You’re cashed up and ready to invest, but you have no idea how to actually buy your shares! It’s time to find a good broker so they can do it for you.
Rather than knocking on the doors of a company with a wad of cash or a chequebook wanting to invest, you need a good broker. You’ve probably seen stockbrokers in the movies – they’re the ones yelling into telephones and throwing bits of scrunched up paper around a busy trading floor.
The days of the trading floor are actually over in Australia, and brokers don’t walk up to the doors of companies on your behalf either. But they do buy your shares for you. Here’s how it works.
A good broker is your best friend
Brokers buy and sell stocks for their clients through a stock exchange – in your case, most likely the Australian Securities Exchange (ASX). There are three main types of brokers:
1. Full-service brokers
Full-service brokers are stockbrokers who offer you the real deal, all the bells and whistles. They can offer you recommendations, advice and opinions about stocks and companies. They have access to a lot of data, information and analysis that makes the decision to buy or sell easier for you.
You work with you one-on-one with a full-service broker, so they come to know your investment style and level of risk. However, these brokers often won’t deal with small amounts of money, and can be quite expensive. Ultimately the decision to buy and sell is still in your hands.
2. Discount brokers
Similar to full-service, although discount brokers don’t offer advice or consultations. They are purely there to buy and sell for you, at a cheaper rate than full-service brokers.
3. Online brokers
There are a number of great platforms available online that act as brokers, where you do the buying and selling yourself. Online brokers are the cheapest of the three, but also require a much more hands-on approach from you.
Most of the big banks offer online services, as do some speciality brokers. Equity Mates use online brokers for all buy and sell transactions and below is a comparison of some of the main platforms available online.
There are a few key considerations you need to look for when deciding which platform to use. Almost all of them are free to sign up to, but it’s once you’re in that differences appear.
Online brokers we use
Finding what works for you will change over time, and there is also no harm in using more than one platform. At this point in time, we use at least three platforms each, depending on what stocks we want to buy.
For a trade under $10,000, brokerage is $19.95 per trade. Commsec is one of the more expensive platforms but it has a wealth of information available to you for free. They have analyst research reports, fundamental and technical analysis, domestic ASX and option for international shares.
For trades up to $50oo you’ll pay $14.95, and for $5000 – $20,000 you’ll pay $19.95. Similar to Commsec, NabTrade gives you a bunch of information and news updates. They offer international shares as well.
A note on Westpac: Westpac Share Trading is quite expensive if you don’t have a Westpac account, with brokerage a whopping $29.95. If you do have a Westpac Cash Investment Account, it comes back down to $19.95. Still expensive, though relatively in line with the other banks. We have had little exposure to their platform.
E*trade is certainly cheap, and a bit different in how they charge brokerage.
If you make 0-29 trades per quarter (every three months), then brokerage is $6.95. If you make 30+ trades per quarter, then it drops to $4.95. Super cheap!
You’d need to be buying in and out of at least five stocks per month to hit 30+ trades, which for a beginner seems a bit unlikely. Still, $6.95 is super cheap.
CMC Markets have a platform that is geared towards technical traders.
It’s a sleek interface, with the ability to have multiple charts happening on the one screen, and a fully customisable interface to suit your needs. They offer all the tools necessary for chart analysis. They specialise in Contracts For Difference but also offer stockbroking services. Brokerage through CMC starts at $11 or 10 per cent – whichever is the greater.
IG is an online-only broker and offer access to the Australian Securities Exchange as well as a host of international exchanges, from Asia to the Americas and parts of Europe. Very simple user experience, with not a lot to it, but it certainly gets the job done. Brokerage is cheap, at $5-8, and no ongoing fees. You can load your account via your debit card, which is very handy.
For a more comprehensive comparison see here.
When comparing brokers to find one that suits you, you should consider the:
- cost of brokerage
- level of information they provide
- convenience (is it linked to your bank account, for example, or do you need to transfer money across to it)
- customer service
- access to different asset types and markets.
As we said, try more than one! They’re free to sign-up to, so have a play around, see which one works for you and get stuck in. Obviously keeping the costs as low as possible are important, but that doesn’t mean the cheapest broker is always the best option for you.
This is an edited version of an article that originally appeared on Equity Mates. It is republished here with permission.