But why rush into online trading?

by Staff Writers on Jan 1, 1900

The growth of share ownership and specialist media supporting it has produced a population that knows enough - or at least feels it knows enough - to invest in shares directly without brokers advice.<

The growth of share ownership and specialist media supporting it has produced a population that knows enough - or at least feels it knows enough - to invest in shares directly without brokers advice.

The boom share market over the past few years has not hurt investor confidence, fuelled by explosive listings of .coms and telecommunications stocks.

If, for example, you had invested $2,000 in Davnet in January 1999, you could have pocketed about $200,000 last January. Sausage Software produced more than 500 per cent returns over the same period. Solution 6 Holdings shares have grown in value more than four-fold.

Most online brokers are going out of their way to make joining their service simple - download an application form and send it in, set up a trading account, check the array of analysis, charting paraphernalia and other features that are online, then start investing. The Internet brokers also offer a convenient round-the-clock service that full-service brokers simply cannot match. Trading orders placed online outside market hours (10am-4pm) are normally executed the next trading day. For speculators wanting to trade in and out of stocks quickly in search of the quick buck, online brokers can have orders placed on the market and being matched within minutes. For those looking further afield - bearing in mind Australia comprises less than five per cent of the worlds stock markets - online operators, including E*Trade, Commonwealth Securities and TD Waterhouse also give access to
foreign markets.

The National Australia Banks site plans to offer offshore access in the future, and its brokerage of $28 compares well to full-service brokerage that can start at $75. When youre only a small buyer with $1,000 to invest, that price gap can make abig difference.

From $28 brokerage for trades under $13,500 at the Nationals service, to E*Trades $39.50 for trades worth under $40,000, online services offer a relatively cheap service. But traders should be aware that placing trades with online stockbrokers by phone generally costs more - $29 online compared to $49 by phone with trades up to $10,000 through Reckons Quick.Broker - so sending your order by computer is cheaper.

Some brokers charge a monthly subscription fee on top of brokerage, from Dicksons monthly $19.95 to CSFBs professionals package for $100, which offers email share price alerts, historical graphing and dynamic price quotes on top of its basic package of portfolio tracking, access to ASX indices, reports, market depth and market reports.

The convenience of being able to examine share price charts, company performance and analysts recommendations on Web brokers homepages, then buy straight from the market rather than having to ring a broker and trust their judgment, also attracts many investors to online services. The Commonwealth Banks service also provides economic data from the bank, particularly relevant when the worlds central banks are threatening interest rate rises. (See Interest rates and your investments, p144)

A final reason that so many small investors have flocked to online services may be a feeling that, if they didnt have $10,000 or more to invest on a regular basis, they were being ignored by some full-service brokers, locked out of floats and forced to buy post-float shares after the price had jumped. A case in point was the listing in December 1999 of Internet domain name registrar, Melbourne IT, whose share price had a stag profit - or jump - of more than 300 per cent on its first days trading.

But behind the successful float were two very different stories - one was of the floats full-service co-underwriters, J B Were & Son, who retained most of the companys shares for their investment funds and 5,300 favoured clients. The other was the world of co-underwriter and online broker, Commonwealth Securities, whose clients could easily request a prospectus for the float online. Most online brokers now offer access to floats, but it is worth asking which floats the broker has underwritten, if all their clients had shares allocated to them in the float, and how the listings have performed. After all, not every companys shares take off like Melbourne ITs.

This article appeared in the April, 2000 issue of PC Authority.