Share Trading: Brokerage fees are important

Brokerage fees form a large part of your share trading experience and it pays to be vigilant about the amount you are paying.

Depending on the amount of money being invested, brokerage fees can form a large part of the overall share trading experience. With around 4.68 million Australians owning shares directly in 2014, attracting the custom of online share traders can be big business for brokerage houses. It is a competitive marketplace and investors are befitting from better – and cheaper – online share trading platforms. CANSTAR analysis reveals a decrease in trading costs of up to 24% over the past four years across the platforms surveyed.

A majority of the platforms will tier their fees based on the size of the trade or the trade value. The chart below illustrates the current average brokerage costs per size of trade in dollar terms.

Trade Value Average Brokerage 2016
$1,000 $17.97
$5,000 $18.21
$10,000 $19.09
$25,000 $26.11
$50,000 $49.65
$100,000 $96.38

Source: CANSTAR. Based on the average brokerage fee of platforms considered for Online Share Trading star ratings in 2016.

Weighing up the cost

The cost of brokerage is a fundamental element of online share trading and the good news for consumers is that the average cost per trade continues to fall for both high-value and low-value trades alike.

As the table below details, the average cost of placing a $100,000 trade has fallen by an average of just over $8 over the past seven years, representing a decrease of 7.76%. The cost of placing a $5,000 trade has also fallen – more modestly in dollar terms (a $6.99 decrease) but more substantially in percentage terms (a 27.74% decrease).

Trade Value Average Brokerage 2010 Average Brokerage 2015 Average Brokerage 2016 Change in Average Brokerage over 7 years* Brokerage Cost as a % of Investment
$1,000 $25.20 $19.15 $17.97 -28.68% 1.80%
$5,000 $25.20 $19.15 $18.21 -27.74% 0.36%
$10,000 $25.75 $20.08 $19.09 -25.87% 0.19%
$25,000 $30.22 $27.54 $26.11 -13.62% 0.10%
$50,000 $54.04 $50.71 $49.65 -8.12% 0.10%
$100,000 $104.49 $96.48 $96.38 -7.76% 0.10%

Source: CANSTAR

* Based on the average Online Brokerage Fee of the platforms considered for Online Share Trading star ratings in March 2010, May 2011, March 2012, March 2013, March 2014, March 2015, and March 2016.

As the table illustrates, the biggest percentage discounts have been in the area of smaller-value trades. This is great news for Casual Investors, because when you’re only investing a small amount, the fee represents a much higher percentage of your investment.

If you invested $1,000 for example, in 2010, you would pay on average a $25.20 fee representing a 2.52% cost of trade. With average brokerage dropping to $17.97, your cost of trade is now less than 2%. This reduces the amount by which your investment has to grow in value before you break even.

Different investor profiles will also face varying levels of fees based on how much and how often they invest. For example, Casual Investors don’t face an ongoing fee. But the Trader profile does pay an ongoing fee and it can be quite high, because they are making 30 or more trades per month so their activity actually does require quite a bit of platform involvement.

Lowest of the low

Our research shows there is quite a range in how much you can pay in online brokerage fees. While the average brokerage fee for a $1,000 trade was $17.97, we also found platforms with fees as low as $9.90 for the same trade.

When you get up to the scale of making a $100,000 trade, the average fee was $96.38, but the lowest fee was a mere $30.00. A third the price is a significant difference in cost.

Don’t forget the features

Brokerage isn’t the only factor to consider when deciding on a platform. While brokerage costs are always a relevant issue when choosing a trading platform, consumers also need to bear in mind their volume of trades, their personal experience, and which platform features may be relevant to their needs.

Read our article on what investors should look for for further guidance and compare online share trading platforms on our website to find out which trading platforms offer outstanding value for money.

 

Compare Online Share Trading Platforms

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