How to Compare and Choose an Online Broker

1) Licensing and Client Funds

When considering any online brokers operating in Australia, verify the brokerage firm is licensed by the Australian Securities and Investments Commission (ASIC). Confirm they have a current Australian Financial Services (AFS) licence number, before opening or depositing funds in any CFD, Forex or stock trading account.

To check an AFS licence holder’s company name and AFS licence number it’s best to use the ASIC Connect Professional Registers search facility and choose the Australian Financial Services Licensee register option. This is an excellent free search to check details on any financial services organisation, or financial advice providers you may be considering.

This search facility is not just for those comparing online brokers either. As shown below it also provides searches on investment advisors, credit licensee, authorised representatives, etc and you can filter your search results by choosing the status (current, suspended, or ceased) of the person or organisation.

In addition, it is recommended you also do the free Organisations & Business Names search in the ASIC Registers, as this may reveal more information.

Both the above search facilities are free and easy to perform by following the links above. You will need the brokers ASFL number for the Australian Financial Services Licensee search and the brokers ACN number for the Organisations & Business Names search. We provide these two numbers in every single review on this web site to make it even easier for you to confirm critical details and find a reputable broker that suits your trading or investing needs.

Also confirm the bank and location where your funds will be held, in addition to the account structure (eg fully segregated accounts, etc). This information can often be obtained via the brokers web site or phoning them, and must be available in the brokers Product Disclosure Statement (PDS).

2) Customer Service is Critical

As we all know, technology advances at a fast pace, and it’s easy to feel “left behind” sometimes or need a helping hand using the “latest” feature added by your online broker. Technology provides us with tremendous benefits and advantages in financial markets, however there is nothing more frustrating when something does goes wrong, or you need help quickly, to find that the customer service of your online broker is not as helpful as you expected.

If you’re considering a particular online broker, give their customer service or help desk number a call and ask a few questions. Even if you already know the answers to the questions, it’s always good to confirm the answer and by calling them, you can get a feel for the speed of response (do you get through to someone relatively quickly or are you left on hold for 15 minutes waiting?), experience, willingness to help, etc.

While online discount brokers typically don’t provide any investment advice, and reduced services in exchange for lower online share trading commissions, compared to a full-service broker, they should still provide great customer service.

3) Trading Platform Ease of Use

This is especially beneficial for first time traders and investors who may find the world of online trading complex. The process of placing your orders, viewing open positions, obtaining reports or data you require, should be simple, convenient and comfortable for you to use. Last thing you need to be doing is “wrestling” with your brokers trading platform … it’s meant to be a tool that supports and assists you, while making the process of placing a trade easy.

Online trading platforms do not need to have all the “bells and whistles” however the platform must be one you are comfortable with. Many brokers have demo accounts these days where you can not only practice your trading skills, but it is the perfect opportunity to test out the online trading platform and ask questions before you open, or begin placing orders, on a live brokerage account.

4) Commissions and Fees

A common difference between brokerage firms is the different financial instruments they offer. Not all of their trading products will be of interest to you, so make a list of the key markets you wish to trade. For example, you may primarily be interested in the stock market for investing in shares or online stock trading, however may also wish to move into mutual funds, exchange-traded funds (ETFs), bonds or even forex trading. Write down these markets and when checking the transaction fees (brokerage fees) charged by the broker, ensure you carefully pay attention to the commissions associated with each of your preferred markets and/or investments.

Apart from considering the upfront trade execution transaction fees, there is often be more subtle costs worth investigating. For example:

• Are there any ongoing or monthly data fees (In many cases, these will be waived if you perform more than a certain number of trades per month however you need to confirm if this is the case, and if you don’t do the minimum number of trades how much will this cost per month)
• Account inactivity fees
• Statement fees
• Funds withdrawal/transfer fees
• Account closure fees, etc.

On the flip side of the coin, don’t open a specific online brokerage account simply because it offers the lowest commission cost. There are many other factors to consider as this article outlines, and as always you should check the fine print to ensure you understand the true cost for the types and quantity of trades you’d be placing.

5) Opening Balance and Minimum Deposit

Always confirm the minimum amount required to open an account and if there is subsequently a minimum balance required to be kept in the account. Some online brokers have very small initial deposit requirements whereas others can require up to $10,000+ initial deposit.

This is not said in a negative way, it’s just highlighting another aspect of choosing an online broker which for some may not be a consideration, yet for others may be a key consideration. In addition, it can be incredibly frustrating to spend the time filling out an application form, only to discover you do not have enough money to open a brokerage account with the broker.

6) Ability to Place Phone Trades

Online brokers are by nature designed for the individual investor or trader, to place and monitor their own trades via the brokers trading platform and hence the costs per trade are normally significantly less than using a full service broker. However, you should still confirm that the online broker allows you to place, update, or close trades via the phone, and if there are any additional costs for doing this.

The key reason for this is if you were to experience a power outage, or computer/modem equipment failure, on holidays and not able to access your account online, etc. If this were to happen you need to know that you can still easily contact your broker in an alternative way to place, modify any open trade orders, or close out open positions if you can’t actually access your brokerage account via their normal online broker trading platform.

7) Reporting and Statements

Ask the broker what kind of reporting they have available, including the level of detail, and ease of access, to end of financial year statements for tax purposes.

Try to obtain a sample report and confirm how easy it is to understand and obtain the specific information you require from your reports. All brokers have them however it’s surprising at how difficult some can be to read or obtain. Again, it’s all about finding a broker that you are comfortable with and meets all of your needs.

8) Additional Features and Tools

Mobile Trading Apps – If you are often traveling or wish to be able to place, check or close out trade positions while ‘on the move’, then availability of features like a mobile trading platform or mobile trader app are an important consideration. These days most brokers have mobile trading options available, however still check that they are supported for the mobile device you wish to use.

Investment or Technical Reports / Fundamental Data – If your trading style requires access to specific fundamental data, company reports, trade setup or share analysis type reports, then this may be a consideration to see if your required reports or data will be available through your prospective online broker.

The “Bottom Line” to Choosing Your Online Broker

Before you start looking for a full service stockbroker or an online stock broker, compile a list of the features that are important to you and your style of trading. This is critical for all traders and the above list will give you some great places to start.

Once you’ve compiled your feature requirements list, start evaluating some brokers and cross them off if they don’t meet the mandatory features you’ve highlighted. You might know of some broker names you already wish to consider first, have been recommended to review, or you have found on a trusted broker comparison web site, such as our Online Brokers Australia comparison and review pages.