FULL SERVICE vs. INTERNET BROKERS.
In order to buy or sell shares you will have to open an account
with a broker. So do you DIY on the internet for $25 a trade or pay $80 upwards depending on size of trade for full service.
For sure thousands of traders now use cheap internet
broking. Internet brokers have a number of advantages in addition to substantial savings in transaction costs.Firms like COMSEC and SANFORD allow you to trade live on line and provide price, charts, news research analysis the absolute works. They make it easy
to manage both your portfolio and your buy and sell orders, particularly if you are a prolific trader. They also
provide extensive news, access to company announcements, financial information, data downloads, SMS price alerts, charting for
free or fairly minimal cost. So why does anyone use a full service broker at all these days.
Bill Newbie
Bill is new to trading has $100,000 and will trade
50 times in the year by which time he will have either done his money and retired hurt, or survived and will stick
at it. 50 stocks in and out equals 100 transactions. Say $3000 with the internet guys and $10,000 with full service.
So how do we justify the extra $7000?
Bill went full service, has a good broker who knows he is
new. At the end of the year we look back. This is where his broker earned his money.
Broker Codes....Dodgy Stock PTY. chart
looks good market depth looks good Bill is about to buy. Bills broker can see who is buying and who is selling, internet
traders cannot...the guys with the really big bids under the actual trading price have in fact been selling in big volume
all day. Bill broker warns him the stock looks propped and bill has second thoughts. Later that afternoon the price
starts to drop, the big bids all vanish into thin air and the stock loses 30% in the next two days. $1500 loss saved.
Local Knowledge...Dodgy stock2. Bill likes
the look of XYZ there is lots of good news about it on the chat sites, but Bill's broker has been in the game for
a long time and knows that two of XYZ's directors have been involved with a string of companies that have all boomed
and bombed. Another $1000 loss saved.
Front line...Brokers are on the front line
and spot opportunities as they arrive. They hear all the company announcements live over a speaker box. Bill doesn't expect
his broker to trade for him but from time to time Bill's broker says have you looked at so and so. One day bills broker says
look at XYZ's announcement it is really good but the market hasn't picked up on it yet. Bill jumps in quick and as a result
makes $2000.
Placements and IPOs... Bills broking firm
organises placements for a number of listed companies and handles several IPOs. Bill gets to buy shares in 2 of these placements
at 20% discount to the market price and makes $3000.
Stop losses... Bill buys XYZ at 55c tells
his broker I'm going out for the day if it falls to 52c get me out. Bill can't do that with the internet broker.
Experience....Bill is new and is going to
try his luck trading warrants because that's the way to make big money fast. Bill's broker stops Bill from buying overpriced
out of the money short dated warrants, tells him not to touch derivatives until he has done the ASX course, read some books
and knows what he is doing. This saves Bill's financial arse and a flogging from his Mrs.
Specialist advice... When Bill does try derivatives there is an
options specialist at the brokers who can assist Bill with complex strategies that he would never have understood because
he's just not a maths guy. The Broker also has licenced financial planners.
Other factors
Speed.... if you are trying to bail out of a tanking stock or
jump on a breakout, phone is faster than typing and confirming.
Internet downtime..... The big internet players are very good
but there is the odd time when they or your ISP will go down and you can get stuck. There is a question as to whether the
internet systems can handle the volume in a crisis like a crash.
Crossings..... HDR is bid 800,000 wanted at 72c and 900,000 for
sale at 73c. With an internet broker if Bill wants to buy at 72c he has to go to the back of the queue. However Bill's
broker has an in house client who wants to sell so he crosses the sale and Bill jumps the queue and gets filled.
