how does the australian stock market work
How the Australian stock market works
This article answers the question "how does the australian stock market work" in a clear, step-by-step way for beginners and non-specialists. Read on to learn what the Australian Securities Exchange (ASX) is, who runs and regulates the market, what you can trade, how orders are executed and settled, tax and corporate-action basics, and practical ways to get started as an investor — with pointers to authoritative resources and Bitget features for investors exploring markets.
Note: This article is educational only. Seek licensed financial, legal or tax advice for personal circumstances.
History and evolution
The modern Australian equities market developed over more than a century. Local trading began as regional and state-based exchanges in the 19th and early 20th centuries. The Australian Securities Exchange (ASX) in its current form emerged through consolidations and modernisation.
Key milestones include:
- The consolidation of state exchanges and formation of national arrangements in the 1980s and 1990s.
- The formation of ASX Limited (merging the Australian Stock Exchange and state exchanges) and the introduction of electronic trading platforms.
- The rollout of CHESS (Clearing House Electronic Subregister System) to manage electronic share registers and facilitate clearing and settlement.
- Migration to digital trading, improvements in market data provision and the introduction of ETFs, listed products and advanced derivatives.
These changes made trading faster, reduced settlement risk and widened access for retail and institutional investors.
Main institutions and market infrastructure
The Australian market depends on several distinct organisations and systems that together ensure trading, clearing, settlement and regulation work reliably.
The Australian Securities Exchange (ASX)
ASX is the primary market operator and listing venue. As market operator ASX provides order matching, market data, listing services and operates the infrastructure for derivatives, ETFs, bonds and equities. ASX also runs clearing (ASX Clear) and settlement (ASX Settlement) services.
ASX lists a wide range of products: ordinary shares, preference shares, exchange-traded funds (ETFs), listed managed funds, corporate and government bonds, warrants, options and futures.
Regulators and investor protections
The Australian Securities and Investments Commission (ASIC) is the principal market regulator. ASIC enforces disclosure, market conduct rules and investor protections, investigates misconduct (for example, insider trading) and publishes guidance for retail investors.
ASX enforces listing rules and corporate governance standards for companies seeking admission. Several protections exist for market participants including participant supervision, dispute resolution and industry compensation arrangements — for example, arrangements to protect CHESS participants in the event of participant default.
Market participants
Who participates in the ASX? Typical participants include:
- Retail investors (individuals buying and selling shares via brokers).
- Institutional investors (superannuation funds, mutual funds, hedge funds, asset managers).
- Brokers and trading participants that enter orders on behalf of clients.
- Market makers and liquidity providers for certain securities.
- Financial advisers, research houses and index providers.
Each group plays a role in price discovery and liquidity: institutions often provide large flows and research, while retail flows add breadth.
Traded instruments
The ASX lists and supports trading in many instruments. Common categories:
- Ordinary shares: equity ownership in listed companies with voting and dividend rights.
- Preference shares: shares with fixed entitlements (sometimes limited voting).
- Exchange-traded funds (ETFs) and listed managed funds: pooled products that trade on exchange like shares.
- Bonds: corporate and government debt, sometimes listed or traded over-the-counter.
- Warrants, options and futures: derivatives for hedging or speculative exposure.
- Real estate investment trusts (REITs) and stapled securities.
Understanding each product's risk, liquidity and fee structure is essential before investing.
Market indices and benchmarks
Indices provide market-wide or sector-specific benchmarks. Major Australian indices include:
- S&P/ASX 200: the main large-cap benchmark covering 200 largest ASX-listed companies by market cap.
- All Ordinaries (All Ords): a broad index of listed shares, historically used as a general market measure.
- Sector indices: indices tracking sectors such as financials, materials, healthcare, energy and more.
Investors use indices to measure performance, construct passive products (indexed ETFs) and benchmark active fund managers.
How trading works
To answer how does the australian stock market work at the trade execution level, consider the lifecycle of an order: an investor places an order through a broker → the broker routes that order into the ASX trading system → the ASX matches buy and sell orders using continuous trading and auction mechanisms → a trade is executed and details are passed to clearing and settlement systems.
The ASX operates continuous trading during market hours and also runs auctions at the open and close to determine opening and closing prices.
Order types and execution
Common order types available to retail and institutional clients include:
- Market orders: execute immediately at the best available price.
- Limit orders: execute only at a specified price (or better).
- Stop orders / stop-loss orders: trigger a market or limit order when a specified price is reached.
Time-in-force rules determine how long an order remains active (day orders, GTC — good-till-cancelled, fill-or-kill, etc.). The ASX matching engine determines priority — typically price then time — when allocating executions.
Trading hours, pre-open and post-close
Regular trading hours are observed in Australian Eastern Standard Time (AEST) or Australian Eastern Daylight Time (AEDT) during daylight saving. There are pre-open/pre-market sessions where orders can be entered and indicative prices calculated, and post-close sessions for late trades and crossings. These sessions affect how quickly an investor can enter or exit positions and how volatility can behave around opens and closes.
Clearing and settlement
Clearing and settlement convert a trade into final exchange of cash and securities. Key points that explain how the Australian stock market works after execution:
- ASX Clear and ASX Settlement perform central clearing and settlement services.
- CHESS (Clearing House Electronic Subregister System) maintains electronic subregisters of shareholdings and provides settlement finality for CHESS-registered holdings.
- ASX uses a T+2 settlement cycle: trades settle two business days after trade date (T+2), meaning the buyer must deliver funds and the seller must deliver securities by that date.
- Settlement processes reduce counterparty risk using margin requirements and central counterparty arrangements.
Understanding T+2 is critical for investors: settlement funding and trade timing affect cash availability and the timing of corporate entitlements.
Listing and initial public offerings (IPOs)
Companies list on the ASX to raise capital and give investors liquidity. The listing process generally includes:
- Meeting listing requirements (financial track record, disclosure, corporate governance) set out in the ASX Listing Rules.
- Preparing a prospectus or information memorandum with audited financials and risk disclosures.
- Conducting due diligence, obtaining adviser sign-offs and pricing the offering.
Primary raises (IPOs and new issues) create new shares and raise capital for the company. Secondary market listings provide ongoing liquidity for investors to buy and sell.
Corporate actions and shareholder entitlements
ASX-listed companies regularly run corporate actions that affect shareholders. Common actions:
- Dividends: distributions of profit. Australian dividends may be franked (carry franking credits for tax paid at company level).
- Rights issues: offers to existing shareholders to buy additional shares, typically at a discount.
- Share splits and consolidations: change the number of shares and share price per unit.
- Buybacks: companies repurchase their own shares to return capital or support price.
- Voting at annual general meetings (AGMs) or extraordinary general meetings.
Shareholders must pay attention to record dates, ex-dividend dates and election periods for entitlements.
How to invest in the Australian market
This section explains practical routes for participation and answers the typical beginner question: how does the australian stock market work from an investor’s perspective?
- Open a brokerage account: retail investors use online brokers, discount brokers or full-service brokers to place orders on the ASX.
- Invest via managed funds or ETFs: if you prefer diversification or professional management, ETFs and managed funds listed on ASX offer exposure to indices, sectors or strategies.
- Direct shares: buy individual stocks via your broker and manage holdings directly.
- Employee share plans: some companies provide share plans or rights to employees as compensation.
If you are exploring cross-asset exposure or crypto-enabled products, Bitget provides market data tools and the Bitget Wallet for digital asset custody; for ASX equities, use licensed brokers that provide ASX market access. When using any platform, confirm regulatory status and protections.
Brokerage, fees, and accounts
Brokerage costs vary by provider: online discount brokers typically charge lower per-trade fees than full-service brokers that provide advice and research. Fee structures can include:
- Flat-fee-per-trade.
- Percentage-based fees (less common for retail equity trades).
- Platform, custody or account maintenance fees for managed accounts.
Account opening usually requires identity verification. Settlement funding must be available to meet T+2 obligations for purchases.
Taxes and tax considerations
Taxation affects after-tax returns for Australian investors. Key general points (not personal tax advice):
- Dividends: Australian dividends may carry imputation/franking credits representing company tax already paid. Eligible Australian resident shareholders may use franking credits to reduce their tax.
- Capital gains tax (CGT): gains on disposal of shares are generally subject to CGT. Concessions such as the 50% discount may apply for assets held more than 12 months by individuals (subject to conditions).
- Reporting: individual investors must report dividends and capital gains/losses in annual tax filings.
Always consult a tax professional for personalised guidance.
Market dynamics and risk
How does the australian stock market work in terms of what moves prices? Drivers and common risks:
- Sector composition: the ASX has large weightings in financials and materials (resources/commodities) compared with some other markets, making the index sensitive to commodity prices and domestic bank earnings.
- Global macro: international economic conditions, commodity cycles, interest rates and currency moves (AUD) influence ASX performance.
- Liquidity and market depth: some small-cap stocks have lower liquidity and wider spreads; this increases trading costs and execution risk.
- Company-specific risks: governance, earnings volatility, operational issues and regulatory changes.
Understanding these drivers helps investors contextualise performance and manage portfolio risk through diversification and appropriate sizing.
Derivatives, futures and margin trading
ASX operates a derivatives market enabling options and futures on equities, indices and commodities. Key uses include hedging, income generation and speculation.
Margin trading involves borrowing to increase exposure. Margin amplifies gains and losses and involves liquidity and margin-call risk. Retail investors should fully understand margin terms and the implications of leveraged positions.
Comparison with other major markets
How does the australian stock market work compared with larger markets like the US? Key differences and similarities:
- Market size: ASX is smaller than the NYSE or Nasdaq by market value and depth.
- Sector mix: ASX has a heavier exposure to financials and materials; US markets have larger technology sector representation.
- Time zone: ASX trading hours are in Australian time zones, which affects global investor access and correlation patterns with overseas markets.
- Access: International investors can access ASX-listed securities via domestic brokers, international brokers with Australian access, or via ETFs.
These differences influence portfolio construction for globally diversified investors.
Investor education and resources
Authoritative education sources include ASX investor guides, ASIC/MoneySmart resources and broker education pages. Best practices for new investors:
- Start with clear goals, time horizon and risk tolerance.
- Diversify across sectors and instruments.
- Read company prospectuses and reporting documents.
- Understand fees, settlement mechanics (T+2) and tax implications.
Bitget provides accessible educational material on markets and onchain/web3 fundamentals. For custody of digital assets or when engaging with tokenised products, consider secure wallets such as the Bitget Wallet and understand custody risk.
Common misconceptions and FAQs
Q: Are dividends guaranteed?
A: No. Dividends are declared by company boards and depend on earnings, cashflow and policy. They are not guaranteed.
Q: What is CHESS registration?
A: CHESS is the electronic subregister system used in Australia. Shares can be CHESS-sponsored (recorded on CHESS) or issuer-sponsored (recorded on the issuer’s register). CHESS registration affects ease of transfer and broker functionality.
Q: How quickly can I sell shares?
A: Under normal market conditions, you can place a sell order during trading hours and, if there is liquidity and a matching buy order, execute immediately. Settlement of the trade completes on T+2.
Q: Do I need a local broker to buy ASX shares?
A: Many international brokers offer ASX access, but using a licensed Australian broker may simplify tax and regulatory matters for Australian residents.
See also
Related topics worth exploring: Australian corporate law basics, ASIC, ASX listing rules, ETFs and index funds, fundamentals of portfolio theory and personal investing guides.
References and further reading
- ASX investor guides and official market statistics (ASX).
- ASIC / MoneySmart investor education pages.
- Broker educational resources and published index methodology for S&P/ASX indices.
As of 31 May 2024, according to ASX market reports, the ASX's total market capitalisation was reported in the trillions of Australian dollars and daily traded value commonly measured in billions of AUD. Refer to ASX market statistics for the latest verified figures.
External links
Official sources and primary authorities include ASX and ASIC educational pages, broker education centres and published index providers. For crypto and web3 custody, consider Bitget Wallet for secure key management.
Further practical steps and reminders
For readers asking "how does the australian stock market work" and wanting to get started:
- Read ASX’s investor guides and ASIC/MoneySmart resources for foundational knowledge.
- Compare broker fees and platform features; ensure the broker provides ASX market access and CHESS sponsorship if desired.
- Start small, diversify and document your investment plan.
Explore Bitget resources and the Bitget Wallet if you expand into tokenised market products or digital-assets alongside traditional ASX investing. Stay informed, follow official ASX and ASIC announcements and update your information regularly.
(If you need a checklist for opening an ASX brokerage account or a step-by-step IPO participation primer, ask for a downloadable checklist tailored to beginners.)
