Dicey times for investors

IT’S A troubling time for Irish investors in the wake of the collapse of another Irish financial institution, Bloxham Stockbrokers. The closure of the firm came as a surprise to many and while investors did not lose their shirts as a result, it is not an isolated incident in these volatile times.

For investors looking to trade the markets – and potentially those looking for a new investing home in the wake of Bloxham’s departure – there are plenty of options out there. The decision is who to opt for.

EXECUTION-ONLY: HOME

For low-cost trading, opting for an online execution-only service is usually your best option, and the good news is that these days most brokers are very open when it comes to disclosing their prices and charges – which makes it that bit easier to shop around.

Brokers charge in a variety of ways, usually by either a flat fee or a percentage of your total trade, so the higher the trade the more costly it can be if the broker takes a cut based on a percentage of your deal. In such cases, it might be better to look for a broker that offers a flat fee. For example, a €100,000 trade could cost you just €30 if such a flat fee applied – or a significant €1,500 if a fee of 1.5 per cent did.

Typically, you will do better if you’re a frequent trader. At TD Direct, a flat rate of €20 falls to €15 for those buying/selling on a regular basis. At Davy, the minimum commission for frequent traders falls to €15, or 0.5 per cent on amounts up to €25,000, and 0.25 per cent above this.

However, only very frequent traders usually benefit from such offers. At TD Direct, the frequent rate only applies to those who transact 10 or more trades in the previous three-month period. At Davy you have to transact 20 trades before you benefit from the reduced rate, while rates revert to the standard rate each January.

If you’d rather pick up a phone and speak to someone, you can do it on an execution-only basis – but you can expect to pay considerably more to do so. At Sharewatch it costs at least €50 for the pleasure of conducting your business in the old-fashioned way, while at Davy the minimum commission for telephone trades is €100 or 1.65 per cent of the first €15,000, 1 per cent on the next €15,000 and 0.5 per cent on the balance. At National Irish Bank (NIB), the telephone service costs a minimum of €50 or 1.5 per cent for amounts up to €15,000.

Sometimes additional requirements apply – at NIB you have to be a banking customer to trade with it.

EXECUTION-ONLY: ABROAD

If you’re not happy with what Irish brokers are offering, you could open an account with a broker based in the UK or US. As markets become increasingly internationalised, this is becoming more of an option for Irish investors.

UK-based FXCM Securities (formerly ODL Securities) offers trades from £12.50 up to £2,000 and £25 on the balance for UK securities, and between $9.99 and $15.95 for US stocks. An advantage of choosing this option is that you can seed your account in euro, thereby avoiding sterling currency risk. Irish residents can trade forex, gold, oil and stock indices through the site, and spread bet.

Another option is Interactive Brokers, which also offers trading services to Irish customers. It charges in two ways – either a flat rate or a “cost plus” structure, which can prove cheaper depending on volumes. Its flat rate fee for trading in UK stocks is £6 up to £50,000, and 0.05 per cent of the balance.

ADDITIONAL CHARGES

If you’re looking to trade in Irish or UK stocks, remember that stamp duty applies – 1 per cent in the case of Irish shares, or 0.5 per cent for UK.

An additional levy applied by the Panel Of Takeovers also applies to Irish and UK stocks, but is an almost insignificant charge at €1.25 for orders greater than €12,500 on Irish shares, or £1 for UK shares greater than £10,000.

You may also incur other charges such as a dividend collection charge, which is €5 at NCB, or a duplicate copy of a portfolio valuation which costs €100 at Davy.

If you’re buying exchange-traded funds (ETFs) through a broker, tax rules may apply and you might need to get some tax advice to ensure you are compliant.

CHOICE

While important, cost may not be the only factor guiding your decision. What stocks you can access is also important. Goodbody allows all users of its online facility to trade stocks listed on the Iseq, FTSE All Share, Nasdaq Composite and the Dow Jones, while NIB offers access to Irish, Nordic, Canadian, US, European and UK shares.

TD Direct offers access to the major European and US markets as well as the Singapore and Canadian exchanges. With Interactive Brokers you can access stocks, options, futures, forex, bonds, contracts for difference (CFDs) and funds on more than 100 markets in 19 countries.

FUNDING YOUR ACCOUNT

Before you trade you need to fund your account, and this can be done in a variety of ways, such as sending a cheque or opting for an inter-bank payment. It could take up to five working days for this money to arrive and there is likely to be a charge from your bank. If you have to transfer funds into a foreign currency, you might also pay a charge for the transaction. At FXCM, depositing funds with a credit card costs 2 per cent of the transaction, while there is no charge on a wire transfer. At Goodbody you will need a minimum of €1,000 to open an account, while FXCM requires €2,000 and Interactive Brokers $10,000.

KNOW YOUR BROKER

Before you commit to a trading relationship with a broker, it’s worthwhile doing your own diligence first. While this may not throw up any concerns – after all, it appears no one suspected Bloxham Stockbrokers was in trouble – it can help to understand who owns the business you’re giving your money to.

NCB, for example, is now part of South African bank Investec; Davy is independent following its management buy-out from Bank of Ireland in 2006, and Goodbody is owned by Kerry financial institution Fexco, which it acquired from AIB in 2011. NIB is owned by Danish bank Danske and FXCM is part of the New York Stock Exchange-listed FXCM Securities Limited. You should also check your broker is regulated before trading. You can get a list of regulated stockbrokers from the Central Bank’s website, while you can verify international brokers with the local regulators such as the UK’s Financial Services Authority, or Bafin in Germany.

THE RISKS

The biggest risk when it comes to investing is that the broker might go to the wall, bringing any money you have on account, or in nominee accounts, with them. Opting for a well-regulated provider can help, but this is not always an effective safeguard. The potential advantage of opting to do business with an Irish broker is heightened oversight from the Central Bank. If you opt to trade in leveraged products such as CFDs or spread betting, your losses could exceed the value of your original investment.

If you trade on margin, your losses could exceed the amount you have invested. You might also incur a risk in how you hold your share certs. If you hold paper certs, you may be at risk of loss or theft. If you opt for a nominee account, whereby the broker controls your shares, you risk fraud or default and pay a service fee. The other option is a Crest electronic account in your name, but a fee applies too.

Online trading: How much does it cost?

Minimum commission per trade/ Annual fee

Sharewatch€14.95 or 0.3% –

TD Direct€20/ €60 on inactive accounts

Davy€25 or 0.75%*/ €80

NCB€100 or 1.5%*/ €1,000 or 1% of portfolio

Goodbody€32 or 1.25%*/ €26

Dolmen€12.70 or 1%*/ €100

NIB€20 or 0.75%*/ €40

*Commission falls on amounts in excess of €25,000 (Excess sum is €15,000 at NIB and €12,700 at Dolmen)