Trading differences

Online brokerage costs have been tumbling since the global financial crisis as brokers have cut fees to lure investors back into the market. A recent report into the sector by ratings company Canstar finds the average cost for a $1000 to $5000 trade has fallen by 5 per cent since 2010 to just over $21.

But small investors can still pay through the nose if they choose the wrong brokerage account, with costs of up to 4.21 per cent on each trade.

The Canstar senior financial analyst, Mitchell Watson, says it is important to have an idea of your trading patterns before comparing accounts. "How often you trade, the average dollar amount of each trade and the level of risk you are prepared to carry makes a huge difference to the value you get from certain features offered by online trading platforms," he says.

If you're an active trader, it may be worth paying more for bells and whistles such as charting software and a dynamic trading platform. But if you're just an occasional investor, your focus will probably be more on a basic service that minimises your costs and maybe provides some education.

The report finds that while most brokers charge according to the size of a trade, with the percentage cost falling as the size of the trade increases, there are variations. Some charge a percentage or a flat fee, depending on which is higher and Bell Direct has broken new ground with a fee structure based on the number of trades that you make. So while the first 10 trades cost 0.1 per cent or $15 (whichever is higher), the next 20 cost the greater of 0.08 per cent and $13. Make more than 30 trades and the cost falls to $10, or 0.08 per cent. Watson suggests investors note down their trading patterns in terms of size and frequency and work out what is best for them.

The report looks at the deals offered by 33 online share platforms for three types of investor: a casual investor who makes eight trades a year worth about $10,000 (costs are generally much the same on trades up to $10,000) an active investor who trades 40 times a year with an average trade of $35,000 and a trader who makes 480 trades a year worth an average $15,000.

Watson says CMC Markets's recent decision to slash brokerage has paid dividends and it is now offering top value in all categories. "It still retains all the features you'd normally associate with higher-cost platforms," he says. "These include charting and research options as well as dynamic trading."

Bell Direct Silver attracted Canstar's five-star rating in all three categories, while Commsec's Preferred service won five stars for active and casual investors.

Others to attract the top rating were Westpac Integrated (casual investors), E*Trade Standard and Morrison Securities IRESS (active investors) and Amscot Online Value Rate (traders).

As well as traditional broking, the report finds mobile phone apps are proving popular, particularly with traders. It says Commsec and Bell Direct have both jumped on this bandwagon and are offering guaranteed market placement within two seconds.

It says Commsec is also offering securities traded on the new Chi-X exchange, while E*Trade has introduced an option to view your international stocks within your local portfolio.

Full details and star ratings can be found at canstar.com.au.