Once you have decided to use an online broker, you will find a vast range of firms at your disposal, with different strengths and weaknesses. You can choose from the many in the UK or from continental Europe or the United States.
For the purpose of this, we will be looking mainly at the UK online broking industry. It starts with dealing services offered by company registrars. They are for shareholders who own shares as a result of a demutualization or privatization.
Beyond this level, the industry is polarized between firms like E*Trade, which target active traders, and those like Hargreaves Lansdown, which target the main retail space. ‘As time goes on, this kind of polarization will increase,’ says Rupert Dickinson, director at Barclays Stockbrokers.
In selecting your broker, you may find that, for trading purposes, big is best. As a broad generalization, the larger participants are better able to obtain the best prices and offer the keenest commissions and the most useful frills, such as research and news facilities. They may have a more solid infrastructure, which comes into its own at times when there is a rush on to buy or sell shares. A large firm should allow you to deal in shares and derivatives from the same account and, if possible, the same screen.
But whether you are a good broker is not just about being large or small, according to David Rawlings, head of commercial development at Hargreaves Lansdown. ‘Larger brokers do clearly have the resources to invest in systems and achieve economies of scale but can, if not properly managed, lose quality of service,’ he says.
Oldham of the Share Centre agrees. ‘If a broker is a branch of a clearing bank, it could be putting an emphasis on insurance or mortgage sales to suit the parent’s needs. System development could be constrained, and so could flexibility.’
There are other factors that you should consider in your choice of broker. I suggest that you put these 10 on your radar: image; range of services; dealing costs; price of trade; research and news; smooth running and security; limit orders and stop losses; trading hours; fantasy trading; and new equity issues. Let us take each in turn.
