So you are looking to get started trading or investing? We have put together this great list of resources for you. We have consulted many full time professional traders and investors in Australia to compile this list so please read, share and utilize.
Equities or Foreign Exchange (FX)?
You first need to decide what market you want to trade, is it equities like CBA, ANZ or BHP? Is it AUD/USD or EUR/USD etc? Is it gold? Or possibly bitcoin or other cryptos? Or international shares?
Once you have decided this next you need to decide on the time frame you wish to trade. Are you looking to trade full time and get a screen tan from sitting in front of the screens all day or night? Are you looking to buy and hold for 5 years without selling anything? Are you wanting to be able to short the market as well as go long? Then you will need to use CFD’s if you want to be able to short things. Any good trader will want to short too as only being able to go long is like being in a boxing match with one hand tied behind your back. All these things will determine what online broker will be best suited to your needs.
Next you need to decide how much capital you wish to use for this journey. Is it $20k or $300k for example. Make sure you only trade with what you are prepared to lose but ultimately you need to be doing something fairly reckless and not managing risk at all to lose everything. You might choose to use $100k and at the start of every month “reset” your trading account back to $100k like Nick Fabrio in Australia does. This works well for Nick as he is an intraday trader (ends each day with no open positions). Evey month that he is in profit he withdraws the excess funds and gets back to his $100k trading balance. Also any months where he has lost he will “top up” his trading account back to $100k. You might wish to do this for your trading account but also have a long term investment account too like Bryce Edwards does. There are a million different ways to skin a cat so to speak. Once you have decided all the above next you need to select a broker to trade though. With all brokers there is “broker risk” being the risk that they close up shop and you don’t get any of your trading account balance back. This is extremely rare but something to keep in mind when placing funds in a trading account. In Australia this has happened a few times over the years with stories from Sonray Capital and MF Global to name a few. Some of them ended up returning cents in the dollar to users of their platforms.
Day Trading Brokers
ANZ – They are a major bank in Australia and so they have had a fairly large market share for a long time. They have brokerage starting at $19.95 for lots of $0 – $5,000 and 0.11% for lots over $18,000. They allow you to trade Australian shares, international shares, managed funds, options and they even offer margin loans. Margin loans are where you borrow money to invest by using your existing holdings. ANZ’s trading platform for experienced traders is called PRO and it’s a desktop platform that gives users real-time pricing and charting. For a long term investor you most likely wouldn’t need to use this platform as you shouldn’t need live prices or be watching your trading account every day.
IG Markets – They offer an $8 minimum trade commission or 0.1%, whichever is higher. They have a good platform but they are a market maker just like CMC Markets below so we don’t recommend them.
CMC Markets – They offer either a stockbroking account (used for longer term equity holdings) or a CFD (contract for difference) account (used by day traders and shorter term traders). The main difference between CFD’s compared to share trading is that you don’t own the underlying share. You just benefit from the profit increase. It’s basically a cheaper way to trade shares. Their stockbroking platform is on par with ANZ, Commsec or Nabtrade’s platforms. They have tried to compete based on price point with share trading commission starting at a minimum of $11 or 0.10% whichever is greater. Their CFD trading fees start at a minimum of $7 or 0.09% whichever is greater. If you are looking to trade FX then they offer the MataTrader 4 platform. This platform was developed by MetaQuotes and is probably the most used platform for FX trading. It allows a user to use automated programs called expert advisors or EA’s. These monitor the markets and trade automatically on your behalf. You can build these yourself or use existing ones. CMC Markets has good software for CFD trading but the major disadvantage and why you shouldn’t use them is they don’t offer direct market access (DMA) CFD’s.
Why is DMA CFD Trading So Important?
Well it’s not very important if you wish to buy one day and then hold for a few days then sell. Where DMA is a necessary is where you are trading intraday. When doing this you might look at a stock and it’s trading at $0.13. The real market price might then drop to $0.10 quickly, but a non-DMA CFD account will offer you a price that is sometimes not the true market price. So they might only offer you to buy at $0.11 via a requote. A DMA CFD account will place your contract for difference order into the actual market. A non DMA CFD account will sometimes take the other side of your purchase (make money on you losing) and sometimes hedge their exposure if you are determined a “good trader” or it’s a larger than usual order size. By doing this your non DMA CFD broker is basically taking the other side of your trading. If you lose they win whereas a DMA CFD broker will only win when you win as when you are wining you will trade more and so they will make more money by way of trade commission only. This is what you want. A non DMA CFD broker might offer you slightly cheaper brokerage rates sometimes but if they don’t offer you the true market price for a buy for example it doesn’t take long till these make their indirect fees much more expensive then having a true CFD broker. Almost all professional day and short term traders use a DMA CFD account rather than a non DMA CFD account. Don’t get us started on the advertising and legal efforts non DMA CFD account brokers go to in order to be the dominant player in the industry even with their far in-superior product offering.
Which Broker in Australia Offers DMA Trading?
Great questions and this leads us to our recommended broker for shorter term trading, FP Markets.
FP Markets – Was founded in 2005 and is the best Australian CFD provider in the business. Some might dislike their “outdated” platforms but their platforms work and aren’t buggy like some of the other more sophisticated ones in the market. FP Markets have platforms to cover FX trading, equities (Australian and foreign), commodities, metals cryptocurrencies and indices. Basically anything you would ever dream of trading and if they don’t offer it then it’s probably something that you shouldn’t be trading. They offer either Metatrader 4 or Metatrader 5 or WebIRESS trading platforms. WebIRESS is a very old platform but runs so very well and doesn’t freeze as much as other fancier trading platforms from other brokers. It’s one of the reasons Iress is so well known in the industry. FP Markets offers you realtime pricing, price alerts and even access to genuine exchange pricing and market depth as they are direct market access and not a market maker. Their platforms can be used on your mobile device but any real trader always uses a desktop or laptop computer at a minimum. They are licensed by ASIC and have received numerous awards since being founded by companies including Canstar Cannex, Smart Investor, The Bull and Money Magazine to name a few. FP Markets offers some of the lowest brokerage rates in the industry and provides amazing customer support. You will see from many of the guru traders from Australia listed on our site that the majority of them use FP Markets as their broker. A few newer brokers have come onto the scene in Australia like Invast Global. Our main hesitation with recommending Invast is that they have only been around a few short years and haven’t been through any major market corrections yet to iron out any potential issues with their offerings. If any of these newcomers offer you some deal that looks fantastic first run it by FP Markets to see if they can match the offer. That way you can stick with a proven broker that has stood the test of time.
The FP Markets trading platforms give you access to over 10,000 financial instruments, the ability to automatically open and close positions, news and economic calendars, technical indicators and charting, and much more. CFD accounts offer you leverage, this is always a double edged sword. In that when it works in your favor it magnifies your returns but when it works against you it magnifies your losses. Any good trader knows not to leverage too much and you will see professionals like Nick Fabrio resetting his trading account to $100k at the start of each month. All profits he removes from his FP Markets trading account and puts into other investments/bank accounts as a way to diversify his risk.
FP Markets will provide you with $0 minimum trade commission so you will never have an issue with commission drag again.
Click here to sign up for a demo account at FP Markets or to set up a trading account ready to start trading. They will just ask for some very basic details in order to set up a demo account, should you wish to try it out for yourself before you decide to fund your trading account. They offer the ability to place either long positions and to place short positions or to “short sell”. Short selling was made a mainstream concept by movies such as “The Big Short” in which a few very smart investors bet on the collapse of the US economy due to CFO derivatives from the housing market and lending. To short sell something is to sell something that you don’t own in the aim to buy it back at a cheaper price and pocketing the difference, being your profit should you have bought it back at a cheaper price than you originally sold it at. It’s kind of like borrowing a TV from a seller as you think prices of TV’s are going to drop. Then once the price of TV’s drop you sell it back to the TV seller at their reduced cost and you pocket the difference less a small financing charge for borrowing the TV.
Another very good thing about FP Markets is you can place and execute stop loss orders(contingent orders) for free. Other brokers often charge $20 or more for this feature each time you use them but with FP they are free. These types of orders can be great for end of day traders that aren’t too worried about any possible slippage and just would rather get out for a small loss or to take profit rather than take big loss greater than your stop loss risk amount. Often traders will use 1-2% as a stop loss amount of their total portfolio.
FP Markets have just launched a great mobile platform. Check is out here >> FP Markets Mobile Platform.
The Biggest Risk With Short Selling
A lot of people are extremely scared by the prospect of short selling as they have been told the market always goes up. And that stocks can go up thousands of percent and if you are “short” then you would be financially ruined. It is true that stocks can go up thousands of percent but often this in over many years and any stock that goes up that much in a few days etc is probably priced at $0.002 for example. Those kinds of stocks you would never be able to short sell and you would be crazy to even try. The professional traders that short sell do it with stocks on the ASX for example over about $0.50 as a general rule. And many professionals will have hold times from a few minutes to several weeks at the most when short selling. The thing with short selling is that markets often go up by the stairs and down by the elevator, meaning that when stocks fall they fall hard. So you don’t need to keep short positions open for long periods of time to do very well. Like with any trade position sizing and risk management is crucial. You must always ask yourself before placing a trade, what if this stock quickly moves against you. What will you do? What will your exposure be?
Longer Term Investing Brokers
Longer term we typically mean anything with a hold time over around a month. This is due to when you buy CFD’s you pay commission on the entry and exit but you also pay a financing charge when long (making a buy order). This adds up over time and if you do have funds to make actual stock purchases we recommend that, as with CFD’s it will equate to a worse financial position after you receive a small amount of interest from the bank but pay a larger interest rate on the CFD financing. If you take a short CFD position, however you pay no interest on financing. Some brokers will actually pay you interest for holding a short CFD position but this is more rare nowadays. Usually most people don’t hold open short positions for the longer term as in theory most markets have a positive bias, in that over time they often rise. Obviously within reason this is true.
ANZ – ANZ were an industry leader many years ago but have slipped against Commsec and even Nabtrade now. A lot of paper work and fees to trade international shares.
Nabtrade – One of our preferred longer term investing brokers. They offer great rates and have a good platform. A lot of paper work and fees to trade international shares.
Commsec – Another one of our preferred brokers for any longer term trades. We recommend you check between Commsec and Nabtrade as to which offers the better rates to suit your size of trading. Both investing platforms are similar. Also look into the interest earning rates of each should you hold excess funds in a high interest account while awaiting any possible trades. A lot of paper work and fees to trade international shares.
CMC Markets – As referenced above CMC offer stock broking at an ok rate and with a good platform.
Bell Direct – another discount broker that offers trades fairly cheaply the problem with Bell Direct is the have bad reviews of slow transfers of fund, slow approvals for margin loans, unable to trade foreign exchanges, website speed appears slow compared to other broker sites and more.
Self Wealth – is a fairly new comer to the market. They have taken over a little bit most due to their referral program. It’s amazing what people will share to their friends and family to just make a few dollars for themselves!!! BITCOOONNEECCTT.. We are not saying they are bitconnect though. Some will say it’s cheap brokerage but sometimes you get what you pay for. They have slow signup, no phone support, 72hr delay in transferring funds out after they arrive and some ‘lets company you to other people’ community rubbish.
Stake – this one is not really an Australian broker but needs a mention due to many signing up based on a few people referring them as Stake will give one free stock to people that join, and one free stock to anyone that refers that person to Stake. Some of the stocks in the US can get up to $1,000 in price for just one share so this deal seems attractive to promoters. Promoters include people like Brandon from the extremely popular Aussie Wealth Creation YouTube channel. But you have to ask yourself, “Is Stake any good?”. The answer to that will depend on your needs. Some people will choose to just invest their Australian dollars into index or managed funds that will be listed on the ASX that cover US stocks. This will be funds that are either hedged or non-hedged. Hedged funds will not have price movements based on the AUD to USD exchange rate, whereas unhedged funds will. If your fund is hedged and the price of the fund unit stays at say $1 for example then your investment value will stay at $1 too. Whereas if unhedged, your investment units value might go up 10% but the exchange rate might drop 10% negating all your gains. It’s just another level of complexity when trading unhedged stocks or units. Back to why we don’t recommend Stake generally. They might have little to no brokerage fees but they sting you on the “hidden” FX exchange rate. That is you you convert your USD to AUD and vice versa the chances are you will pay a large % of fees. If you are in the US and want to keep your Stake funds in USD then it could be an ok option for broker, but if you are in Australia and you want to spend money in AUD (which most do) you are much better looking at products that clear in AUD. If you are looking to actively trade US stocks then you must look at our recommended and preferred broker FP. FP will also allow you to short sell unlike most brokers including Stake. As you have read above this is a necessary for any trader.
Make sure you know about and understand commission drag. It’s the biggest reason why people fail with trading/investing and if you understand it you are already half way to success in our honest opinion.