The online stockbrokers will trade shares. The smaller firms may not deal in stocks on the Alternative Investment Market, and may limit foreign stock trading.
Beyond shares, the range of products on offer varies. The larger firms offer a select range of investment funds, an ISA service, pensions, will-writing and more. Some firms trade bonds, typically by telephone, and perhaps derivatives and foreign exchange.
From around 2005, active traders started migrating to spread betting and contracts for difference, and retail brokers have started to cater for this demand. City Index is the main player in such derivatives trading, and it makes its services available through many brokers.
Some stockbrokers do not welcome the increasing interest in derivatives. The Share Centre is in this category. The only derivatives it offers are covered warrants.
Oldham says: ‘Online stockbrokers take on traders in CFDs and spread betting and feel they have gained a client. But CFDs move investors away from cash markets and it is not in the interest of quoted companies. The brokers are selling their birthright for a mess of potage.’
The range of available products has created cross-selling opportunities for the broker, turning them into something of a one-stop financial shopping source for investors. In a typical case, the broker may sell an Individual Savings Account (ISA) to somebody owning shares.
When online brokers act as principal by launching share issues and inviting regular clients to subscribe, there is a potential conflict of interests. Most do not get involved.
