Know Your Window; Understanding the ASX Market

Know Your Window; Understanding the ASX Market

07/04/2016   Kim Lo, Paraplanner

Many investors are aware that the Australian Securities Exchange (ASX) commences trading at 10am and ceases trading at 4pm, but did you know that there are small windows on either side of these times during which anyone can enter buy or sell orders in the market? The ASX goes through a number of phases on any trading day, and there are trading periods that exist beyond the official ‘opening’ and ‘closing’ times of the market.

Securities open in five groups according to the starting letter of their ASX Code:

Group

Market Open

ASX Code Starting With

Group 1

10:00:00am +/- 15 seconds

0-9 and A-B

Group 2

10:00:00am +/- 15 seconds

C-F

Group 3

10:00:00am +/- 15 seconds

G-M

Group 4

10:00:00am +/- 15 seconds

N-R

Group 5

10:00:00am +/- 15 seconds

S-Z

The time is randomly generated by ASX Trade and occurs up to 15 seconds on either side of the times given above, i.e. any group may open at any time between 9:59.45 am and 10:00:15am.

During the pre-open phase (from 7am to 10am), the overlapping bids and offers which exist within the market are matched off against each other resulting in an official ‘auction’ price, which is the price at which the stock opens. What this means is that investors can enter orders online which are placed in a queue according to price-time priority and will not trade until the markets open.

Between 4:00pm and 4:10pm the market is placed in Pre Closing Single Price Auction, (aka ‘Pre-CSPA’). Trading stops and stockbrokers enter change and cancel orders in preparation for the market closing.

Knowing when the market opens is one thing, but knowing when the right time to buy stocks is another. In general terms, many investors in the share market are drawn to the possibility of long-term wealth building through capital growth and the ability to earn dividend income. However, there are others who are drawn to the possibility of quick, large profits through more speculative trading activities, such as:

  • buying ‘penny dreadful’ (cheap stocks with high leveraged aspects),
  • buying stocks on ‘hot tips’ or rumours, or
  • day trading or speculation (i.e. buying and selling within the same day, usually with large amounts of capital, locking in profits from relatively small price movements).

Australian shares are characterised by generally high liquidity and relatively high volatility, with prices affected by both domestic and overseas influences. With this in mind, there is no real ‘right’ time to buy into a stock. Unless of course, you own a crystal ball and can see the future!

Instead, investors should look to diversification within an investment portfolio. Ensuring portfolios are well diversified at all levels of a portfolio should help ensure investors reach their investment goals in the least volatile manner. Diversification is crucial in reducing the likelihood of underperforming stocks and decreasing risk and volatility.

Whether you’re looking for capital gain or consistent income through dividends, diversifying your portfolio across different stocks as well as sectors and industries is a prudent way of managing your share portfolio.

If you would like to find out more about the share market and advice on how to invest, speak with one of our financial planners today on 1300 726 082.

 

 

 

General Advice Warning: This advice may not be suitable to you because it contains general advice that has not been tailored to your personal circumstances. Please seek personal financial advice prior to acting on this information.

 





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