What are shares?

Shares are units of ownership in a company that give the holder a fractional claim on the company's assets and earnings. In Australia, shares are most commonly bought and sold on the Australian Securities Exchange (ASX), although smaller markets like Cboe Australia and the National Stock Exchange of Australia also operate.

There are about 2,000 listed companies on the ASX, with a combined market capitalisation of more than 2.5 trillion dollars. The largest Australian companies by market capitalisation include the Commonwealth Bank, BHP, CSL, Westpac, National Australia Bank, ANZ, Macquarie Group, Wesfarmers, Woolworths, and Telstra. The S&P/ASX 200 index tracks the 200 largest listed companies and is the standard benchmark for Australian share market performance.

Shares can produce returns in two ways. Dividends are payments out of company profits made to shareholders, typically twice a year for Australian companies. Australian dividends often carry franking credits (see entry 285), which represent corporate tax already paid and can be used to reduce the shareholder's personal tax liability. Capital gains arise when the share price rises above the purchase price; if the shares are held for more than 12 months, only half the gain is taxed when the shares are sold, under the 50 per cent CGT discount.

Shares can be bought through online brokers with brokerage costs typically between 5 and 30 dollars per trade. Many Australians now use low-cost or free trading platforms like Stake, Sharesies, and Pearler that have driven down minimum investment amounts and brokerage. Settlement happens through CHESS, the ASX clearing system, two business days after the trade (T+2). Holdings are recorded on the shareholder's CHESS Holding Identification Number (HIN) statement, and dividends are paid into the bank account nominated when the holding was set up. The Investor Compensation Scheme provides limited protection if a broker fails.