Online broking 101
By Bina Brown | theage.com.au | 27 March
Online broking is a cheaper option for trading than a full service broker and there are numerous packages and offers available from online operators. Your cheapest option will ultimately depend on your trading habits and needs.
Denis Orrock, general manager of Infochoice, says investors need to be careful that when they sign with an online broker they get the package that suits them - which may not necessarily be the cheapest.
"Interactive give the cheapest access to the market but if you want a few bells and whistles, you may have to go for one of the higher-cost CommSec or E-Trade packages.
"Then again, if you are just doing a one-off trade, you don't want to be signing up for something you aren't going to use," he says.
Fees charged by online brokers vary in terms of the dollar amount and frequency of trades.
Working out a total cost comes down to how often you expect to buy and sell shares online and whether you want additional services such as broker research, international shares, real-time price data or a margin loan.
Online brokers charge a minimum flat fee for trades up to a specified limit; a percentage brokerage fee applies to trades above the limit.
Free brokerage for new members is the cheapest way to trade shares but, as with most special offers, the devil is in the detail.
E-trade has a $550 "free" brokerage offer for new members - the main caveat is that trades must be less than $50,000.
It will waive its standard brokerage fee of $32.95 for the first 10 ASX-listed equity trades executed within two months of opening an account.
CommSec also gives the first 12 equity trades for free, up to a total brokerage value of $600, for new members.
Trades must be below $50,000 and completed by June 30.
At $19.95, CommSec is one of the cheaper online brokers but only if you are Clearing House Electronic Subregister System (CHESS), sponsored by CommSec and settle your trades through the Commonwealth Direct Investment Account, or a CommSec or Colonial margin loan.
The fee then jumps to $29.95 for trades up to $10,000 which is where many of CommSec's competitors' prices start.
The exception is Bell Direct which, for $15 a trade up to $10,000 of shares, is the cheapest mainstream online broker, although it is limited to Australian shares and data is historic rather than real-time.
Interactive Brokers is cheaper still at $6 a trade up to $7500.
However, it is aimed at professionals doing 50 to 100 trades a day, so costs can quickly add up.
Account holders also pay an extra $37.50 a month for live prices from the ASX.
Monthly subscription fees are not uncommon, with First Prudential and Trader Dealer both charging a monthly fee for clients more likely to be considered traders.
OneTrade, Net Wealth and Amscot are also at the lower-cost end, particularly for shares or trades of less than $5000.
Westpac also has a cheaper service for customers who link their accounts - prices start at $24.95 for trades up to $25,000.
E-Trade charges $32.95 for trades up to $30,000 with frequent-trader options available.
Many online brokers offer volume discounts to frequent traders who buy and sell, for example, more than five times in a calendar month.
The discount may take the form of discounted brokerage for subsequent trades, rebates on brokerage for all trades placed, refunds of monthly subscription fees or access to dynamic data and software.
Online brokers who allow you to trade using borrowed money - known as a margin loan - may charge a slightly higher brokerage fee.
Not all brokers allow trading with a margin loan and not all brokers which offer margin loans allow orders to be placed online.
Infochoice has a brokerage fee comparison calculator on its website where you can see how fees vary over a selected range.
See www.infochoice.com.au.
First published by TheAge.com.au on March 27 2008
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