Stocks

Can I Buy Stocks Without a Broker?

Raymond Zhou

Can I Buy Stocks Without a Broker?

When surveyed, 54% of the US public indicated that understanding brokerage was a significant barrier to investing. Similarly, 63% of Australians are open to receiving financial advice in the future. With over $1.4tn in total market cap, the ASX is the 16th largest securities exchange in the world. However, getting a piece of this pie is a lucrative business itself and the intricacies around the brokerage industry may be confusing to navigate.

So, before we even invest, we must ask ourselves, why do we need brokers? What do they do? Do I even need a broker?

What are brokers?

Brokers act as intermediaries to facilitate transactions in the market. Fundamentally, we would use brokers to buy or sell stocks as they are specifically licensed to make trades with security exchanges. Most brokers have a fiduciary duty to prioritise your interests and not be incentivised by third-party commissions. It is recommended to avoid brokers that do not prioritise your interests as they may be there for profit gouging themselves. Beyond their role as intermediaries, their experience in the market can offer the investor some guidance on the riskiness of their investment.

Outside of exemplary circumstances (such as being an employee of the firm) using a broker is essential for trading Australian securities. Seeking a broker should be a priority when beginning your investment journey.

Services from a broker range across a spectrum from full-service brokers to your discount brokers with prices corresponding to the level of service offered. As the name implies, full-service brokers offer their clients more than just trade execution. Services include personalising investment strategy, timing trade executions, portfolio consultation, market advisory, and discussing investment objectives.

Often, they will provide research for their services and keep the investor informed with recent market trends, activity, stock performance end regulatory changes. Individuals with significant investment portfolios should consider a full-service broker because expert advice and market knowledge are desirable for better investment management.

Conversely, discount brokers simply execute the trades the investor orders. They do not provide comprehensive advice on your investments and do not tailor your portfolio to your investments. This is as simple as it gets when it comes to the “Barefoot investor”.  Discount brokers are suitable for investors who want a low-cost investment strategy or for someone who has confidence in their investing ability and market knowledge.

We have seen the last few years online brokers entering the brokerage industry and disrupting the pricing regimes of traditional brokers. These entrants offer an accessible and affordable service that has proliferated the options for the enterprising investor to start their portfolio.

Maqro’s online platform provides flexibility for investors who want either want a full-service experience or simply just trade execution. We’re able to cater to investors across the spectrum with credible research content, bespoke advisors, and a cutting-edge platform that is all combined into an affordable package for any investor.

Where can I find a broker?

With such a broad range of options, it may be difficult to select a broker for the investor. Whilst traditional stock-brokering shops exist, one may expect to be charged a premium for these services.

With the ASX no longer having a trading floor, online trading has become a mainstay for Australian investors. Some reputable online brokers include CMC, IG, CommSec, Interactive Brokers, Westpac, and of course, Maqro, with each platform serving a niche of customers.

Other micro-investing apps such as Spaceship, Superhero, and Raiz have been new entrants to the marketplace too. We recommend not jumping at the first investment platform that you see and conducting some due diligence to understand the services and products they offer – they will vary from investor to investor.  

Some Key Considerations

When searching for an Australian broker, investors need to be attentive to 5 key points.

Firstly, reading the trading costs fine-print is imperative to avoid disappointment or any hidden costs. Brokerage fees mainly vary by trade amount, security type, and quantity although fees such as placement fees, Forex charges, or holding fees may also be present and not notified upfront. Hence to avoid disappointment and to tailor the budget for investing, the investor must investigate the commission structure of their chosen broker(s).

Secondly, ensure that the broker offers the asset class you want to trade. Not all brokers offer international stocks, options, ETFs, Forex, or futures so selecting a broker to execute these trades is critical. Anyhow, if you are simply seeking to invest in Australian stocks, then any Australian broker will meet your needs. Investing in a broader range of securities may entail a higher cost but the ability to access a broader universe of investment options may offset this cost.

Thirdly, for online brokers, it is critical to assess the security of your brokerage account. Indeed, some questions to think about would be two-factor log-in, security process, and how asset protection works? By investing in the market, you are already taking some risk so to prevent even more risk from being added to your palate, broker security is a key factor to consider.

Fourth, it is worthy to investigate the quality of research offered by your selected broker. It is important to note that price does not necessarily correlate with the quality of advice given by the broker, and it is worth analysing the quality of material and analytics your broker offers. Featuring in online forums, positive testimonials, and investing shows such as Ausbiz can testify the quality of commentary from these brokers.

Customer service is a final area of consideration as timing is a critical component for investing. Secondly, having helpful and knowledgeable representatives is a useful indicator regarding the attention that these brokers pay to your money and your concierge. This aspect applies more to full-service brokers however, portfolio updates must be provided frequently and as rapidly as possible to assist in decision making.

So, what are the costs?

Brokers charge depending on the level of service you desire. At its base, brokers charge a cost per base but as we add services the cost of investing increases exponentially. Thus, full-service brokers entail higher fees as they offer a greater spectrum of services. Practically there is no upper cap to the fees that can be charged but you may still find competitive rates for full-service brokers. Banks such as CBA, NAB, Westpac, or ANZ all have brokerages that execute trades at a premium. Maqro has a trading platform with advisors to aid in your investment journey. Priced competitively, Maqro offers excellent value for our services and meets much of the conditions.

On the lower end, discount brokers may let you execute trades at a price of a few cents. Regardless, some brokers may require a minimum deposit that investors should factor in when selecting whom to offer their money to. Other brokers may have different commission structures varying on the number of trades you execute or the amount you are trying to buy.

Pricing regimes can get quite complex with flat and variable brokerage fees, or different fees for different securities. Some platforms may charge you an inactivity fee or require minimum transactions or deposits.

Maqro Tip: It is important to note that, whether you make capital gains or losses, the broker will on every transaction. So do not be lured by the promise of more transactions equating to better profits-this is simply just a myth.

Stock broker comparison table

What are some benefits of using brokers?

At its core, brokers offer investors the means to directly engage with the market. Using brokers with more services may mitigate against downside risk and lower future costs in the form of capital losses. Whereas discount brokers offer retail investors a cheap and efficient means of engaging directly with the market. It should be noted that using brokers does not guarantee capital gains- thus we recommend avoiding any brokers who claim to guarantee this.

For dividend-paying companies, brokers may offer the option of dividend reinvestment plans if the company themselves do not have such a scheme. In essence, these additional services make aid the investor in making their desired investments and achieving their investment goals.  

Cheap brokers may not necessarily give you the knowledge that you need to be prudent and confident in your investing. Conversely, you may be overpaying with premium or full-service brokers. It may be tempting just to stick to a big bank and trade, but investors should be confident that the premium these institutions charge is worth it.

Summary

It is evident that using a broker is essential to invest. However, the level of service we require varies and we can seek brokers that fulfill our needs. It is important to note that it is not the broker who ultimately dictates your investment journey, they are only there to guide and to aid you. Check out the Maqro platform to being your investing journey today!

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