How to Buy Shares in New Zealand – A Beginner’s Guide
If you are based in New Zealand and want to buy shares online, this guide is for you. There’s an array of brokers and trading platforms to choose from in New Zealand, but before you enter the trading world, you need to find the right broker for you and ensure you completely understand the fundamentals of the share market.
In this guide, we explore the share market in New Zealand, review the best online share brokers, and show you a step-by-step guide on how you can buy shares today.
How to Buy Shares in New Zealand in 3 Steps
If you don’t have time to read our full guide and you want to buy shares instantly, below you’ll see three quick steps that you need to follow to buy shares in New Zealand instantly.
Step 1: How to Pick a Shares Trading Account in New Zealand?
Buying shares online requires you to find an online stock broker that gives you access to the markets. This way, you will be able to view thousands of tradable assets and place orders in the market. But finding the right broker in New Zealand can be a challenge as you must know what to look for in a share trading account.
Whether you have experience and trading skills or you make your first steps in the trading world, you’ll have to take into consideration the range of shares, trading platform and tools, the regulatory framework of the broker, fees and commissions, and the leverage it offers.
With that in mind, we did our investigation to find out the best platforms on which to buy shares in New Zealand in 2021.
1. FinmaxFX – High Leverage CFD Broker
FinmaxFX is an online CFD broker that offers a variety of assets to trade, including over 180 shares from top exchanges around the world.. Launched in 2019, FinmaxFX has managed to build a great trading environment for beginners and more professional investors.
One of FinmaxFX’s key factors, when compared to other brokers in the industry, is the high leverage it offers of up to 1:20 on share trading. This means that with a deposit of $250, you will be able to trade with a total capital of $5000. FinmaxFX is able to offer this as it’s licensed in Vanuatu and is not therefore not restricted to the same limits as other brokers.
One thing to bear in mind that this broker isn’t the cheapest, as the spreads are on the high side and there’s a withdrawal fee of up to 3%. On a more positive note, FinmaxFX is fully compatible with MetaTrader 5, which means you’ll have access to loads of advanced trading tools, in addition to trading robots and signals.
- Supports MetaTrader5
- Up to 1:20 share trading leverage
- Offers trading bonuses
There is no guarantee you will make money with this provider.
- Charges high spreads
Step 2: Learn How the Share Market Works in New Zealand
Before you engage in trading shares, it is crucial that you understand how the share market works in general and particularly in New Zealand. Essentially, there’s a risk involved when you invest in shares, and it may take time and effort to become a successful investor. As such, we suggest that you read this section before you place your first order in the market.
What are Shares?
The term shares refers to units of ownership in a specific company, or another equity such as mutual funds, ETFs, and investment trusts. Basically, when you buy shares of a company, you are a legitimate shareholder of the company’s profits, debts, and assets.
Shares trading is the act of buying and selling an asset with the hope of making a profit through an increase in the value of the share or by receiving dividend payments. While there’s a risk involved in share trading, there are also many effective approaches to master share trading skills.
Ways to Buy and Sell Shares
As financial markets evolved and trading has become fully electronic, new ways of buying and selling shares in New Zealand have emerged. While it was common to transfer orders by phone, nowadays, there is a diversity of trading platforms that enable you to independently place orders in the market. Below you will find some of the most common ways to invest in shares:
- Buy shares Outright
The most common way to buy and sell shares is to find a traditional stockbroker that places orders directly on an exchange on your behalf. There are plenty of brokers offering you an access to exchanges, and often, you can even get access to shares via your bank account. If you decide to trade through the traditional way, you will get access to all of the securities traded on the New Zealand Stock Exchange, however, you should take into consideration the high fees, limited trading platforms and tools, and the high margin requirements.
- Trade shares using CFDs
Contracts for Difference (CFDs) are a relatively new financial product that has become increasingly popular among investors and day traders. Unlike the traditional method of buying shares, when you buy shares using CFDs, you do not own the underlying asset but instead, you speculate on the price movement of the asset. This means that you do not physically hold shares of the company and you are not entitled to capital and voting rights.
Nevertheless, there are many advantages to trade shares via the CFD market. The trading costs are significantly lower, you can buy and short-sell a share with low margin requirements, you will get access to advanced trading platforms and tools, you are entitled to dividend payments when you buy shares of a company, and you can leverage your capital by borrowing funds from the broker.
- Trade shares through EFTs and Index Funds
ETFs and Index Funds are another unique way to get exposure to the share market. In simple terms, an Exchange-Traded Fund and Index Fund are a collection of securities that tracks a specified area of the market. When you buy an ETF or Index Fund, you diversify your investment as you simply buy a large number of companies. Further, you can focus on a particular sector, region, or industry.
- Trade share options
Options are a complex trading tool that was originally designed as a hedge against share price fluctuations. But the great element of options is that it requires lower financial investment and is correlated with the price of the underlying security. Unlike equity trading, share options have more variables, known as The Black–Scholes formula. When you trade shares using options, you can use strategies that can be risk-defined and have a higher probability to succeed in the long term.
What is the NZX in New Zealand?
The New Zealand Stock Exchange (NZX) is the only stock exchange in New Zealand. The NZX was founded in 1870 as different regional stock exchanges but merged to one national stock exchange in 1974. Keep in mind that the New Zealand Stock Exchange is considered a relatively small exchange with a total number of only 164 listed securities.
The NZX 50 Index is the main market index in New Zealand and comprises the largest 50 corporations in terms of market capitalization.
How to Make Money from Buying Shares in New Zealand
Ultimately, there are two primary ways to make money from buying shares – through capital gains and from dividend payments. Let’s see how each one of these works.
Earn from dividends
Income from dividends is presumably the easiest way of making an income when buying shares. Dividends are simply a profit-sharing mechanism that allows the investor to get a portion of the company’s profit based on the number of shares the investor owns. While many are searching for a high-yield dividend shares to generate an additional income, others take the dividend payment as a bonus for earning from share capital appreciation. This method of employing dividends as a hedging mechanism works as follows: If you buy a share with a 4% yearly yield, this essentially means that you will not lose funds unless the price of the share falls more than 4%.
Either way, dividends are an important factor in any investment decision.
Earn from share capital appreciation
By buying shares, you can obviously earn from capital appreciation. There are tons of ways in which you can apply a successful strategy to make this happen. The four most common active trading strategies include:
- Scalping – A trading style that specializes in profiting small price gaps by typically using a time frame of 1-15 minutes.
- Day Trading – A trading technique that involves making short term trade within the same day.
- Swing Trading – This is a style of trading in which positions are held for 2-5 trading days.
- Position Trading – This is the most common trading strategy where investors hold a position for a period of time of weeks, months, and years.
Each trading strategy will appeal to different investors. Further, some investors focus on one strategy alone while others combine different trading strategies in order to diversify their trading capabilities.
But while the majority of people consider appreciation as buying a share and expects its price to increase in value, there’s another way of making a profit called short position. A short sell position is a technique used when an investor anticipates that the value of a share will decrease. Basically, you are borrowing the shares from another investor, and buy the stock when you wish to exit from the trade. In that aspect, it is much easier to short sell shares via the CFD market as the daily margin requirement is significantly lower compared to traditional share brokers.
How to Buy Shares in a Company in New Zealand
Though there’s is a way of buying shares without a broker through a direct stock purchase plan, the majority of investors need an online stockbroker that connects them to a stock exchange or a derivative market. This is the most common way to invest in the New Zealand share market. A stockbroker is a company authorized and licensed to give investors access to the stock exchange and place orders in the market. Otherwise, an individual is not authorized to buy and sell shares independently.
Another increasingly popular method of buying shares in New Zealand is through Contract For Difference. With CFDs, you will not be a shareholder of the company nor entitled to voting and capital rights, however, you can speculate on the price of the share and receive dividend payments.
What Regulations are in Place for Buying Shares in New Zealand?
The Financial Markets Authority (FMA) is the primary regulator of New Zealand’s securities and derivatives markets. The FMA is responsible for regulating all financial market participants, exchanges, brokerage firms, and CFD brokers.
Investors in New Zealand can find many FMA regulated brokers that offer thousands of international and domestic shares. In terms of regulation of the CFD market, this market is still in its early stages of development in New Zealand. Fortunately, the FMA operates in partnership with top-tier regulators and accepts international financial legislation.
What Risks are Involved with Buying Shares in New Zealand?
Like any other type of investment, investing in shares is a risky business. For an individual investor, the biggest risk is to lose part or all of the invested capital. But with that being said, a successful investor must take into consideration the losing trades. No one is able to trade without losing some of the trades as the share market is ultimately a zero-sum game.
Part of the nature of the share market is high volatility and unpredictable price movements. However, that is not something you can control on your end. Let’s have a look at some tools and techniques that can help you control your risk when trading shares:
- Risk/Reward ratio
- Hedging positions/options
- Stop-loss orders, including trailing stop loss
- Negative Balance Protection tool (available at FinmaxFX)
- Keep the leverage of the position low for long-term positions and medium/high for scalping and day trading
- Avoid trading big economic news and political market events
Step 3: What Factors Should you Consider When Buying Shares?
Before you place your first order in the market, you need to know the factors impacting the share price. Here’s what to consider.
The Company’s Financial Statements
The three ‘holy’ financial statements of a company are made up of balance sheet, income statements, and cash flow statements. Now, even if you can’t read financial statements, nor worries. Simply make your own research and read news articles about the financial status of the company. Also, investigate whether the company has posted year-to-year growth in earnings, its free cash flow status, the ROA, and its total debt.
Historic Financial performance
One quick look at the company’s all-time chart will give you a lot of essential information. First, you can understand the current status of the company – if it’s trading near historical peaks or lows, and the current trend of the share.
When you analyze the historical performance of a share price, you should try different timeframes: 1H, Daily, Weekly, and Monthly chart. In each one of the charts, use the following indicators, and write down all the possible entry and exit levels.
Fibonacci Retracements – This is a method for determining support and resistance levels
Relative Strength Index (RSI) – RSI is a momentum technical indicator that measures the speed and change of price movements. In its basic form, you should consider a change in trend when the RSI shows 70 or 30.
Support and Resistance/Trend Lines – Support and Resistance/Trend Lines are used to determine entry and exit levels. You’ll find trading much easier if you master the skill of finding support and resistance levels.
Dividend payouts are an important part of the total return you can achieve from buying shares. In simple terms, dividend payouts are a method to provide shareholders with a yearly return on their investment by distributing profits of the company. For the individual investor, that can be an additional passive income that usually ranges between 2% to 8% per year.
Share Forecasts by Analysts
Analysts at large brokerage firms and banks are offering share price forecasts about the future of the company. This be can be categorized to consensus rating (buy, hold and sell) and price target. Even if you do not plan to use this information as an investment strategy, it is crucial to monitor analysts’ share updates as these affect the price movement of shares.
Economic Calendar and Company Earnings calendar
An economic calendar and company earnings calendar are two of the most important things to follow when you are trading shares. An economic calendar is used to monitor the status of the economy, domestically and globally. Some economic events and announcements are vital for the share market. Those include GDP, CPI, Non-Farm Payrolls, Unemployment Rate, etc.
Companies’ earnings calendar, on the other hand, is published both quarterly and annually and allows investors to get an indication of the company’s profits and its financial status.
Step 4: Open a Share Trade
By now, you have probably set your mind on a particular online share trading platform, and have a sufficient understanding of how the share market works in New Zealand.
This means you can start your trading journey. Select a high-quality broker such as FinmaxFX, open an account, and purchase a share for trading.
Pros and Cons of Buying Shares
- There’s a wide selection of shares, ETFs, and Index Funds
- You can generate profits via dividends and capital gains
- The share market in New Zealand is highly regulated
- The share market has proven to be one of the best ways to create long-term wealth
- When buying CFD shares, you can leverage your capital
- The global share market is highly liquid
- CFD brokers enable you to easily short-sell shares with a low margin requirement
- Trading shares requires you to spend time and effort in order to make the right investment decisions
- There’s a risk of losing your capital
Nowadays, it is possible to easily open a trading account, deposit funds, and start trading shares in a matter of minutes. It’s crucial that you make your own research and form a trading strategy before you risk capital. Remember that you can always start trading on a demonstration account before you jump into a real trading account. Ultimately, if you want to become a successful investor, you’ll have to find the right broker, and tailor an effective trading process.
How much money do you need to buy shares?That depends on the way you decide to buy shares, as different brokers have different minimums. But do not forget that CFD brokers allow you to use leverage when buying shares. Traditional brokerage firms typically require a higher minimum deposit.
What is a stop-loss order?A stop-loss order is a risk management tool that allows you to set an order to sell your position if the share reaches a pre-set price. One important advantage of using a stop-loss order is that you don't need to monitor your positions and simply can place an order that limits your potential losses.
What are shares CFDs and how do they work?A contract for Difference (CFDs) is a derivative financial asset that tracks various underlying assets including shares. Essentially, the CFD market is a secondary market where investors agree to exchange the difference in the value of the product but without owning and exchanging the underlying asset. CFD brokers are responsible to create a reliable marketplace for CFD investors.