We have been investing for a number of years and used a number of brokers. Most online share trading services in Australia are very similar. From Comsec to E Trade, these are the typical online discount brokers which provides a no frills self service and direct access to the ASX.
We have a different approach to our portfolio management which include significant holdings in offshore markets. ETF can provide ease of access for investors to different asset classes like bonds or foreign markets like emerging markets. There are other times we want direct equity positions after researching specific companies or sectors.
Local market index is dominated by miners and financials which for those that want a diversified portfolio spread across have number sectors there are limited options. This is because even if there are companies in sectors you want like healthcare or technology they are either too expensive or not the best of breed. International markets like S&P 500 or FTSE provide diversification and exposures which cannot be achieved locally.
List of Online Brokers
All the major banks have an online brokerage business that provide retail investors access to stocks listed on the ASX. CFD providers are not included in the list below as we feel the products they provide are more suited for traders rather than long term investors.
- E*Trade (ANZ Bank)
- CommSec (Commonwealth Bank)
- Nab Trade
- Westpac/St George
- Macquarie
- Interactive Brokers
Brokerage of the banks provides an integrated product which has an ease of access advantage. However degree of integration varies bank to bank.
Best Online Broker
Interactive Brokers gives us the capability to invest offshore while at the same time does not charge an arm or a leg.
It is important to note that IBKR is a discount broker that provide online access to markets only and does not provide advice. It is for those that have experience trading, investing and managing an investment portfolio. Safety is first and foremost with brokers and Interactive Brokers is registered and regulated by SEC with a market cap of more than $15 billion. It has consistently won awards in providing the capabilities that trades and investors actually need. See awards here.
Interactive Brokers provides access to all major equity markets around the globe. The best part of a universal account at Interactive Brokers is the ability to manage FX risk. When you invest in a offshore market like the US, you would exchange Australian dollars to US dollars to buy US stocks. IBKR allows you to invest in US stocks using Australian holdings or cash as collateral.
This means that we can invest offshore in UK, US or Asia at a time when we think is right to buy the company rather than worrying about exchange rates. We are long term investors which means that we can pick our spots in exchanging the principal investment amount at a later date when the FX rate is more favorable.
This also allow us to return the capital at a time of our choosing rather than force FX trade after selling international shares like NAB trade. Note unlike other Forex brokers, IBKR does not allow pure FX trading. FX trades are for portfolio management and cash movement only. The upside is the rates you get are interbank rates with spreads of 0.01%. Unmatched anywhere else.
Product and Market Access
As you would expect you could get access to most international markets like the US and Canada. UK and European Markets as well as Asian markets like Japan, Hong Kong and Tokyo. In addition options trading can be enabled with those markets that have them.
Futures markets and products include commodity futures, index, FX futures and single stock futures. It is gateway access to the world.
For advanced investors this also include shorting capability. This is important to use as we use it extensively in portfolio management.
Cost of Trading
Most Australian online brokers charge $15 per trade. Interactive brokers charge $6 for trades on the ASX and $1 for US trades. The trade cost is so small brokerage is negligible in portfolio management.
Margin Lending
One disappointing factor of IBKR is that it does not allow margin trading accounts for Australian Investors. However it does allow margin if you have a corporate or trustee account. The margin is 50% of account account equity so there are no restriction on the markets. It available for most mid and large caps.
Research
There are additional options for investors that want standard company financial data, news feed and other fund research. This is important as you pay what you use rather than paying for the fluff services that you never use but just increase total brokerage cost.
Reporting
In depth reporting capabilities covering risk management, portfolio management, performance and gains/loss tracking. Everything you want to know about your portfolio can be customized and sent to you daily.
Important note: We use Interactive Brokers and are not paid in anyway by them.