Getting started with investing in shares can be daunting (to say the least). One of the questions I get asked by our students a lot is “how do you actually get exposure to shares?” In Australia, there are a few different ways: you can give your money to a robo-adviser, you can increase your contribution to your super fund (which invests in the market for you), or you can set up your own account with an online broker (or ‘share trading platform’) and buy shares yourself.
The challenge is that there are tonnes of share trading platforms to choose from! How do you know which one to pick? How are they all different? What should you look for? It’s kind of overwhelming. So overwhelming that it’s enough to make people put the whole thing off altogether! (Seriously. I’ve been there.)
It’s important to remember that there are different platforms for different purposes. So the best platform for you, might be different to the best platform for someone else. We’re going to be focusing on some share trading platforms in Australia that may be suitable for beginners and less-active longer-term investors (i.e. not day traders, professional or institutional investors).
What is an ‘Online Broker’?
Back in the day, a ‘broker’ used to actually be a person. You might see in movies that someone is “calling their broker” to buy or sell their shares. These brokers would execute your buy and sell orders on the market, and would charge a fee for their services. (These guys still exist but online brokers are more commonly used now).
Thanks to technology, now there are online brokers. These are just online platforms where you can buy and sell shares yourself. The platform charges a fee for playing the ‘middle-man’. It’s kind of like…eBay for the sharemarket!
‘Online brokers’ are sometimes called ‘share trading platforms’ because they’re used by traders to buy and sell shares. BUT that doesn’t mean you have to use an online broker to ‘trade’ shares. There’s nothing stopping you from using an online broker to ‘invest’ in shares with no intention of ‘trading’. (If you’re getting confused, I wrote an article a little while back on the difference is between trading and investing shares).
What Kind of Share Trading Platform Do You Actually Need?
I hate cliches, but it really does ‘depend’ on what you’re looking for. Before you start researching share trading platforms, ask yourself these questions:
1. How frequently are you planning to buy and sell shares?
If you’re planning to buy and sell shares frequently, what you need is likely to be different to someone who is to buy into a portfolio to hold for a longer period of time. Also keep in mind that brokerage fees are usually charged per transaction, so the more you buy & sell, the more you’ll be paying in brokerage fees.
2. How much research do you need to do?
Some share trading platforms are better suited for advanced traders and provide comprehensive research tools or access to market information to assist in analysis. If you’re just looking to invest in a handful of shares or ETFs to hold for a longer period of time (which will be the focus of this article), you probably won’t need super fancy research tools.
3. What financial products do you want to buy, and where?
Are you only looking at buying shares? Or do you want access to other financial products on the market too? Do you want exposure to international share markets, and if so which ones? Platforms don’t all give you exposure to all products and all global markets, so you may even need to open a few different accounts to get access to the mix you’re looking for.
Overview of Some Popular Share Trading Platforms
There are many, many online share trading platforms out there. We’re going to look at 4 popular platforms for ‘everyday’ (i.e not professional / institutional) investors in Australia. Just to make things more confusing, each platform may have different offerings or ‘products’ based on things like how frequently you intend to trade, what products you’re investing in etc.
I’ve picked these 4 to review because (1) they are fairly popular and commonly used, and (2) they’ve received some good ratings on comparison websites. Some of these online share trading platforms also offer educational content to help investors get started and learn more about investing in shares.
Note: the below mentioned brokers are just 4 of MANY brokers available on the market. I am in no way suggesting that these are better or worse than other brokers, or these are more or less appropriate for certain kinds of investors. I am not endorsing or recommending the use of any of these brokers. Please do your own independent research before selecting.
I should note that pretty much all the big banks have their own share trading platform: nabtrade, Westpac Online Investing, HSBC Online Share Trading, Macquarie Bank Online Trading etc. They all differ slightly in price, features, and usability. Some are more clunky (or ‘old-school’) in their user-interface than others, some provide better research or analytics tools than others.
We’ll do a really brief overview of a selection of share trading platforms, and then a table to compare features. Note: this information was collected on, and current as of, 4 June 2018.
This is probably the one I see most people talking about, which makes sense since a lot of people bank with Commonwealth Bank of Australia as well. When you set up a CommSec account, it will ask you which bank account you want to use to fund your investments. You can either nominate your own account, or you can choose to set up Commonwealth Direct Investment Account (CDIA). In comparison, some of the other bank-owned platforms (e.g. nabtrade) give you the cash account by default when you sign up.
CMC Markets has won a fair few industry awards over the years, and was picked as the Best Broker by CANSTAR (2017). When you go to their website there are two main products: their CFD Platform and their Stockbroking Platform. Let’s ignore the CFD Platform for now. With their StockBroking Platform, they have “Standard” and “Pro”. They’ve also tiered their membership based on how ‘active’ an investor you are. So, in their ‘Frequent Trader Program’, you’ll see 3 tiers: Classic (less than 11 trades per month), Active Investor (11 – 30 trades per month), and Premium Trader (more than 30 trades per month).
IG markets is one of the cheaper platforms on the market, but one thing to note is that it’s not a CHESS sponsor. When you buy shares, you have to register the title (or legal ownership) of the shares on a register. The two options is CHESS sponsored shares, or Issuer Sponsored shares. We’ll go into this in a bit more detail in another post, but for now just know that there are some advantages to buying shares via a CHESS sponsor (less admin, easier to transfer shares between platforms etc).
Saxo Capital is actually a subsidiary of the Danish Saxo Bank. If you really want access to international markets, IG Markets or Saxo Capital could be a choice to consider. Keep in mind that, like IG Markets, Saxo Capital is not a CHESS sponsor either. It’s got two main offerings for share trading: SaxoTraderGo and SaxoTraderPro (the latter is more for professional and institutional traders).
The table below illustrates some features that could be useful to compare in your research on brokers. It’s not intended to be an exhaustive or conclusive comparison.
|CommSec||CMC Markets||IG Markets||Saxo Capital|
|Monthly Account Fee||$0||$0||$0||$0|
(Online Brokers typically charge a fee per-transaction or based on the size of the transaction. Keeping fees low can be an important part of managing your investments, so make sure you understand the fees you’re signing up for!)
|Broken down by transaction size; starting fee for transactions up to and including $1,000 is $10.00 and $19.95 for transactions up to $10k (if you have a CDIA); OR $29.95 for transactions up to $10k if you don’t have a CDIA (Note: fees for international shares are different)||$11 or 0.10%, whichever is the greater on less than 11 trades per month (this is for the ‘Classic’ tier; there are 2 other tiers for more frequent trades which have lower brokerage fees)||For Australian shares: $8 per trade or 0.1%, whichever is higher; For US markets: S$10, or 2 cents per share. For European markets: £10 / €10 per trade or 0.1%.||Varies for the product,how many trades you make per month and which market you’re operating in. For Australian shares: 0.10% (minimum $6.99).|
|Other/Additional Fees||Full fee list here||Email/SMS alerts, access to market data ($10 - $41.25 per month); bank cheques||Full list here||Full list here|
|Financial Products||Includes: Australian Shares, International Shares, ETFs, Company Options, warrants, options, fixed income securities||Includes: (Australian) shares CFDs, forex, indices, commodities, and treasuries||Includes: Australian shares plus more than 11,000 international shares||Includes: access to more than 19,000 global stocks on 36 of the world’s major stock exchange; forex, ETFs, ETCs, CFDs, Futures, Bonds|
|International Markets||Yes||Does not offer trading of International shares. You can however access the international market via some of their other products.||Yes||Yes|
Of course there are tonnes more out there, and you can get really granular in terms of the features and characteristics each one has. Remember, you’re not tied to one share trading platform for life! If you try one, and don’t like it…you can always try another one!
* Note: This is not intended to be an exhaustive and complete review of all the services and products available on the market in this category. This blog post looks at a select number of what is available in the market. Further, the intention is not to provide a comprehensive and/or conclusive evaluation and/or ranking of products/services to determine which is ‘better’ or ‘worse’. Readers are encouraged to conduct their own independent research and obtain independent advice to determine which services would be most appropriate for their circumstances. The purpose of this post is to provide factual information, which readers may use to make their own informed decisions. We do not in any way recommend, advise or endorse any particular products and services. We do not receive commissions or payments for writing about any of these products or services.