The Australian Securities Exchange (ASX) is among the top ten of the world's leading financial market exchanges. It was born out of a merger by the Sydney Futures Exchange and the Australian Stock Exchange. ASX is a fully functional securities exchange and provides various financial services, including trading, clearing, settlements, information and technical services, and post-trade services.
This article shall provide a basic guide to ASX trading and when to sell your ASX shares. Interested? Read on.
About ASX Trading
ASX has two main trading platforms for the Australian Securities Exchange—ASX Trade and ASX Trade24.
ASX Trade is used in the Australian Securities Exchange for trading equity securities while the ASX Trade24 is mainly for trading derivative securities. ASX Trade is based on the NASDAQ OMX system, which is believed to be one of the fastest trading platforms globally.
On the other hand, ASX Trade24 is a 24-hour trading platform with a global network distribution gateways in London, New York, and Sydney. ASX Trade24 can also maintain two active trading days since it's a 24-hour trading platform.
The Australian Securities Exchange trades from 10 a.m. to 4 p.m. on weekdays. Every trading day has a 3-hour pre-market session from 7 a.m. to 10 a.m. The market is normally closed on eight holidays, including New Year's Day, Good Friday, Easter Monday, Christmas Day, Boxing Day, Anzac Day, Australia Day, and the Queen's birthday.
How Do You Go About Trading On ASX?
Now that you know a thing or two about the ASX background, it's time for a brief lesson on how to trade on it. Before you get started, it's important to note that trading and investing are two different things. Investing requires you to do a lot of due diligence while trading may need you to understand trends, repetition, and probabilities.
There's No Magic Formula
Some may tell you a trading formula or some sort of trick gets you profiteering when trading. When you give it a try, you could be surprised that it doesn't work. ASX trading is about making losses and gains. Your main aim, however, should be to make more gains than losses. But how do you make more? You just need to limit the money you trade on stocks and to know when to trade. In other words, don't trade heavily if the odds aren’t in your favor. Also, if the risk is too high for a small profit, it may not be worth it.
Trading Risk and Reward Principal
If you've tossed a coin before, then you know whether it lands heads or tails will be a 50:50 chance. However, if you flipped it five times, you'd get three of either heads or tails and two of the other. There would be a 60% chance of getting one of the two results.
The more flips you make, the greater the probability of getting one of the two. The same probability theory applies to ASX trading. When you trade more, you get to study the probability of gaining. However, you need to know the ASX theoretical probability of the model you intend to trade on.
Coin Toss Model In Practice
Suppose you use a dollar for every coin flip. If you tossed and the coin landed on tails two out of five times, you’d have lost $3 if you bet on heads. If you tossed the coin 50 times, it means you'd have used $50. If it landed on tails 19 out of 50 times, you'd make $19. This demonstrates why you shouldn't trade if it's not worthwhile for you.
On the other hand, if you needed 50 cents to flip and you flipped 50 times, which got 19 out of 50 tails, you’d make $28.5, provided the playout was $1.5 per tail. This also demonstrates the need to consider trading when the odds are stacked in your favor. It also shows how you could also lose if you traded just once.
If you flipped the coin 200 more times, in theory, you’d trend back to the 50:50 probability, but since the playout is stacked in your favor, you’d receive huge sums of money. The most important lesson here is you should always remember that position sizing is very important when trading.
ASX trading is a broad and somewhat complex field. This is just a basic guide to trading for beginners. If you'd never heard about ASX trading, you now know a thing or two about what it's all about and how it works. You can go on and research how the different platforms work before you delve into actual trading. Just remember, if it's not worthwhile, leave it.