Are you looking to start investing in stocks on the ASX but not sure which broker or online brokerage firm to use? As professional investors, we’ve used most of the best share trading platforms out there. Here are our top 3 picks for the best brokers and the best brokerage firms in Australia.
Finding The Best Broker
There are many brokers selling many products out there, but did you know a lot of them are just traps? Finding the right broker to invest in shares is essential and the cheapest isn’t always the best.
Like most things, you generally get what you pay for. You want to find a balance between a fair price and good service so that you get value for money.
Commissions is not the only cost you will bear when trading. Poor execution, slippage and unscrupulous operators will all cost you more money in the stock market than fees in the long run, especially if you go with a less than reputable online brokerage firm.
Why Picking The Best Online Brokerage Is Important
We recommend three brokers if you are looking to invest in shares on the ASX, depending on what you want are looking for. Always use a mainstream broker, to ensure that you are dealing with a reputable firm that will operate in your best interest.
To determine whether an online brokerage is a mainstream broker, simply check what type of products they are selling. If they are simply selling over the counter (OTC) products such as CFD, binary options or FX, these are not true market participants. Your orders don’t get routed to the market, the trade is made between you and the broker.
OTC brokers are easy to set up and you are generally trading against the house. A similar analogy is a casino, where you are playing against the house. These sort of online brokerage firms have a vested interest in you losing your money because for every dollar you lose is a dollar they make. Churn rates at these firms are high, as clients slowly lose money and quit.
OTC brokers can do this in different ways. For example, not respecting stop losses, widening the bid/ask spread to trigger stops, quoting an incorrect price. closing down an entire asset from being traded because of volatility and even not allowing you to withdraw money.
If a broker is offering a sign-up bonus, they are an OTC broker. They also do not offer a share trading platform because they don’t have access to the market.
A proper mainstream broker doesn’t bet against you. They route all orders directly to the market or hedge your positions.
For example, a Direct Market Access CFD broker will automatically hedge any positions you open. If you were to buy 1,000 BHP CFD contracts, the broker will also buy 1,000 BHP shares on the open market. This means you get true liquidity, the broker passes on the risk to the open market and collects a commission.
The broker has a vested interest in you not losing your money because that means you will trade more and pay more commission. It is important to use a mainstream broker and aligning their interests with yours so that you are treated fairly.
Always remember, cheapest isn’t best and you get what you pay for and the best online brokerage firms are not the cheapest. You will find this particularly true when markets crash and things go haywire – you don’t want your broker to collapse, their platform to not respond or their support team to ignore you when times are bad.
Best Brokers and Best Online Brokerage For Trading on the ASX
This is a list of the brokers that we have found are the best ASX share trading platforms.
CMC Markets – CMC Markets has just built a new best-in-class platform and their rates are quite good. CMC just bought ANZ eTrade and for a retail broker, is probably the best online brokerage for ASX specific equities and options.
If you require a HIN solution (this is unique to Australia), we recommend CMC first and foremost. CMC has also recently adjusted their options margin requirements so if you prefer strategies such as selling puts or need to roll positions, CMC margins are quite favourable. The majority of our ASX investing clients currently execute through CMC.
Usability: 5-stars, Cost: 3-stars, Options Trading: 4-stars
Interactive Brokers – Interactive Brokers is hands down the best platform in Australia and one of the best brokers in the world. Their platform allows you to access almost every market in the world as well as almost any type of derivative you can think of.
However, their platform is not user-friendly, can be buggy and quite hard to use and easy to make mistakes on. They also have an archaic way of randomly closing your positions without much warning if you breach any of their margin rules. You can also expect to wait up to 20 minutes or more to get through to support and if something is broken on the platform, it can take weeks to fix or not at all. Having said that, we do get access to their professional support line so we usually don’t have to wait.
Due to their ability to access world markets, Interactive Brokers is set up under a custodial structure – this means that assets are held in trust for you by Interactive Brokers, but money and assets are segregated. You can read more about the pros and cons here.
Their worldwide access also means that opening one of these accounts will be one of the hardest things you will do in your life due to regulation and so forth, so be prepared for a hard slog. An individual account is easy to open and can take a day or two, but if you have anything more complex like an SMSF, it can take weeks.
All of our clients who trade international shares, in particular, US equity and options use Interactive Brokers.
If you feel that the process will be a bit too hard, contact us and we can help you through the process.
Usability: 3-star, Cost: 5-stars, Options Trading: 5-stars
CommSec – Even though CommSec is not the cheapest broker around, they have a great platform and some good basic research to get you started. If you want ease of use, then CommSec is the best online brokerage around.
Their service is second to none and there are no additional fees for accessing their platforms. If you require a HIN solution, where your holdings are individually under your name, then CommSec is the broker to go to.
They are good for Australian equities and options. However, their options setup is a bit clunky and asks a lot of private information to assess “eligibility” to trade options, so we recommend clients go to CMC Markets or Interactive Brokers for options execution.
Usability: 5-stars, Cost: 3-stars, Options: 3-stars
Now that you know what the best online brokerage firms are, it’s time to pick what shares you should be buying.
If you’re not sure, remember to check out our top stocks lists.
- Top 5 best shares to buy
- Top 5 best dividend stocks to buy
- Top 5 high growth stocks to buy
- Top 3 best small caps to buy
More MF & Co. Research
Henry is a co-founder of MF & Co. Asset Management with over 12 years experience as a trader, investor and asset manager. Henry’s focus is on High Net Worth Wealth Management and using algorithmic quantitative trading systems to invest for his clients. Henry also trains new Interns and Advisers on trading and risk management.