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Investing basics: find the best online Australian shares broker (for you)

Emma Rapaport  |  10 Jul 2020Text size  Decrease  Increase  |  
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You've heard about a stock. Added it to your watchlist. Studied the balance sheet. Pored over company reports. Now you're ready to buy.

But buying a stock isn't like buying a pack of gum. You can’t walk into the ASX and order one over the counter.

Company shares are sold via financial professionals known as brokers who will take your order and execute the trade on your behalf. Online trading has made buying Australian shares simple. You can do the whole thing from your smartphone.

But with tens of brokers on the market, how do you know which one to choose? Every broker offers a different level of service, priced accordingly, and you must choose the one that best suits your needs. The best platform for you might not be the best platform for someone else.

As the share market dips and soars, you want to know that your broker is delivering you consistent performance and value. Armed with a trusty broker, you'll be ready to hit the exchange.

What is an online broker?

Broadly speaking, there are two types of brokers:

1. Full-service brokers – before there were smartphones and high-speed internet, broking typically happened over the phone. You'd call up your broker, chat to them about what you wanted to trade; they would offer advice (for a fee) and execute your trade on the market.

Full-service brokerages such as this still exist and offer advice on security selection, provide research, access to new investment opportunities like initial product offerings, and advise on portfolio construction. A good broker will also contact you if something big has changed in your portfolio, or if they spot an opportunity. However, all this comes at a price. Commissions for full-service brokers are much higher than online brokers.

2. Online discount brokers – Online brokers – or share-trading platforms – allow you to execute the trade yourself. They offer simple, online, no-frills access to share trading. The major banks have broking websites that allow you to use the funds in your bank account to buy shares. Several non-bank brokers such as Interactive Brokers, IG Markets, CMC Markets, SelfWealth and Bell Direct vie with the big banks with offers of better service at cheaper rates.

Although the service is much cheaper than using a full-service broker, you may need to separately buy investment insight and research to give you guidance about which shares to purchase. Some discount brokers now offer services such as portfolio management, market data, reporting tools and research for an additional fee.

In this article, we'll focus on choosing an online broker.

Screening the prospects – online discount broker

Before choosing an online broker, consider the following questions:

  • Do you want to limit yourself to trading Australian stocks, or do you want to trade on international exchanges?

There are more than 250 exchanges globally ranging in size and trading volume. You'll be lucky to find a broker that offers you access to all of them. Decide which markets you want to trade on – ASX/Chi-X only, or ASX/Chi-X+ NYSE, or ASX/Chi-X + NYSE + NASDAQ + LSE – and compare the number of markets each platform gives you access to. For example, online broker SelfWealth limits its users to trading Australian securities, while CommSec offers access to over 25 global share markets. CommSec Pocket lets you pick from seven themed ETFs, while IG Markets opens up 17,000 markets, trading Australian securities but also other types of products such as forex, CFDs, margin-trading, options etc.

  • How often do you want to trade? Once or twice a year? Every month? Every day?

A can of tomatoes from Woolworths will set you back 60 cents. But if you buy a pack of 12 from Amazon you can get it down to 25 cents a can. The same applies to online brokers. If you only want to trade once a month (or less), you're considered a lower frequency investor. You'll want to seek out a broker that doesn't charge "inactivity fees" or higher fees if you don't trade a minimum number of stocks each month. But if you trade frequently, you may be able to get a cheaper price for each trade. For example, IG Markets, which is designed for experienced traders, charges commissions of $8/0.1% for investors trading Australian securities between 0-2 times per month. Investors trading more than three times per month can secure a lower commission of $5/0.05% per trade. They also charge a quarterly subscription fee for inactive trading (fewer than three trades). CMC Markets also charges a "dormancy fee" where there has been no trading activity for 12 months. For lower frequency investors, SelfWealth charges no ongoing fees and there are no minimum account balance requirements.

  • How do you want to place trades? Phone, mobile, desktop?

Do you want to trade from the comfort of your home, after deep meditation and surrounded by your lucky charms, or do you want to trade on the way to work, balancing a coffee in one hand and your smartphone in the other? While most brokers offer trading apps, meaning you can execute trades on the go, others are limited to desktop trading. Be sure to check what technology services each broker offers and their useability. Apps offered by several brokers have scores of negative reviews on the app store, with users complaining about a lack of functionality and features. Note, some apps are only available on phones which run Android or iOS systems. 

  • Do you value the convenience of having all my accounts with the same bank/broker, or are you happy to exchange convenience for cheaper rates?

One benefit of sticking with the brokerage service offered by your everyday bank is that your accounts can stay with the one provider. For example, CommSec users can link a Commonwealth Direct Investment Account (CDIA) cash account to their CommSec Trading Account, accessed online via NetBank. This means they can instantly transfer funds between all their CBA accounts. Cash in this account can also earn interest. On the other hand, SelfWealth users can't use their own bank account, and must transfer funds to the brokers bank account (via ANZ) to trade shares. However, you pay for the convenience in other ways. While CommSec charges $19.95 on trades between $1000 and $10,000, SelfWealth has a flat brokerage fee of $9.50 per trade, regardless of size. Other brokers such as Westpac Online Investing will allow you to link your existing bank account to your trading account. However, traders who use the Westpac Cash Account have access to lower fees.

  • Do you want a simple, no-frills trading platform, or access to additional features, research and a trading community?

Get in, place your trade, get out. Simple. There's a broker for that. Products from the big four banks (CommSec, nabtrade, Westpac Online Investing, ANZ Share Investing), SelfWealth and Bell Direct offer simple to use platforms, making it easy to buy and sell shares. However, if you're an experienced investor and want additional features such as advanced charting, technical analysis, long-term data etc, you'll need to seek out a broker that offers those services. Some brokers to check out include CMC Markets, IG Markets, InteractiveBrokers, Saxo Markets and nabtradeIRESS. Platforms from CMC Markets offer additional trading features such as conditional and linked orders. Nabtrade offers access to equity research, analysis and recommendations, while SelfWealth Premium allows you to "follow" other investors on the platform to see what trades their making. BellDirect offers charting (premium), tax reporting, broker research and the ability to execute multiple trades simultaneously. Each broker offers a different level of service, at cost. Decide which services you value.

  • Do you need to access a broker today, or are you happy to wait?

Since the coronavirus pandemic hit global markets in late February, online brokers have experienced a rush of new investors looking to open accounts. Nabtrade reported a 95 per cent increase in trading volume in the second quarter of 2020 and a 360 per cent increase in new applications. Consequently, this has meant longer waiting times to open an account. On the CommSec website, the broker says it is currently experiencing high volumes of applications for its international share trading account and wait times may take up to ten working days.

  • Do you want to own the shares in your own name?

Most brokers offer CHESS Sponsored shares. This means that when you trade shares, the exchange has a record of you owning those shares directly. This is tracked via your unique Holder Identification Number. However, some brokers operate under a custodian model, meaning that they hold the shares on your behalf. IG Markets, for example, operates a model whereby shares are held by Citi in direct custody capacity

5 popular Australian shares brokers compared

There are lots of brokers to choose from. And to make things more confusing, each service has different features and varying pricing models depending on how often you trade and what you want to trade. I've picked five popular Australian shares brokers for beginner traders to compare. The selection is based on trading platforms that are frequently discussed in investor forums. This comparison is purely indicative and in no way a ranking of the "best" brokers.

Focus: platforms suitable for beginners and less-active long-term traders (1-trade per month), trading Australian securities.

broker comparison table

(Click to enlarge) *Some features may require additional fees. Data correct at 10 July 2020. Source: Company Websites CommSec, nabtrade, SelfWealth, CMC Markets, Bell Direct, Westpac Online Investing

is an editor for Morningstar.com.au

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