Table of Contents
What Is the Australian Securities Exchange (ASX)?
ASX Shares.
The Australian Securities Exchange is headquartered in Sydney, Australia. The Exchange in its current form was created through the merger of the Australian Stock Exchange and Sydney Futures Exchange in 2006.
The ASX acts as a market operator, clearing house, and payments facilitator. It also provides educational materials to retail investors
The Australian Securities Exchange (ASX) is one of the world’s leading stock exchanges and a cornerstone of the Australian financial system. As the primary venue for buying and selling shares in Australia, the ASX plays a pivotal role in connecting investors with opportunities across various sectors. This article delves into what ASX shares are, how they work, and their significance for investors.
ASX is consistently ranked among the top exchanges globally. Other major exchanges include the Tokyo Stock Exchange or TSE, the New York Stock Exchange (NYSE), the Nasdaq, and the London Stock Exchange (LSE). Each exchange has specific listing requirements that include regular financial reports and minimum capital requirements.
Summary
- The Australian Securities Exchange (ASX) is one of the world’s leading financial market exchanges.
- In 2006, the Sydney Futures Exchange and the Australian Stock Exchange merged to form the Australian Securities Exchange.
- The ASX is ranked fifth by the World Economic Forum in financial systems and capital markets.
What Are ASX Shares?
ASX shares, or stocks, represent ownership in publicly listed companies on the Australian Securities Exchange. When you buy shares, you purchase a stake in a company, entitling you to a portion of its profits and, typically, a say in its corporate governance. The ASX is home to a diverse range of companies, from established blue-chip firms like Commonwealth Bank and BHP Group to emerging businesses in technology and biotechnology.
Australian Securities Exchange Ltd (ASX) is an Australian public company that operates Australia’s primary securities exchange, the Australian Securities Exchange (sometimes referred to outside of Australia as, or confused within Australia as, the Sydney Stock Exchange, a separate entity).
How the ASX Works
The ASX operates as a centralized marketplace where buyers and sellers transact shares. Here’s a breakdown of how the ASX functions:
- Listing Requirements: Companies must meet specific criteria to list on the ASX, including financial performance, market capitalization, and corporate governance standards. The ASX ensures that listed companies adhere to these standards, maintaining market integrity and investor confidence.
- Trading Mechanism: The ASX uses a sophisticated electronic trading system known as ASX Trade, which enables fast, efficient, and transparent transactions. Investors can place orders through brokers who execute trades on their behalf.
- Market Indices: The ASX tracks the performance of its listed companies through various indices, the most notable being the ASX 200. This index includes the 200 largest companies by market capitalization, serving as a benchmark for the overall market’s performance.
Types of ASX Markets
The Australian Securities Exchange operates in many markets. Also, it oversees financial compliance in the ASX markets and promotes corporate governance. The following are some of the markets that the ASX operates in:
- Bond market
- Derivatives market
- Equity market
- Financial development
- Foreign exchange market
- Funds management
The Australian Securities Exchange bond market is the third-biggest in Asia. It is also the eighth-largest equity market in the world, with a total market capitalization of $2 trillion.
Additionally, the ASX is ranked 5th by the World Economic Forum in financial systems and capital markets, in addition to being the seventh-largest foreign exchange market based on global turnover.
History of the Australian Securities Exchange
In 1871, the Sydney Stock Exchange was established and continued to operate only until it was merged with other state-based exchanges to form the Australian Stock Exchange in 1987. In 1937, the Australian Associated Stock Exchange was established and would become the predecessor to the ASX. In 1942, Australian markets were controlled by the Australian Government; however, late in 1947, open-market conditions were resumed.
In 1960, the Sydney Futures Exchange started to trade as the Sydney Greasy Wool Futures Exchange; it was done to provide wool farmers in Australia with hedging facilities. Additionally, in 1961, the Australian Associated Stock Exchange began to develop an educational program. In 1962, three-letter company codes were developed for listed stocks.
In 1970, the Securities Industry Act was established. In 1987, the Australian Stock Exchange was formed. Later, in 2006, the Sydney Futures Exchange merged with the Australian Stock Exchange to form the Australian Securities Exchange. In 2012, the Australian Liquidity Centre was formed and was made to house the Australian Securities Exchange core trade executions.
The story of the ASX, however, started long before the merger. The Australian Stock Exchange Limited was founded in 1987, when Australian Parliament enabled six independent state-based stock exchanges to amalgamate into a single national entity.
“Each of those exchanges brought with it a history of share trading and exchange services dating back to the 19th century,” the ASX says of its history, noting that throughout the 1920s, Sydney’s first radio station would broadcast the Sydney Stock Exchange calls twice a day.
A century on from those radio calls and, thanks to the digitalisation of our world, the ASX is now updated consistently throughout market trading hours, which occurs daily from 10am to 4pm (AEST time).
At the time of writing, the ASX has a market capitalisation of $2.3 trillion and is one of the world’s top 10 listed exchange groups.
However, in a single day of trading, the ASX can fluctuate heavily depending on a multitude of factors in both the international and local economy–such as rate rises.
With such constant change, investing in the ASX is a personal decision that should only be made after careful consideration of one’s investment knowledge, risk appetite and financial position.
Types of Shares
Investors on the ASX can choose from various types of shares, including:
- Ordinary Shares: The most common type, offering voting rights and dividends. These shares provide ownership in a company and the potential for capital appreciation.
- Preference Shares: These shares have preferential treatment over ordinary shares when it comes to dividends and liquidation proceeds. They typically do not carry voting rights.
- Exchange-Traded Funds (ETFs): While not shares of individual companies, ETFs are funds that track an index or sector and are traded like shares. They offer diversification and are a popular way for investors to gain exposure to the broader market.
ASX’s Trading Systems
ASX Trade and ASX Trade24 are the two trading platforms for the Australian Securities Exchange.
1. ASX Trade
ASX Trade is used for the trading of equity securities in the Australian Securities Exchange, and the ASX Trade24 is used for the trading of derivative securities. ASX Trade is based on the NASDAQ OMX system. It is also said to be one of the fastest trading platforms in the world.
2. ASX Trade24
ASX Trade24 is globally distributed with gateways in New York, London, and Sydney, and it is a 24-hour trading platform. Additionally, since ASX Trade24 is a 24-hour trading platform, it can maintain two active trading days. The normal trading times for the Australian Securities Exchange are from 10:00 a.m. to 4:00 p.m., and the market is open on weekdays.
Each trading day includes a pre-market session, which lasts from 7:00 a.m. to 10:00 a.m. The market is closed on eight holidays – Anzac Day, Australia Day, Boxing Day, Christmas Day, Easter Monday, Good Friday, New Year’s Day, and the Queen’s birthday.
ASX Careers
The Australian Securities Exchange offers a wide range of careers throughout a spectrum of specializations – most of which are located in Sydney, Australia. Some of the careers the ASX offers include compliance advisors, data engineers, marketing managers, and network engineers. The exchange prides itself on being an Equal Opportunity Employer.
Benefits of Investing in ASX Shares
Investing in ASX shares offers several advantages:
- Diversification: The ASX features a wide array of industries, allowing investors to diversify their portfolios across different sectors and reduce risk.
- Growth Potential: Australia’s economy is rich with opportunities in sectors such as mining, banking, and technology. Investing in ASX shares can provide significant growth potential, especially with the right selection of stocks.
- Dividend Income: Many ASX-listed companies pay regular dividends, providing a steady income stream for investors. This makes ASX shares attractive for those seeking income in addition to capital gains.
- Market Transparency: The ASX is regulated by the Australian Securities and Investments Commission (ASIC), ensuring a high level of transparency and protection for investors.
What is the ASX Doing Today? Winners and Losers
The best performers of the session included Novonix Ltd, which gained 8.76% to trade at $0.75 at close. City Chic Collective Ltd rose 8.33%, ending the day at $0.13 and Collins Foods Ltd moved up 7.40% to end at $10.01.
Paladin Energy Ltd lost 4.76% by close, making it one of the worst performers of the day. Lake Resources NL fell 4.55% and Orora Ltd lost 2.16%.
Explainer: ASX and ASX 200
If you’re interested in stock trading in Australia, then you’ll need to become familiar with the ASX: the Australian Securities Exchange. This guide explores the history of the ASX, the ASX 200, and how to invest in stocks in Australia.
Sectors in the ASX
The Australian Stock Exchange (ASX) uses the Global Industry Classification Standard (GICS) method of categorising companies, which is simply a system for allocating every public company to the relevant economic sector and industry group.
In total, the ASX is broken up into 11 sectors. These sectors are (in order of size)
Materials:
The materials sector, as the name suggests, is made up of materials, metals and mining companies. It also includes the chemical industry; the construction packaging industry; the container and packaging industry; and the paper and forest products industry.
Financials:
The ASX financials sector is made up of three industry groups: diversified financials (covering capital markets such as asset management, consumer finance and mortgage REITs); the insurance industry group; and the banking industry–both regional and diversified.
Information Technology:
The information technology sector includes companies that offer IT consulting; data processing; internet services; systems software; electronic equipment; technology hardware; technology storage; communications equipment; semiconductors; and the like.
Health Care:
The health care sector of the ASX is made up of two industry groups. The first is the health care equipment and services industry, referring to health care equipment, supplies, providers, services, and technology companies.
The second industry group includes companies that produce and supply pharmaceuticals, biotechnology products, and life science services and tools.
Industrials:
The industrials sector refers to companies that involve construction and engineering, machinery, aerospace, building products, industrial conglomerates and the like. It also extends to companies offering commercial and professional services, as well as the entire transportation industry.
Utilities:
A total of five industry groups make up the utilities sector. These are the electric utilities industry, the gas utilities industry, the water utilities industry, the multi-utilities industry, and the independent power and renewable energy producers industry.
As the ASX 200 is selected from the ASX, these same sectors also make up the composition of the ASX 200 list.
Risks to Consider
While ASX shares offer numerous benefits, they also come with risks that investors must consider:
- Market Volatility: Share prices can be highly volatile, influenced by economic conditions, market sentiment, and company performance.
- Economic Factors: Changes in interest rates, inflation, and global economic conditions can impact share prices.
- Company-Specific Risks: Individual company performance, management decisions, and industry-specific challenges can affect share values.
Frequently Asked Questions (FAQs)
What are the ASX trading hours?
Standard trading on the ASX takes place from 10am to 4pm, Sydney time, AEST.
What is the ASX 200?
The ASX 200 is a stock market index of stocks listed on the Australian Securities Exchange. It lists the top 200 companies from the ASX, being those with the largest market capitalisation.
Which companies are in the ASX 200?
As the name suggests, the ASX 200 lists two hundred companies. These companies range from the big four banks to large energy companies, such as BHP and Woodside Energy; household names such as Woolworths, Coles, Harvey Norman and Domino’s Pizza; telecommunications companies such as Telstra; and even airlines such as Qantas and Air New Zealand.
What is the highest value stock on the ASX?
The stock with the highest market capitalisation on the ASX is BHP group, with a market cap of $245 million. It is followed by Commonwealth Bank and CSL Group at $170.70 billion and $126.86 billion respectively.
Conclusion
The Australian Securities Exchange (ASX) is a dynamic and integral part of the global financial market, offering diverse opportunities for investors. Understanding the structure, history, and functioning of the ASX can empower investors to make informed decisions. While investing in ASX shares can offer significant benefits, it is crucial to consider the inherent risks and conduct thorough research before making investment decisions.
