Greetings, fresh-faced investors! RateSupermarket.ca’s OTGP (online trading guinea pig) here – and this week, I’m on the hunt for my best online brokerage option. Last week I tried my luck risk-free with a Questrade Web IQ practice account. But now, the training wheels are off… and it’s time to play for keeps.
Picking your brokerage and platform is not a decision to take lightly. First of all, you’ll need to wade through the market options - and it seems like there are as many trading platforms out there as there are stocks (which I’ll be tackling full force next week). They’ve all got a variety of features (and fees) to consider, and it’s in your best interest as an investor to shop around and find your best fit.
It’s All In The Commission
The first order of business – you aren’t the only one looking to make a buck. Brokerages need to profit too – and they do that through the commission skimmed off each of your trade executions. How much, you ask? Well, that depends – mainly on how active a trader you plan on being. Most brokerages will decrease their commission fees as your trade volume increases. If you’re planning on making over a 150 trades a month, generally speaking, you’re looking at about $6-7 a trade with a big bank brokerage.
But if you’re like me (a total newbie), you’re probably looking to start far below this kind of activity. Let’s say you prefer the strategy of letting a well-chosen stock or two cool their heels for a few months in a longer-term investment. You’ve got options too. Which brings us to…
Discount Brokerages vs. Big Banks
Discount brokerages are just that – far lower commission fees per trade for no-frills execution dealing – and can generally be divided into two camps: independent platforms and the big bank versions. Both offer pros and cons, depending on your trading needs. For comparison's sake, let’s pit Questrade, a popular independent option, against Scotia i-Trade, an example of a big bank discount brokerage.
The Commission Structure Smackdown
- Questrade charges 1 cent per stock, with a minimum of $4.95 per trade. This increases depending on the size of your lot, but caps commissions at $9.95 – you’ll never need to worry about it going over this amount. Options are $9.95 each, plus $1 per contract.
- Scotia i-Trade bases its commission structure on your level of activity. You’ll score the competitive flat rate of $6.99 per share if you’re trading over 150 a month, and it also takes your assets into account - if you’ve got over $50,000 and plan to trade 30-plus per quarter, you’re still getting a deal at $9.99 a trade. Don’t have $50,000 lying around? That’s where things get a bit steep – you’ll be looking at a whopping $24.99 per trade! The same rate (plus a dollar) applies to options as well.
The Trade Off
So why would anyone go with a big bank option when the independent brokerage is chump change by comparison? 3 words: Minimum Account Balance.
Yup, there’s the catch – you’ll need to plunk down $1,000 minimum to open an account with Questrade (and that’s pretty standard for these kinds of platforms), whereas Scotia i-Trade doesn’t require a cent. So you can see the trade off – commit out of the gate and trade for peanuts, or start smaller and pay through the nose.
Other Options Exist Offline
Keep in mind, both Questrade and iTrade are considered discount options because they’re “brokerless” – you’re trading directly without the guidance of a middle man broker, which was standard procedure in the pre-internet days of yore. Regardless of their commission level, you’re still saving big compared to the old school method of calling your trades in. However, if you’re still feeling a bit lost at this stage, don’t discount the value of help from a real, live person. A big benefit to traditional brokerages are Advisory Dealing options, where the broker will educate you on stocks and services to help ensure you a good return. You could even step back completely with Discretionary Dealing, leaving your portfolio management entirely in your broker's (hopefully) capable hands. Or, consider the aid of a financial advisor or planner.
Other Fees To Keep in Mind
Annual Fees: Just like bank accounts and credit cards, some banks will charge an annual fee for your account service and some won’t. If the account you’re considering will charge you a fee, shop around to ensure you’re getting competitive features and commissions that aren’t necessarily available elsewhere.
Admin Fees: This can encompass a number of potential fees depending on the account, and can include:
- Inactivity Fees: Some accounts will charge you a small fee should you go a quarter with no trading activity.
- Electronic Fund Transfers
- Canadian Wire Transfers
- International Wire Transfers
- Cheque Fees
- Stop Payment Fees
- Currency Exchange Fees (If trading USD or Forex)
- Interest Rates
Still in doubt? Call the online brokerage and ask specifically what activities could incur an additional charge. It’s your money – and it’s never safe to assume.
Looking To Cash In On Commodities?
This isn’t even an option at some brokerages, and others may require you to phone in orders for metals or oil – and will charge a subsequent fee not covered in your regular commission structure. If you intend to trade in commodities, ensure it’s available with your account of choice and confirm all relevant additional fees.
Most online brokerages will offer additional market data packages to give advanced traders more of a real-time edge - but it comes at a cost. If you’re a beginner trader, they probably won’t be crossing your radar (we’ll get into these later on).
Other Things To Consider
Ease of Interface: I’ll never forget the first time I laid eyes on my Questrade practice account –I was instantly overwhelmed by the layout of information, analysis resources and balance locations – and that was before I’d even purchased a practice stock. Fortunately, I easily got up to speed through their available learning how-to resources. So ask yourself when choosing a platform: do you feel comfortable using the interface? Are there resources available to learn more?
Available Products: Not all trading instruments are offered by all brokerages. Ensure your brokerage offers options, futures and mutual funds in addition to stocks should you choose to include these in your portfolio.
Research Activities: Does the interface provide you with tools to chart a stock’s performance over time, and the options to conduct multiple forms of analysis? Will you be charged extra for market analysis? Is strategy advisement available, or will you be on your own?
Customer Service: Is help available should you need a hand? Have other traders experienced issues with the service, platform use or technical difficulties? You wouldn’t hire a new employee without checking their references – the very same goes for a brokerage, so snoop around and check out those reviews.
So… Who’s The Pick of The Litter?
Now that we’ve covered the finer points of brokerage types, it’s time for me to put my money where my mouth is. Tune in next week to see which brokerage won out and why – and which stocks I can call my own. Until next time… let the fundamental analysis begin!