Online trading 3 comments

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The days of the remisier making 10K and above are over, with the advent of online trading. In many aspects, I would consider Internet stock trading as the best application the Internet has produced, among all the other hyped uses. I would say that it has leveled the playing field for small investors and improved the stock market in several ways; I shall use the acronym CELT to illustrate.

Firstly, Cost. Online trading commission rates are about 0.25%-0.3% (switch if your brokerage is charging more!), while broker assisted trades are about 0.5%. Recently the gap between the minimum commission has widened as brokerages have raised their charges; minimum commission of $25 (previously $20) for online trades versus minimum of $40 (previously $30) for broker-assisted ones. Clearly there is a cost benefit to self-service.

Secondly, Efficiency. This is a natural consequence of complete computerisation of all trades large and small, with order filling almost immediate assuming there are ready buyers/sellers. No more need for the phone call to the broker to key in the order, within which time the stock might have jumped a few ticks.

Thirdly, Liquidity. This will always be a long-term consequence of greater accessibility to trading information, which tends to give people more confidence, and hence readier to put their money on the line.

And this leads to the last, Transparency. Online trading has enabled real-time information to be readily available to the masses, and there are even services offered nowadays to allow people to see the buying and selling queues several layers deep (ie. not just the bid/ask at the current price, but further price levels higher/lower). Internet forums and online brokerage research (such as the free one on the SGX website) have also provided further access to fundamental information and updated news on companies. All this have added to the transparency levels of listed companies, and further strengthened investor confidence.

There are still some who still swear by personal brokers who they deem are able to provide value-added service (eg. longer contra periods, good advice or updated information on stocks). These are usually richer investors who are too busy to go online, or provide such great commissions that brokers provide them with personalised service; there are also the aunties/uncles who don't know how to trade on the Internet. For the rest of us, surely online trading is the way to go.