Wednesday, February 24, 2010
Broker Wars!
Discount brokers are gradually coming to dominate the stockbroking scene. These are brokers offering a cheaper service where they are basically order-takers, processing trades without offering the advice and management services of the more traditional full-service brokers. As the name suggests, discount brokers are popular because they charge less per transaction. They can do this because they spend less time with each client, and so can serve more clients than full-service brokers.
The cheapest brokerage fees are for online brokers for obvious reasons - by placing your order online, you don't even need to speak to the broker and thus take up a minimum of his time. The broker can deal with a greater volume of clients simultaneously and therefore charge each less.
And there are benefits to online broking for the client too. Since they are keying in the order themselves, the client can be sure the order was entered correctly, and not misunderstood while verbally reciting it to the broker.
Increasingly these days, although discount brokers do not individually provide advice and research to clients, useful information such as market depth, company research reports and real-time price quotes are often provided for free to all clients via the the broker's Web site.
During the stock market boom a few years ago, discount brokers were fiercely competing to out-do each other with the additional value-added services they could provide to clients, as reported in this story published in the Australian:
Online trading goes for broke
Investors are the beneficiaries of an online arms race in stockbroking, John Synnott reports
From: The Australian February 14, 2007 12:00AM
MOST of us are happy to earn higher interest on our online savings accounts, and to use internet banking for bill payments and funds transfers.
It has taken a while longer for online share broking to catch on, but there's nothing like a booming sharemarket, in which double-digit returns have been the norm for several years, to inspire us.
Even traditional full-service brokers are doing well and claim to be winning back clients. There is plenty of action for investors in a market buoyed by takeovers and superannuation savings. Online broker E*Trade's customer accounts jumped 29 per cent last year.
E*Trade is countering rival Commsec's January offer to new customers of $600 in free brokerage on the first 12 share trades with its own $550 worth of free brokerage right up to mid-year.
Research offerings have also greatly improved in the past year. With competition intense, most mass-market online broking websites now contain in-house or independent buy and sell (or at least avoid) stock recommendations for investors who pay basic broking rates. That is, access to recommendations does not require you to be a frequent or professional trader.
Innovations are quickly matched in an online arms race to attract casual and professional traders -- with research, breaking news, interactive charting, real-time quotes and market depth, automated portfolio management, conditional orders and straight-through processing.
The result is a commodity-like sameness to online broking offerings, as the big banks behind them see the importance of keeping up with competitors.
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