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 THE ABC OF... |
ABC of...shares
Don't settle for any old online broker
CS journalists
Successful investors don't just accept any old broker, and you shouldn't either. Put some time and thought into the type of broker you want by following our three-step process, and then use your answers to compare online stockbrokers.
The good news is that it doesn't cost anything to open a basic online trading account. So as soon as you compare, you can open an account and start trading. It's as easy as that. But firstly, we have some comparing to do.
A. The Basics
Commission/brokerage
A common mistake is to choose the online broker with the lowest brokerage rates. Would you buy a new television or stereo just because it's the cheapest one on the shelf? We think not.
While costs of trading do count, it's not everything. So don't be lazy, and spend some time comparing other important features such as trading platforms and website ease-of-use.
While we're on the topic, let's talk commissions anyway. Most brokers used tiered pricing, which means that commission percentages decrease with the size of the trade.
Therefore, think about the size of the trades you intend to make and use that to compare commissions across brokers. If you are going to use margin lending to trade, then the size of your trades are likely to be heftier than someone who is dragging money out of their savings account. So remember to take this into account.
To make life easier, our tables include both percentage and dollar value of commissions payable on a $10,000, $50,000 and $100,000 trade. This should give you a fairly clear roadmap as to who charges what, and which broker is actually the cheapest for you.
Frequent or active traders shouldn't stop here. Many online brokers offer special packages to active traders, including cheaper commissions or more comprehensive services.
Initial Deposit
Although it's free to sign up for an online trading account, unfortunately there's one hitch: you need money to trade. Most online brokers have a minimum initial deposit - that must be deposited into their account - before you can even start thinking about trading. Initial deposits can range from $1,000 to $5,000 or higher. Check them out on our "basics" tables.
Trading Platform
The trading platform or system you choose can mean the difference between an error and stress-free trading experience and something altogether more grisly. Traders can complain about delays in getting orders filled, or confusing user interfaces that result in nasty mistakes and potential losses, such as typing in the wrong order type or amount. Unfortunately it's difficult to know these sorts of things until you sign on the dotted line and start trading. Forums are a good source of information from experienced traders who have 'been there, done that.' See our forum centre.
B. The Extras
Market information
Once you have covered off the basics, you can start thinking about all the extras you want from your chosen broker. Market information such as broker buy-and-sell recommendations and newswire services might be important to you. Or perhaps you want the ability to value your portfolio, either manually or automatically, to get an idea of how much you are worth. Our "extras" table will tell you who does what.
Trading tools and packages
Some brokers offer trading packages that contain high-end trading software complete with live market data and sexy charting tools. These features usually come at a monthly cost, so ask yourself whether you actually need these services before you sign up. There's no point in having an overflowing basket of goodies that you don't ever use. Active traders, however, can often get these services at a reduced cost - so find out.
C. Markets
Markets and products
If you're keen get into some managed funds, trade international shares and options online, as well as add a couple of instalment warrants to your portfolio, then you'll need an online broker who does the lot. Not all do.
Our "markets" table details the markets offered by online brokers. But as you compare, be honest with yourself about what you intend to trade. Are you really going to be trading everything under the sun? Or will you mostly stick with local shares?
Customer Service
Last but not least, is customer service. We can't emphasise enough the importance of choosing a broker who is easy to contact, and has ample staff on the desk to take your call and sort out your concerns quick smart. Talk to friends, get on chat rooms and ring around different brokers to get a feel for how they operate. The customer service of an online broker is definitely the most time-consuming factor to analyse, but the most important to get right.
So take your time, and make sure you have a look through our comparison tables.
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