Australia, Personal Finance - Written by on Sunday, June 1, 2008 14:13 - 0 Comments

Get up to speed with online broking

Smart Investor magazine, June 2008

Online broking has revolutionised share trading in Australia. No longer do you need to have built a relationship with an individual broker: it’s as simple as logging on, opening an account and starting to trade.

“It’s certainly opened up the market to a far broader audience,” says Matt Comyn at CommSec, which has about 1.4 million accounts. “Prior to people like ourselves coming in and making it easy and accessible and affordable for all Australians, the stock market was seen as exclusive and reserved for people who could understand and afford it. It’s also a vehicle for people to become far better educated. Financial literacy and awareness has improved dramatically in the last five to 10 years.”

It’s become a competitive field too, which is good news for you. Infochoice tracks 14 different providers, many of them with more than one product, and when they’re competing for your business they’re obliged to lower fees and improve the efficiency and range of their offerings. You can see it already: whereas in its early days online broking only allowed you to trade Australian shares – and then probably only the blue chips – today it’s easy to trade options, warrants, foreign shares and contracts for difference online, as well as buying managed funds or using margin loans.

The next stage in the evolution of this market is going to be trading through your mobile phone or your PDA – not using it to call up, but to trade electronically. This is beginning to catch on in the US and hasn’t really got going in Australia yet, but it will. Australian providers generally have half an eye on the PDA market and are waiting for more standardisation in hardware and software before they launch offerings, but expect at least a few of the bigger names to launch such an offer within the next couple of years.

Is it a good thing? One can’t shake the fear of getting blind drunk and accidentally buying a ton of unwanted stock. And since a phone is more easily lost or stolen than a PC or even a laptop, there’s a natural security fear that providers will have to overcome (though the fact it, fraud is probably easiest to perpetrate in a phone call rather than online).

In the meantime, here’s a guide to six of the offerings in the market today for online trading – how they look, what they offer and what they cost. 

SIX PLATFORMS COMPARED

E*TRADE

Address: www.etrade.com.au

How’s it look?

Well-ordered. Uses a tab and sub-tab menu approach across the top of the screen.

What can I do?

Domestically, this is about as wide-ranging a platform as you can get. You can trade all ASX products, including warrants and options; CFDs; IPOs; managed funds; margin loans; and structured products. There’s a section designed for use with self-managed super funds too.

What can’t I do?

International shares.

How’s the trading?

Straightforward, includes conditional orders.

Idiot-proof?

There is a useful series of online tours and demos to get you started – from the basics of the site to trading, portfolios (including making watchlists), CFDs, options and the professionally-geared E*Trade Pro and PowerTrade platforms. There is a detailed education section, including links to ASX seminars.

What’s it cost?

A$32.95 for the first 10 trades in a month, $27.45 for the 11th to 20th and A$21.95 after that; or 0.11% for trades above A$30,000 for the first 10 trades. Conditional orders vary: $7.95 for a basic order, setting price and upper or lower limits; $19.95 for intermediate orders, such as trailing price measurement and setting a delay after the market opening; and $19.95 for advanced orders, such as straddle sells or buy then sell orders. For options, it’s A$44.95 or 0.55% (whichever is higher) for the first 10 trades. For CFDs, through MF Global, it’s the greater of A$11.95 or 0.1195% of the contract value executed in a month; the long interest rate is the benchmark plus 3%, and the short rate the benchmark less 3%. Managed fund fees are 0.66% of holdings up to $100,000. Margin loans are offered from ANZ, St George and BT at their rates.

If you go for the active trader products there’s a monthly fee of $79.90, which comes down by $7.99 with every trade each month.

What’s the research like?

You can get free research from groups including Aspect Huntley, Fat Prophets, Eureka and the Intelligent Investor. Quotes, stock profiles and charts are comprehensive and there’s a very useful filtering tool to look for stocks by recommendation, sector and valuation.

Can I use the mobile?

Not for trading but you can get SMS messaging at A$0.33 per message.

Verdict?

Comprehensive for your domestic trading needs.

COMMSEC

Address: www.commsec.com.au

How’s it look?

Resplendent Commonwealth Bank yellow. Uses left-hand menu buttons for most requirements with help and contact stuff across the top.

What can I do?

Almost anything you’d want to. Offers all ASX products including options and warrants; money market products; international shares (through a separate account); managed funds; and floats. Both ASX and over-the-counter CFDs are offered, there is a section for self-managed super, there are some CBA structured products and you can sort out protected loans too.

What can’t I do?

The only thing Infochoice says CommSec doesn’t offer that someone else does is unlisted money market products.

How’s the trading?

Easy enough, with conditional orders straightforward. You can short sell anything on the CommSec short list, which has almost 100 stocks on it.

Idiot-proof?

The ‘learning centre’ tab has a site demo and links to webinars (we hate that word) on share investing, gearing, stock selection and technical analysis. The site also boasts DIY workshops though when we checked none were available. Links to ASX education sections too.

What’s it cost?

If you go for CommSec’s “internet preferred” status, which requires you to be CHESS sponsored by CommSec and settle your trades through a Commonwealth Direct Investment Account or one of the group’s margin loans, it’s very cheap: $19.95 up to $10,000 transaction value.  Strangely it then goes higher, to $29.95 up to $25,000, and then 0.12% after that. For general internet trading without that preferred status it’s $29.95 up to $10,000 and 0.31% above that. Internet ASX CFD trades are a minimum $14.95 or 0.11%; for some index, commodity and FX CFDs it’s 0.055%. Non-ASX CFDs, in Aussie dollars, are 0.125% subject to a minimum A$14.95.

For global shares, it depends on the exchange. For North America, London, Tokyo and Hong Kong it’s US$65 or 0.75%, whichever is greater; other markets are typically US$130 or 1%.

What’s the research like?

Commonwealth Bank and CommSec market research is available. Has company profile info and a search tool to filter companies that match a particularly strategy. The site charges for access to Aegis Research, an annual fee of $499.

Can I use the mobile?

SMS updates but no trading, although Matt Comyn at CommSec says: “We will probably end up developing a browser that runs on a phone.” They’re not working on it at the moment though.

Verdict?

Covers everything you could need and is a rare way of getting international shares online. We find the layout a little clunkier than E*Trade but with 1.4 million accounts they’re clearly appealing to a lot of people. Very cheap for trading if you’re a ‘internet preferred’ customer.

MACQUARIE DIRECT TRADE

Address: www.directtrade.com.au

How’s it look?

 Dour but functional

What can I do?

ASX products including shares, options and warrants, though exchange-traded options must be done by phone. Also international shares, through a separate account, and floats. Macquarie has its own CFD service. Account can be linked to Macquarie margin loans or cash management trust.

What can’t I do?

Managed funds (though you could do that through Macquarie’s platform), money market securities.

How’s the trading?

Easy, with a link on the trading screen to price information and performance – obvious but not always offered.

Idiot-proof?

There is a tutorial on using the platform.

What’s it cost?

$39.95 up to $25,000, and 0.16% thereafter. That’s for Macquarie-sponsored shares – for issuer sponsored shares (ie those held elsewhere) it’s $54.95 and 0.25%. Exchange traded options are $59.95 up to $10,000, then 0.6%.

What’s the research like?

Charting, some technical analysis tools, access to broker recommendations, stock profiles.

Can I use the phone?

Not for trading.

Verdict?

Regular traders are likely to want to try the DIrectPlus platform with a greater wealth of available information. Fees are higher than some but works well when linked with other Macquarie products.

NAB Online Trading

Address: trading.nab.com.au

How’s it look?

Works well:  lot of detail on the page without being confusing.

What can I do?

Shares, warrants, options, over 2000 managed funds, margin trading, floats.

What can’t I do?

International shares, money market securities. No mention of CFDs on demo.

How’s the trading?

Straightforward and uncomplicated. Conditional orders allowed.

Idiot-proof?

Useful demo. Also learning centre, web tutorials and links to ASX education.

What’s it cost?

Equities and warrants are $29.95 or 0.11%; exchange traded options are $43.95 or 0.55%; conditional orders cost $9.95. There are three different services, called casual, premium and professional; in the latter two you start getting rebates after the sixth trade each month.

What’s the research like?

In addition to the usual ASX announcements and market updates, there are feeds of relevant news from Reuters and RWE, a plus. Also has something called the market map which looks like conceptual art though we couldn’t really figure out how to use it. Plenty of charting and data, a stock picker filter, a useful upcoming dividends screen, plus some broker research. In the professional service you can buy additional research: a dynamic data exchange add-in for Microsoft Excel for $35, a trading pro platinum service which includes the DDE and live international markets plus a few other goodies for $110 a month, or a Dow Jones news feed for $55 a month.

Can I use the phone?

SMS updates but no trading

Verdict?

Doesn’t offer quite as big a range of products as some providers but is functional and well backed up with tools.

ONE TRADE STOCKBROKING

Address: www.onetradegroup.com.au

How’s it look?

Packed, based on the testdrive version.

What can I do?

Depends on what service you go for. OneTrade Pro and Basic lets you do all ASX products except exchange-traded options. On the phone you can’t do company options or margin trading (though you do appear to be able to trade warrants). There’s also a sell-only service.

What can’t I do?

International shares, money market, managed funds.

How’s the trading?

The testdrive we saw was for the ‘Pro’ product, which seems to put a huge amount of information onto a single screen. Certainly no shortage of available information there. The basic platform does not have a test drive function online; it does not feature conditional orders.

Idiot-proof?

On the Pro demo, a help tab leads to basic and advanced tutorials.

What’s it cost?

Cheap. The Basic platform costs $17.95 on trades up to $5000, $24.75 up to $15,000, $27.50 up to $30,000 and 0.077% after that.  Pro fees are the same; monthly access to Basic is free, and to Pro is free provided you do five trades a month.

What’s the research like?

The pro section has a wide range of streaming and charting tools; the basic one has live ASX prices, basic charting and company reports.

Can I use the mobile?

Only to phone up and trade. In that regard, it has won industry awards as a good non-advisory phone broker.

Verdict?

One of the cheapest on the market.

INTERACTIVE BROKERS

Address: www.interactivebrokers.com

How’s it look?

Smart. Top row tabs.

What can I do?

The big appeal of Interactive Brokers is that it is an international operation. So you can use it for, for example, North American stocks, ETFs, options, futures, bonds and foreign exchange. It boasts 70 market centres in 17 countries and you can trade assets in different currencies from a single account. Also domestic stocks and options.

What can’t I do?

Other domestic stuff, like floats, warrants and funds.

How’s the trading?

Looked good on the demo we saw, including some conditional orders.

Idiot-proof?

Has a detailed education centre including webinars, a futures and options report, a guide to exchanges around the world (though we couldn’t help but notice it still refers to the Sydney Futures Exchange) and other goodies. Detailed live demos for site itself.

What’s it cost?

Commission schedule for domestic transactions is 0.08% of trade value for stocks and warrants, A$3 per contract for options and A$1 to A$3.90 for futures contracts, plus exchange fees. Internationally, varies with the market.

What’s the research like?

Has a useful futures and options trading report. Also a wealth of fundamental data on individual securities. If you use their most whizz-bang platform, you get all sorts of stuff like streaming data.

Can I use the mobile?

Yes! The MobileTrader software allows you to use a mobile or PDA to trade stocks, options, futures, see up to date quotes, review and modify orders, and review the portfolio.

Verdict?

Aimed at the professional; a gateway to world stock markets.

BOX: What’s a conditional order?

A conditional order is a very useful thing to understand, and is quite widely available among Australian providers. 

Basically, you use them to set a condition. The most basic form of these is usually free and part of everyday trading – you set a price at which you want to buy or sell a stock, and you leave it open either for a day or until you cancel it (in some cases they expire automatically after a month).

But when most people talk about conditional orders they mean something slightly more advanced. An example is a stop loss. This means that, if a stock you hold starts to fall in value, your broker will automatically sell it for you so that you have a floor to what you stand to lose. It’s a very handy risk management tool; stop losses are free on some providers and might cost $10 on others.

It’s important, though, to understand the difference between a stop loss and a guaranteed stop loss. A stop loss basically means the broker will do its best to sell at that price – but sometimes, perhaps because of a profit warning or some other market tremor, the stock will miss that price completely on the way down – close above it one day, and open below it the next.

To be absolutely sure, a guaranteed stop loss promises you’ll get out at that level.  These orders cost more than regular stop losses.

The same principle works in reverse for people who offer stop losses on short positions. In this case, you’re guaranteed to sell if a stock goes UP a certain level.

Conditional orders can get much more complicated than this: straddle orders and buy then sell orders are two examples. If you want to find out about these you need to go to providers like E*Trade who offer them for more information.



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