Buyorsell

Selecting your broker – A Singaporean perspective

So you want to start investing? A lot of my friends have asked me how should they begin investing, hence Im writing this article to share my own journey in the starting the baby steps to owns shares, etf, etc etc. Apart from reading up investment news, the first step to buying shares, stocks, trading, etc is really to setup a brokerage account.

What is a brokerage account?

An arrangement between an investor and a licensed brokerage firm that allows the investor to deposit funds with the firm and place investment orders through the brokerage, which then carries out the transactions on the investor’s behalf. The investor owns the assets contained in the brokerage account and must usually claim as income any capital gains he or she incurs from the account. (http://www.investopedia.com/terms/b/brokerageaccount.asp)

Here are a few brokerage firms in Singapore you can choose from:

*There are way too many brokers out there, I am only highlighting a few of them for comparison.

In my own personal journey, I have used POEMS, OSPL, OX and IB.

Local Brokers (Pros)

  • Local Presence
  • No Min Deposit
  • Easy payment/ Withdrawal as they link to your local bank account.

I started trading about 8 years ago when I first open my student account with POEMS. The pros about local brokers – no minimal deposit required to start an account. When you buy shares via local brokers, you can easily pay the brokers via Online banking. When you sell your shares, local brokers are also able to automatically transfer your proceeds to your designated bank account.

Local Brokers (Cons)

  • Crappy platform – No stop loss, no trailing stop, etc
  • No Portfolio Analysis
  • High Rates (average 0.2% – 0.3% per transaction, with minimal cost)
  • Limited products – No options, bonds, limited ETF, etc.

I switch out of local brokers about 2 years ago – for the reasons above. As I learn to invest more and trade more, the local brokers just couldn’t satisfy me. The main reason for my switching is the cost involve in trading. I trade on average 20+ times a year, not a really high volume but decent enough to make my trading cost average at about 500-600 a year. I really really wanted to save money – hence I started exploring alternatives.

Overseas Brokers/Banks (Pros)

  • Better platform
  • More complex trading options
  • Lower rates
  • Huge Range of products
  • Portfolio Analytics – A must have for me

Standard Chartered (SC), Option Xpress and Interactive Brokers were the top 3 options when I search for overseas brokers. SC has a local presence with 0.2% and no minimal cost. However, SC platform is just as crappy as other local brokers. The only thing that is positive about SC is the local presence – if something don’t work out, I can just walk down to SC branch and complain!

Option Xpress has a local presence; really good platform and transaction cost are at about $10 per trade. I played around with OX for a while and almost committed myself to OX. $10 per trade, I would essentially save $250-$300 on a yearly basis! Option Xpress is own by Charles Schwab and they are listed on NYSE.

Interactive brokers – the broker I am using now. It took quite a long research before I finally decided on them. IB do not have a local presence, you would have to fly to Hong Kong to bang their tables, should I choose to complain. However they have the lowest rates – $1 dollar per trade! With such a low transaction cost I never need to worry about my transaction cost. To make things better their FX rates are done at spot and I can keep so many different currencies. This is very important factor especially when you buy overseas shares – FX bid and ask spread will eat out 1-2% of your profit when using local brokers. Interactive brokers is a public company listed on NASDAQ.

IB (Cons)

  • 10K USD to start an account
  • Complex trading platform
  • Fixed Annual cost – $120 USD
  • Cant Trade SG Stock
  • No Local presence

Let me just focus on the cons of IB, before you jump ship to them  too. It takes 10K to start an account with them probably an issue if you just started work or want to invest small.

Its trading platform is filled with such much things that if you are new to trading you would need to spend a few hours looking through youtube tutorials. I took about 1-2 hour myself to learn how to buy and sell in IB.

IB does not allow Singaporean to trade SG stock (I guessing SGX ban IB from letting Singaporeans trade SGX stock to protect local brokers).

There is a fixed annual platform fee of $120 USD- whether you trade or not. If you really just buy 1 share a year and don’t do anything, local brokers will suffice.

Conclusion

I currently use IB for all overseas related shares and OSPL for SG related shares. IB is not really for everyone, especially if you need local presence and lots of guidance on how to trade. However, if you do trade at least 20times a year, it is time to switch and save up on the deadly transaction cost.

Before you jump into any platform, always remember to research, research and research! There are tons of fraudulent brokers out there just waiting to cheat your money! For overseas brokers I highly recommend selecting only brokers that are listed in stock exchange and have a history that survived the financial crisis.