The services provided by online brokers vary widely, so find one that fits you perfectly.
Do I need an online broker?
Before shopping for online brokers, consider what type of investor you want to be: if you want thorough advice, then it’s best to visit a full-service broker rather than taking the online option. However, an online broker is suitable if you know which shares you want or what research you need to do, to determine which shares you want.
If you feel an online broker is right for you, then explore these significant issues:
1. What it costs
Don’t just look at the headline brokerage rate; be sure to compare ongoing costs such as platform fees and cash account fees. Premium-level services generally come with additional fees for features such as dynamic data.
Be wary that some brokerage deals may be advertised extra-cheap, but require you to make a minimum number of trades per month or keep a minimum monthly account balance to qualify for the deal.
2. Time to market
One of the most important jobs for an online broker is getting its clients’ orders into the Stock Exchange Automated Trading System (SEATS) as quickly as possible. Ask brokers directly how quickly they can place an order; most online brokers claim they can place orders within seconds.
3. Ease of use
The structure and functionality of each site’s trading platform (what the investor sees on their computer screen when logged into the site) determines how quickly and easily you can buy and sell shares, hassle-free. Take advantage of the free trials offered on some brokers’ websites. Reliability is another consideration, but this is difficult to measure.
4. Features and tools
Online brokerage sites vary in terms of features: some may be very simple, whilst other sites contain extra benefits, such as access to institutional broker research (at a higher cost, of course).
A standard tool on any brokerage website is market depth, which identifies the number of shares sought by buyers against the number offered by sellers. Furthermore, course of sale records how many shares have changed hands and at what prices.But different tools suit different types of investors.
Active, daily traders would seek real time/dynamic updates and research alerts. If you’re more of a ‘buy and hold’, long-term investor who is not likely to be trading large volumes of shares, in-depth broker research and charting tools may be more important.
Conditional orders enable the investor to set (in advance) prices at which they wish to buy or sell for a particular stock. Some brokers offer this service for free, whereas others impose additional charges.
5. Global reach
Not many Australian-based online brokers enable you to use their platforms to trade on foreign stock exchanges. Some brokers enable clients to trade international shares on the same platform they use to buy Australian-listed shares.
To ensure you are not passing your dollars onto anyone fishy, verify the broker is licensed and authorised to conduct an online share trading business before registering or depositing funds. Go to www.asic.gov.au and search under “other registers” for AFS licensees; simply enter the name of the broking platform to check they are a licensee.