A stock broker is a third party that places your buy (or sell order) on the stock market, and allows you to trade with other investors on the stock market. In Australia, this takes place on the Australian Securities Exchange (ASX), but there are many different securities exchanges all over the world. There are also many different stock brokers which can give you access to these markets (including both your domestic and global markets).
This article will explore what are stock brokers, the rise of online stock brokers and finally some of the best online stock brokers you can use in Australia.
CaptainFI is not a Financial Advisor and the information below is not financial advice. This website is reader-supported, which means we may be paid when you visit links to partner or featured sites, or by advertising on the site. For more information please read my Privacy Policy, Terms of Use, and Financial Disclaimer.
An Introduction to what is a stock broker
First of all, as explained in the articles starting to invest in shares in Australia and Investing in shares for beginners, to buy shares you will need a Broker.
To coin a metaphor, they are almost like a car dealership; They don’t make the cars (the manufacturers do that), but they help you get what car you want and they take a small service fee for connecting you with the manufacturer. They don’t register the car (the RTA does that) and once you’ve bought the car and driven off, they don’t really do anything else for you!
That is how a broker works in general. They help ‘Broker’ a deal between two parties and take a small service fee or percentage of the deal for the privilege. Other examples include Mortgage Brokers who help customers find the bank with the best deal (lowest rate home loan), and even Livestock Brokers who help farmers sell their cattle or sheep.
Back to stock brokers, or share brokers. These are a required third party who helps connect buyers and sellers of shares (such as ETFs). Gone are the days of visiting an actual broker or financial adviser who would act as this third (or fourth party). These days, thanks to the internet, you can do this all much more quickly, cheaply and easily online. Enter the world of the discount online stock broker!
Online stock brokers
Due to the rise of popularity and the ease of conducting business online, many of the big banks now offer online stock broker platforms. These are mostly considered non-advisory brokers which don’t offer any advice regarding your financial situation and whether what your doing is a good idea or not.
This is a good thing, as advisory brokers start to wander into the area of active financial advisers which are statistically proven to under perform even a basic total stock index fund in 87% of cases over the long term!
However, even some non-advisory brokers will provide varying levels of ‘market research’ and advertising to try and convince you to make more trades or to trade more frequently. Remember that these brokers make their money every time you trade, so it is in THEIR interest for you to trade more frequently, NOT YOURS! Every time you make a trade, you make yourself poorer so remember to have some discipline and trade only when necessary as part of your investing strategy (for example I usually only buy index funds once a month).
Discount online stock brokers are generally great for people on the path to FI, as we know that getting wealthy is not about picking stocks to beat the index or timing the market to buy low sell high. In reality, this is a fallacy that is perpetuated by the financial industry to transfer money from the impatient to the patient (and into the profits of powerful corporate investors and financial services owners)
Beware there are no get rich quick schemes! Smart investors know real wealth generation is about living below your means and investing the difference into low fee index funds and leaving it there to compound and grow over time! Low fee’s and continual disciplined investing are the crucial keys, so a Discount online stock broker is your friend here.
Choosing a stock broker
Whilst you could happily use any of these services to invest in index funds and ETFs to reach financial independence, in my opinion some of them are not as efficient as they could be and thus will actually slow down your progress to reaching Financial Independence.
All brokers have varying pros and cons, but almost all of them charge the industry standard high brokerage fees (or even worse, percentage fee’s which rack up even higher transaction costs) and try to encourage you to stock pick and trade more often. High brokerage fees, subscription fees, inactivity fees and even additional management fees (such as the microinvesting platforms charge) all erode your wealth. Ultimately, we can’t control the performance of the stock market, but we can control the fees we pay along the journey!
I actually started investing with ComSec (Commonwealth banks financial division) before I learned about the importance of low fees and came to my senses, switching to a low fee Fintech broker.
Finally, when I am choosing a potential stock broker in Australia, I personally like to look for one that is CHESS sponsored. This ensures the stocks are held in my name, and not in the company name or in a trust on my behalf.
Not all investing or brokerage platforms are CHESS sponsored (for example many MicroInvesting platforms are usually not CHESS sponsored) and this can create a massive headache if they ever collapse – it is unclear how you will get your shares back and basically you might have to rely on the ‘goodwill’ of the company to get your holdings.
Not being CHESS sponsored also means that the company that holds your shares in custodianship could potentially make money using your share holdings in unscrupulous ways – for example they might retain your dividends, profit by ‘lending out’ your shares to short sellers, or use the collective voting rights of its customers holdings for their own interest.
Online stock brokers in Australia
There are literally hundreds, if not thousands of brokers out there. Some of the biggest ones in Australia are shown below;
Big 4 Bank Conventional Stock Brokers
Of course each of the big 4 banks in Australia have their own financial investing services arm, and provide a conventional brokerage service as well as an online option. These are;
- CommSec Share trading [this is who I started out investing with]
- NAB Trade
- ANZ Trade
- Westpac Trade
Unfortunately these players do not really offer competitive brokerage costs, and I think they leverage their huge customer base and the lack of knowledge in the community in order to maximise profits. They use the perceived safety of their size as their main marketing tool. I have had direct experience using CommSec Share trading for years.
FINTECH ‘Disrupters’ stock brokers
This category is often considered the best ‘bank for your buck’ since these Fintechs (financial technology services) specialise in online trading. As generally newer companies, they can maintain a competitive edge over the status quo and larger companies due to their relatively small company size. This makes them agile (responsive to change) as they can quickly adapt, use emerging technology and prototype quicker. This typically gives them lower cost overheads and allows them to pass on savings to their customer – you the investor.
So if its so cheap, why doesn’t everybody rush out and start using them? It comes down to trust. Because these are newer companies, people perceive them to be too risky to trade with (which I think is silly since they have to meet exactly the same ASIC regulation standards).
Examples of these include;
- Pearler
- SelfWealth
- Stake US Share Trading
- Superhero
- OpenTrader
- eToro
- CMC Markets
- IG MarketsGroup
- Superhero
- Moomoo
Click the links above if you want to see my detailed review on each platform.
Micro Investing brokerage platforms
Microinvesting brokerage platforms use trusts, pooled funds and fractional ownership mechanics to allow investors to invest smaller sums which can over time, compound into a decent investment. Be wary of fees such as brokerage and management fees however, which can erode the performance of your investments. Some popular micro investing brokerage platforms include;
Check out my dedicated post on Micro investing in Australia for more information. I currently am personally using all of these microinvesting platforms with various amounts of money to test out each one and see how they perform relative to each other
Which stock broker Does Captain FI use?
I started investing through Commsec, and then switched to using SelfWealth (for cheaper trades), and then to Pearler (for cheaper trades and auto invest) as my main share purchasing platform during my accumulation phase, but now in early retirement, I have sold the bulk of my shares (in order to be debt free for the hobby farm) and have smaller amounts invested through Moomoo.
Despite being a new entrant in the Australian market, Moomoo is backed by companies like Tencent and NASDAQ- listed parent company, Futu, and is quickly gaining traction among Aussie retailer traders who trade beyond the ASX.
Unlike many trading platforms, moomoo doesn’t offer ‘Pro’ accounts or subscription models with features that are otherwise unavailable to most users. There are no paywalls or subscription fees that prevent anyone from accessing their trading features and tools, and they offer great value for money with discount brokerage.
One downside to moomoo, however, is that as of the time this article was written, it is not CHESS-sponsored. However, the team at Moomoo has assured me that they’ll be launching a HIN account type very soon for the Australian market in early 2024, which is something I am eagerly awaiting
Stock market research tools
As an investor, you know the importance of reliable data and research when it comes to making investment decisions. This is where Stockopedia comes in, offering an all-in-one investing research solution for stock market investors.
I should point out from the beginning though – Stockopedia is NOT a stock-picking service, and they will not tell you what to blindly invest in. What they do provide, however, is a comprehensive database and analysis tools that investors can use to research companies and evaluate their potential.
Stockopedia is an online data and research platform that provides integral data related to shares, making stock market investing analysis more straightforward and efficient. In this review, we will explore the features and benefits of Stockopedia, highlighting why it is a great online service for all investors, and a must-have for those wanting to invest in individual stocks. Check out my comprehensive Stockopedia review here.
Once you have made some investments, you need to track their performance, including keeping track of things like dividends and stock splits. I started using Excel spreadsheets to track my index fund holdings, but it quickly became an unwieldy beast and overwhelmed me.
Then I discovered Sharesight, a free accounting tool. Finance professionals and companies often use a paid Sharesight subscription to help them manage massive amounts of data (such as multiple client portfolios etc), but for you and me, we can use Sharesight completely FREE because we have smaller sized holdings.
The free account is more than enough for the average person, but you can upgrade to a paid subscription which gives you some more features.
Conclusion
To get started investing, you will need to use a stock broker who act as a third party to broker your dealings with other investors on the various securities exchanges. I hope this article has explained the system and answered your question ‘what is a stock broker?’ as well as provided you with some useful suggestions and tips about choosing a stock broker.
Financial Disclaimer
Financial Disclaimer: CaptainFI is NOT a financial advisor and does not hold an AFSL. This is not financial Advice!
I am not a financial adviser and I do not hold an Australian Financial Services Licence (AFSL). In this article, I am giving you factual, balanced information without judgment or bias, to the best of my ability. I am not giving you any general or personal financial advice about what you should do with your investments. Just because I do something with my money (or use a particular service or platform) doesn’t mean it is automatically appropriate for your personal circumstances. I do not recommend nor endorse any financial or investment product, and my usage or opinion of any product should not be interpreted as an endorsement, advertisement, or intent to influence.
I can only provide factual information based on my journey to Financial Independence, and that is provided for general informational and entertainment purposes only. I make no guarantee about the performance of any product, and although I strive to keep the information accurate and updated as it changes, I make no guarantee about the correctness of reviews or information posted.
Remember – you always need to do your own independent research and due diligence before making any transaction. This includes reading and analysing Product Disclosure Statements, Terms and Conditions, Service Arrangement and Fee Structures. It is always smart to compare products and discuss them, but ultimately you need to take responsibility for your use of any particular product and make sure it suits your personal circumstances. If you need help and would like to obtain personal financial advice about which investment options or platforms may be right for you, please talk to a licensed financial adviser or AFSL holder – you can take the first steps to find a financial advisor by reading this interview, or by visiting the ASIC financial adviser register and searching in your area.
For more information please read my Privacy Policy, Terms of Use, and Financial Disclaimer.
Captain FI is a Retired Pilot who lives in Adelaide, South Australia. He is passionate about Financial Independence and writes about Personal Finance and his journey to reach FI at 29, allowing him to retire at 30.
