While most newbie investors in New Zealand choose to buy shares in the traditional sense, some choose to actively trade stocks. This means that you will be buying and selling stocks on a short-term basis, as opposed to utilizing a long-term ‘buy and hold’ strategy.
Stock trading won’t be for everyone – so we welcome you to read our beginner’s guide on how the investment process works. On top of explaining the ins and outs of stock trading, we also explore the best New Zealand brokers to this within 2020.
What is Stock Trading NZ?
There is often a misconception that ‘stock trading’ and ‘investing in stocks’ are the two terms that are simply used interchangeably. However, they actually refer to two different investment streams.
Regarding the latter, investing in stocks does exactly what it says on the tin. In other words, you will be investing in stocks by buying shares in a company, with the view of holding on to them for a number of years.
Along the way, you might receive quarterly dividend payments, before you make the decision to sell the shares back to cash.
When it comes to stock trading, you will not be taking a long-term approach. On the contrary, you will be trading stocks with the view of holding on to your position for a number of days, hours, or even minutes. As such, the ultimate goal is to make much smaller percentage gains – but on a frequent basis.
How Does Stock Trading Work?
In its most basic form, the overarching concept of stock trading is not too dissimilar to buying shares in the traditional sense. That is to say, you will be speculating on which way you think the company’s share price will go. However – and as we cover in more detail later on, stock trading platforms give you the option of going long and short on your chosen share.
This is because you will be trading with CFDs (contracts-for-differences) – meaning that you will not own the underlying stock. Instead, CFDs merely mirror the real-world price of a stock.
- Let’s suppose that you are trading Disney stocks via CFDs
- You decide to place a ‘sell order’ – which means that you think the value of the stocks will go down
- You stake a total of $500
- A few hours later, the price of Disney goes down is down by 1.76% on the New York Stock Exchange (NYSE)
- You are happy with your gains, so you decide to close the position
Crucially, as the price of Disney stocks went down by 1.76% on the NYSE, as did your stock CFD. In Layman’s terms, as the price of your chosen stock goes up or down on its respective stock exchange, the CFD will move in tandem.
What are the Benefits of Stock Trading via CFDs?
CFDs offer a number of benefits to seasoned traders – not just in the stocks and shares space, but virtually every other asset class, too.
Ability to go Long and Short
Put simply, the terms ‘long’ and ‘short’ refer to the way in which you think the markets will go. When buying shares in the traditional sense, you are always going long, as you believe that the value of the company will go up. After all, you wouldn’t buy shares in IBM if you felt that the value of its stocks was likely to go down.
With that said, CFDs also allow you to go short. This is where you are speculating on the value of the shares going down. Without utilizing stock CFDs, it would be an extremely cumbersome task to achieve this goal.
This is because you would need to find a broker that has the capacity to borrow the shares from a third-party investor, and in turn, lend them to you for the duration of the short-selling trade. By instead going short through CFDs, you can profit from the downfall of a company at the click of a button.
You can Apply Leverage
Although we would suggest avoiding leverage until you have a firm understanding of the risks, the phenomenon allows you to trade with more than you have in your account. The underlying process is based on ‘margin trading’, which requires you to put up a small security deposit.
- Let’s suppose that you are super-confident in the value of Facebook stocks going up in the next few hours
- You only have $300 in your stock trading account
- You decide to apply leverage of 5x – meaning that you get to trade with $1,500
- The $300 that you currently have in your account is then put up as a margin
- Any gains that you make from the trade will subsequently be multiplied by 5x
There are a couple of important points to note about applying leverage to your stock trades. Firstly, $300 amounts to 20% of the $1,500 order value. As such, if Facebook stocks move in the opposite direction by 20% or more, your trade will be liquidated. This means that it is closed automatically and the broker keeps your 20% margin – which is $300.
Secondly, most New Zealand stock brokers will limit the amount of leverage that you can apply – which typically stands at 5x. This is to ensure inexperienced traders do not go gung-ho with leverage, and subsequently lose more than they had planned. Ultimately, stock trading with leverage can only be facilitated if you are utilizing CFDs.
Benefit From Tighter Spreads and Lower Commissions
When you invest in shares in the traditional sense, the fees that brokers charge you can be costly. A small number of brokers are the exception to this rule, as the likes of eToro do not charge any share dealing charges at all.
However, most brokers do – and it’s typically a flat fee that you pay at both ends of the trade. With that being said, you will often find that stocks in the form of CFDs are much more competitively priced, as the underlying asset does not exist.
In fact, a lot of New Zealand trading sites now allow you to buy and sell stock CFDs without paying any commissions. Instead, it’s only the spread that you need to look out for (difference between ‘bid’ and ‘ask’ price of a stock)
Once again, you’ll likely find that the spreads offered by CFD stock platforms are much tighter than that of a traditional share dealing site.
Access Less Liquid Stock Exchanges
When investors buy shares from a traditional stock broker, the provider in question will need to personally obtain the stocks. Then, they will sell them to investors of the platform. The key problem here is that brokers are required to meet a minimum lot size when they purchase equities from the primary market.
As this is often a 6-figure sum, brokers will only target major exchanges such as those based in the US or UK. What this means for you as a trader is that you will often find it difficult to gain exposure to less liquid markets. This might include companies listed in New Zealand, Australia, Singapore, South Africa, or Sweden.
At the other end of the spectrum, stock CFDs do not exist in the tangible sense, meaning that the broker doesn’t need to outlay any capital to create a trading marketplace. Instead, the CFDs simply need to mirror the real-world stock price of the company it is tracking. As a result, stock trading CFDs allows you to access both major and minor stock exchanges.
Why Stock Trading in New Zealand Isn’t for Everyone
Stock trading in New Zealand won’t be for everyone – especially those of you that are looking to take a more passive approach to invest.
Below we list some of the considerations that you need to make prior to taking the plunge.
You Will Need to be Actively Trading
Make no mistake about it – stock trading is not suitable if you simply want to buy some shares and hold on to them for a number of years. On the contrary, you will need to be actively buying, selling, and trading stocks and thus – dedicate ample time to the process.
After all, stock trading is all about scraping small but frequent profits. In most cases, this comes in the form of day trading – meaning that you will rarely hold on to a position overnight.
Keeping Your Stock Trading Position Open for too Long Will be Costly
On the one hand, stock trading via CFDs can often be achieved without paying any commissions. You will also benefit from tight spreads. However, it is important to remember that stock CFDs are leveraged products, so you will need to pay overnight financing fees for each day that you keep the position open.
While this shouldn’t be an issue if the trade remains active for a number of days – after a while, the fees will start to add up.
You Will Need to Learn how Technical Analysis Works
When it comes to traditional stock investing – many would argue that you do not need to have any experience at all. In fact, you simply need to invest in a stock market index like the S&P 500 or FTSE 100.
After that, there is nothing else to do until you decide to sell your investment back to cash.
However, stock trading requires an in-depth knowledge of how technical analysis works. This is the research process that involves analyzing charts, with the view of predicting which way the stock in question will move.
Such a skill-set can take many, many months to master – so do bear this in mind.
You Will not be Entitled to Dividends
As we briefly mentioned earlier, when you trade stock CFDs you will not own the underlying shares. Crucially, this means that you will not be entitled to any dividend payments when the respective company distributes them. Over the course of the year, this means that you are potentially missing out on an additional yield of between 2-10%.
How do I Trade Stocks in New Zealand Today?
So now that you have had the chance to assess the pros and cons of stock trading in New Zealand, we are now going to show you how you can get started today. Our walkthrough takes you through the process of opening a stock trading account, depositing funds, and then placing your first buy/sell order.
Step 1: Join an NZ Stock Trading Broker
If you want to trade stocks online, you will need to use a trusted NZ broker. There are dozens of online stock trading sites that accept New Zealand residents – most of which are heavily regulated.
Before signing up with a new broker, be sure to explore the following questions.
- Is the broker regulated by a tier-one body such as the FCA, ASIC, or CySEC?
- What stock exchanges does the broker give you access to?
- What will you be charged in stock trading fees and commissions?
- Does the broker offer competitive spreads?
- What NZ payment methods will you be able to deposit and withdraw funds with?
- Are there any minimum deposit requirements?
You will need to do lots of homework on your chosen NZ broker before parting with your money. If you don’t have time to do this yourself, below you will find a list of popular New Zealand share brokers currently active in the market.
1. eToro – Best All-Round NZ Stock Trading Broker
eToro is an online stock, CFD, and forex broker that is hugely popular with NZ residents. Not only does the platform allow you to buy and sell shares in the traditional sense, but you can also trade over 800 stocks. This includes companies listed on stock exchanges in London, New York, Toronto, Tokyo, Hong Kong, and many others.
Best of all, eToro is suited to those of you with little to no experience of how stock trading works. This is because the platform makes it super easy to open an account, deposit funds, and then place buy and sell orders. You even have the option of mirroring the stock trades of other investors through the eToro CopyTrading feature. This is ideal if you want to start trading stocks but you’re not too sure where to start.
In terms of regulation, eToro is licensed by three regulatory bodies. This includes the UK’s FCA, Australia’s ASIC, and Cyprus’s CySEC. Fees are also competitive at the broker, with no commissions being charged when you trade stocks without leverage. You will, however, need to pay an overnight financing fee if you opt for CFDs as opposed to traditional shares. eToro requires a minimum deposit of $200 (about $310 NZD), which you can fund with an NZ debit/credit card, e-wallet, or bank account.
- Super user-friendly online stock broker
- Buy stocks without paying any commission or share dealing charges
- 800+ stocks listed on several international markets
- Deposit funds with a debit/credit card, e-wallet, or NZ bank account
- Ability to copy the trades of other users
- Not suitable for advanced traders that like to perform technical analysis
75% of retail investor accounts lose money when trading CFDs
2. Plus500 – Commission-Free Stock Trading Platform
While eToro covers both bases, Plus500 specializes exclusively in CFDs. On top of commodities, cryptocurrencies, forex, and indices – this includes over 2,000 stock CFDs. You will find companies listed in over 15 marketplaces – which gives you ample opportunity to create a diversified portfolio of investments.
The CFD platform does not charge any commissions when you trade stock CFDs – so again, it’s just the spread. It also refrains from charging any fees when you deposit and withdraw funds. Much like eToro, you will also have access to leverage facilities when trading stocks – which is capped at 1:5.
Minimum deposits start at $100 – or approximately $155 NZD. You can do this with an NZ debit/credit card, bank account, or Paypal.
Plus500AU Pty Ltd (ACN 153301681), licensed by: ASIC in Australia, AFSL #417727, FMA in New Zealand, FSP #486026; Authorised Financial Services Provider in South Africa, FSP #47546.
- Commission-free CFD provider – only pay the spread
- Thousands of financial instruments across heaps of markets
- Ability to trade stock CFDs with leverage of 1:5
- You can short-sell a company if you think its value will go down
- Takes just minutes to open an account and deposit funds
- CFDs only
- More suitable for experienced traders
CFD Service. Your capital is at risk.
3. IG – Trusted NZ Stock and CFD Trading Platform With Competitive-Fees
IG is an established brokerage platform that first opened its doors back in 1974. Based in the UK – the broker is home to over 178,000 traders, many of which are based in New Zealand. You can easily open an account from the comfort of your home – and deposit funds with your local bank account or debit/credit card.
Minimum deposits start at £250 – which is about $490 NZD. In terms of what you can trade, IG offers traditional share dealing services, stock CFDs, and a fully-fledged spread betting facility. If you’re not sure which investment medium is best for you, IG also offers a demo account. This allows you to buy, sell, and trade stocks without risking your own capital.
You will have access to over 10,000 stocks at IG – which is huge. This includes major exchanges found in the UK and US, as well as less liquid markets in South Africa, Australia, Sweden, and many others. You can also trade with leverage and engage in short-selling. When it comes to safety, IG is regulated in several jurisdictions – including the UK and Australia. Finally, IG gives you access to MetaTrader4 – which is great if you are planning to automate your stock trading endeavours.
- Trusted NZ broker with a long-standing reputation
- Good value share dealing services
- Leverage and short-selling also available
- Spread betting and CFD products
- Access to over 10,000 stocks
- Great research department
- A minimum deposit of £250 (about $490 NZD)
- US stocks have a $15 minimum commission
Step 2: Open an Account, Upload ID, and Deposit Funds
Once you have chosen a New Zealand stock trading site that meets your needs, you will then need to open an account with the broker in question. In most cases, the end-to-end registration and deposit process rarely takes more than 10 minutes.
To demonstrate how this works, we are going to show you the steps required with popular NZ broker eToro.
Open an Account
Visit the eToro home page and click on the ‘CREATE ACCOUNT’ button. As is the case with all regulated stock trading sites, you will now need to enter some personal information.
This includes your:
- Full Name
- Home Address
- Date of Birth
- NZ Tax Identification Number
- Email Address
- Phone Number
As eToro is home to CFDs and leverage products – you will also need to answer a few questions about your understanding of how online trading works. This is to ensure you know the risks associated with investing.
Verify Your Identity
As per New Zealand anti-money laundering laws, eToro will now ask you verify your identity. This simply requires you to upload a copy (or take a picture with your mobile phone) of:
- A clear copy of your passport or driver’s license
- A recent copy of a bank account statement or utility bill (dated within the last three months)
In most cases, eToro will be able to validate your documents within minutes.
Unless you are planning to trade stocks via the eToro demo account facility, you will now need to make a deposit.
Supported payment methods include:
- Debit Card
- Credit Card
- NZ Bank Transfer
The minimum deposit amount is $200 (about $490 NZD). All deposit options are instant – unless you are transferring funds from your NZ bank account.
Step 3: Place a Stock Trade
Now that you have gone through the process of opening an account, uploading your ID, and depositing funds – you are ready to start trading stocks! If you are not sure which stocks you want to trade, head over to the ‘TRADE MARKETS’ section of the site and then click on ‘STOCKS’. You can then filter the stock library down by the respective exchange.
Alternatively, if you know which stock you plan to trade – enter the name of the company into the search box at the top of the screen. In our example, we are looking to trade Facebook stocks.
You will then be shown an order box. This needs to be completed so the broker knows what trade you wish to place.
There are a number of metrics that you need to consider when completing an order box. Such as:
- Buy/Sell Order: If you want to go long on the stock, place a buy order. If you think that the value of the stock will go down, then place a sell order.
- Set Rate: By default, the order box will be set as a ‘market order’. This means that the broker will execute your stock trade at the next available price. If you want to enter the market at a specific price, change this to a ‘limit order’.
- Stake: As the name suggests, this is simply the amount that you wish to stake on your stock trade. Take note, this is in USD and not NZD.
- Leverage: Although we would suggest treading with caution, if you do want to apply leverage – select your preferred multiple (up to 5:1).
- Stop-Loss: Set up a stop-loss order by entering the price that you want your trade automatically closed at (when in the red)
- Take-Profit: Set up a take-profit order by entering the price that you want your trade automatically closed at (when in profit)
Finally, click on the ‘OPEN TRADE’ button to complete your buy/sell order.
If you are simply looking to invest in blue-chip companies and hold on to the shares for a number of years – stock trading won’t be for you. On the contrary, the phenomenon is suited for those of you that plan to actively trade stocks throughout the day. This is because you will be looking to make ultra-small gains – but on a frequent basis. In doing so, you will also have the ability the short-sell companies, as well as apply leverage.
With that said, you need to do some homework before getting started – not only on how the ins and outs of stock trading works but also with respect to the brokerage firm that you decide to sign up with. Ultimately, just make sure that you have a firm understanding of the risks of trading stocks online – especially if this is the first time you will be doing so.
What exchanges do New Zealand stock trading sites offer?
This can vary wildly depending on the specific brokerage site you sign up with. In the case of eToro, Plus500, and IG - you will have access to dozens of international stock exchanges. This covers companies in the UK, US, Australia, Canada, Germany, Japan, and more!
Will I earn dividends when trading stocks in New Zealand?
If you want to earn dividends, you will need to invest in the stock in the traditional sense. If you plan to trade stocks via CFDs, you won't be entitled to any dividends.
What New Zealand payment methods do online stock brokers support?
Most NZ stock trading sites support a local debit/credit card and bank account. Some brokers also support e-wallets like Paypal.
How do I short-sell a company in New Zealand?
If you want to short-sell a company - regardless of the exchange in which it is listed, you will need to use an online broker that supports stock CFDs. Once you do, you simply need to place a sell-order.
How do I trade stocks in New Zealand with no experience?