The Online Choice

Online broking has flourished over the past few years, but many investors find the wide range of choice makes choosing the appropriate service provider difficult.
The Internet measurement firm Hitwise says the most popular online broking services are CommSec, E*Trade Australia, Sanford Securities and Westpac Broking, who account for almost 40% of all Australian online share trading activity.

All of these online brokers have two things in common: they are well-established players in the online broking space and they provide investors with a low-cost alternative to the fees charged by full-service brokers.

However, the range of services offered varies widely. As new information provided to Eureka Report by the financial information group Infochoice.com.au shows, the stockbroking packages available to investors can be as complex as phone packages from telecommunication companies.

Some share traders require very little of their online broker '” just the ability to buy and sell shares. Others will require ongoing education, automatic transactions at pre-determined price points, research papers and regular market analysis. The Infochoice table below gives a snapshot of the range of choice current available

CommSec claims to have 1.1 million customers. It charges $19.95 per trade and benefits from its association with one of Australia’s biggest banks, the Commonwealth Bank. As shown in the table, CommSec is one of the few online brokers that does not offer online tutorials, suggesting it’s not exactly desperate for new customers. In addition, it lacks some of the innovative services offered by the other players.

E*Trade’s flat fee of $32.95 per trade applies to transactions up to $30,000 and provides investors with stockmarket data that updates as soon as changes take place. With the higher price point, investors are drawn to E*Trade by the extra features which include research and analysis from a wide range of sources.

Another popular option is the online broking service offered by Sanford Securities. Sanford offers investors such features as SMS price alerts yet does not allow you to submit stop loss orders online (a stop loss order is an automatic trade that takes place when a stock hits a pre-arranged price). Sanford’s flat fee of $19.95 applies to trades of up to $9,999, which suggests it is in direct competition with CommSec.

Rounding out the top four is Westpac Broking; it allows customers to trade sums of up to $24,999 for $24.95. Active traders will find the Westpac Broking service unsatisfactory as it offers clients “real time” stockmarket data, which, according to Infochoice, only updates when the screen is refreshed manually. Additionally, Infochoice has identified Westpac Broking as failing to provide technical analysis tools.

Cheaper fees will certainly be a big factor for investors who choose to do their trading online, but will low fees be enough in the longer term? Traders looking for no more than a platform to perform transactions will be perfectly happy with a service that offers low fees and little in the way of value-added services. Those wanting research and analysis will be comfortable paying higher fees provided they get sufficient value from the accompanying research.

CommSec and Sanford offer an identical price point and a similar set of services. Many investors will feel more comfortable doing their trading with a more recognised brand name. Only marginally more expensive is Westpac Broking, offering members the ability to trade larger volumes than the first two it but ultimately fails to provide the features a keen investor should expect.

E*Trade’s suite of additional services reflect its premium price. Depending on the frequency of your trading, this may be of little consequence. In the long term, the research and analysis tools that it makes available may prove to be invaluable.

Note: Eureka Report has an alliance with E*Trade, which involves some of our content appearing on the E*Trade website. We also pay E*Trade a fee for encouraging its clients to become subscribers.