look at our top recommendations:

Step 2: Learn How to Trade Shares

While opening a New Zealand share trading account is the first step to trading shares, it’s important to understand the basics before you get started. Here, we’ll cover everything you need to know about how share trading works.

What is Share Trading?

When you trade shares, you’re buying and selling portions of ownership of publicly traded companies. Shares go up and down in value in response to supply and demand, so you can profit when you sell your shares for a higher price than you bought them for. Share prices rise when a company performs well, such as by increasing its profits or revenue.

Of course, there is also some risk in share trading. If demand for a share falls, perhaps because of a public relations issue at the company or a drop in consumer demand, the price of the share will fall as well. When that happens, you can either continue to hold the share in the hope that the price rises again, or you could sell it for a loss.

How to begin Share Trading

In order to trade shares in New Zealand, you must use an online broker. Brokers act as middlemen, taking your order to buy, say, 10 shares of Netflix and delivering it to a stock exchange. On the exchange, your order to buy Netflix shares is then matched with an order from someone else to sell 10 shares of Netflix. The shares are delivered to your broker, which holds them in your share trading account until you’re ready to sell them.

It’s important to note that you can’t just walk into an exchange and buy shares yourself. First of all, the exchanges that share trade on are global, if you want to buy shares of a US company, for example, the shares probably trade on an exchange in New York, not New Zealand. Even then, only licensed brokers, not individual traders, are allowed to buy and sell shares on exchanges.

Once you buy shares, it’s up to you to decide when you want to sell them. We’ll dive more into strategies below, but you can hold shares for minutes, days, or years. The primary thing that matters when it comes to turning a profit is that you sell your shares for a higher price than you paid for them.

Alternatively, you can trade shares CFDs (contracts for difference), meaning you speculate on the price without owning any underlying assets. This allows you to speculate on share prices going down as well as up, and you can also use leverage to borrow capital from a broker and make larger trades.

Share Trading Terminologies for Beginners

Share trading comes with a lingo all its own, which can be confusing for beginners. So, let’s define some of the most important share trading terms you need to know:

• CFD – Contract for difference. This is a derivative that gives you exposure to a share’s price without actually buying shares.
• Dividend – A payment, usually made quarterly or annually, that companies make to shareholders. Some companies pay dividends, but many do not.
• Leverage – Increasing how many shares you can buy by borrowing money from your broker.
• Limit Order – An order through your broker to buy shares at or below a specific price.
• Market Order – An order through your broker to buy shares at their current market price.
• NZX – The New Zealand Exchange, which is the exchange your broker will go to in order to buy and sell shares of New Zealand companies.
• Return – Your profit or loss on a share trade, usually expressed as a percentage of your initial investment.
• Spread – The difference between what you pay for a share and what you can sell it for at the same time. Your broker pockets the spread on every trade.
• Stop Loss – A price below a share’s current price. If the share’s value drops to your stop-loss price, your broker will sell some or all of your shares of that company.

What are the Best Tips When Trading Shares?

There’s a lot to think about when you’re just starting out with online share trading in New Zealand. But keeping some important tips in mind can help you navigate the market and consistently profit.

• Set Stop Losses
  It’s easy to get carried away by the potential reward if a share trade goes well, but what happens if a company doesn’t perform as you expect it to? Always protect your trades with a stop loss so that you can never lose more than 10-20% on any single trade.
• Buy and Sell Gradually
  In addition, you can reduce risk by building positions gradually. For example, instead of buying 100 Twitter shares at once, buy 20 shares each week for five weeks. That way, if Twitter’s share price goes up and down over those weeks, some purchases will end up profiting and offset any small losses.
• Diversify 
  You shouldn’t put all your eggs in one basket when it comes to online share trading. By that, we mean investing in just one or two shares. By spreading your budget across a more diverse range of shares, you can reduce the impact of a share price dropping on your portfolio.
• Take Advantage of Limit Orders
  Another good tip is to use limit orders. Whereas a market order executes your trade immediately at the current share price, a limit order puts a cap on how much you’re willing to pay for a share. Using limit orders is a good way to buy shares when the price dips slightly, as opposed to overpaying and suffering a loss during a short-term dip.
• Tread Carefully with Leverage
  Leverage can be very alluring to new traders. Essentially, you can borrow money from your broker to buy shares than you can otherwise afford. With 10:1 leverage, for example, you can buy $10,000 worth of shares with only $1,000 in your trading account. Be very careful with leverage. A 1% drop in share price means a 10% loss when you trade at 10:1. Plus, you have to worry about keeping a minimum amount of cash in your account and interest charged by your broker when trading shares with leverage. Beginner share traders should generally steer clear of leverage until you gain more experience.

What Not to Do When Trading Shares

Just as there are plenty of things you should do when trading shares, there are plenty of things you should avoid doing.

• Don’t Take Tips from Strangers
  Heard about an exciting investment opportunity on Twitter? Think twice. There are plenty of scammers out there who want to trick people into buying shares of a company for their own benefit. There are also plenty of people who give advice, even if they don’t know much about share trading themselves. If you need tips for which companies to buy shares for, stick to reputable sources and professional services.
• Don’t Trade Without Research
  Whether you’re buying shares or trading CFDs, there’s always the risk that you can lose money, particularly if you’re unprepared. We recommend researching the market, looking at factors like companies’ fundamentals, historic price movements and future outlooks before you risk your money. The more research you put in, the better informed your trades will be.
• Don’t Hold at Any Cost
  When you buy shares, it’s typically because you think they’re going to rise in value. But if they fall, it’s easy to get emotionally attached to your trade. Many share traders will hold onto shares even as they lose 20% or more of their value, essentially sinking with their ship for no good reason. Be objective about a bad trade, after all, they happen even to professional traders. Set a maximum amount you’re willing to lose on a single and stick to it.

New Zealand Share Trading Accounts Fees

The main fees you need to worry about when trading shares in New Zealand are commissions and spreads.

Commissions are per-trade fees that are assessed every time you enter a buy and sell order. They are either a percentage of each trade or a flat amount, which can sometimes depend on your trading activity in the previous month. Thankfully, many New Zealand share trading accounts no longer charge commissions.

The spread is the difference between what you can buy a share for and what you can sell it for at the same time. This is usually around 0.1%, but it varies between brokers. The spread is essentially a percentage-based fee on every trade.

Another charge to consider is overnight fees, which is a fee that you pay to hold leveraged CFD trades overnight. Some brokers also charge withdrawal and inactivity fees. Watch out for these, as they can add up over time. Understanding when these fees are assessed by your broker may help you avoid them.

Step 3: Choose a Trading Strategy and Start Trading

A key ingredient to successful share trading is a good strategy. There are many different ways to approach online share trading, so we’ll take a look at some of the most popular strategies.

Day Trading

Day trading is a strategy by which you buy and sell shares within the course of a single day. You buy shares in the morning, hold them for a few hours, and then sell shares in the afternoon. Day traders rarely, if ever, hold a position overnight.

Swing Trading

Swing traders look for changes in a share’s price momentum. If a share had been steadily falling in value, a swing trader might look to buy just as it begins a new uptrend.

Swing trading can be tricky, since it’s critical that you get the timing of your trades right. Most swing traders rely heavily on technical charts and expect to hold positions for a few days or weeks.

Position Trading

Position traders are similar to long-term investors, but they don’t hold forever. Typically, position traders will invest in shares that are expected to rise in value slowly but steadily. They may hold these shares for weeks or months, as long as an uptrend continues.

Scalping

Scalping is a fast-paced strategy that involves placing a huge number of small-value trades. Basically, scalpers will buy a stock and hold it for just a few minutes or even seconds, waiting for the price increase by a few cents. The price changes that scalpers look for aren’t necessarily due to big trends, but rather due to the back and forth of traders buying and selling shares throughout the day.

Step 4: Open a Share Trade

Now, all that is left to do is open an account with one of the brokers listed above and execute a share trade through the terminal.

Pros and Cons of Share Trading

Conclusion

Whether you're buying shares or trading CFDs, online share trading can be an attractive proposition, due to the opportunity to make capital gains and diversify your portfolio. However, share trading comes with risks, so we recommend doing your research and developing a strategy before you put your money on the line.

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