Investment Tips - Yahoo!7

Online Brokers

  1. Are you a frequent trader?
  2. Beware monthly fees
  3. Beware of extra fees
  4. Beware off-market offers for your shares
  5. Can you claim 'professional trader' deductions?
  6. Check cash account requirements
  7. Check the level of 'international' access
  8. Check your rego
  9. Consider float offers carefully
  10. Consider the size of your trades
  11. Don't pay entry fees on managed funds
  12. How deep is your research?
  13. How timely is your price data?
  14. Make sure trading tools suit you
  15. Stay vigilant
  16. Take tax into account for investment planning
  17. Tax advantages of borrowing to invest
  18. Understand straight-through processing

1. Are you a frequent trader?

If so, check what frequent trader discounts are on offer – they can cut transactions costs significantly for active traders.


2. Beware monthly fees
Look out for monthly subscription fees which will apply wheter you trade or not during the period. Check what you get for your money. Such services may not suit infrequent traders.


3. Beware of extra fees
For services beyond the standard buying and selling of ordinary shares on the ASX, check what fees apply, eg. for options and margin trading.

4. Beware off-market offers for your shares
Be wary of unsolicited offers to buy your shares. A number of operators flood small investors with mailed offers to buy their shares in public companies - usually at a price well below the market.

The Australian Securities and Investments Commission urges shareholders to fully investigate these offers.

While the practice is legal investors should check out the real value of their shares and whether it's wise to sell or hold. Try to find out why the offer is being made. Know your shares' value now and get an idea of their future prospects. Something may be about to happen to the shares that the investor doesn't know about.


5. Can you claim 'professional trader' deductions?

Those who claim share trading as their profession rather than just being an investor must convince the Australian Taxation Office before they can claim trading losses as tax deductions. The ATO warns there are strict criteria to be met for someone to be classed as a share trader following confusion amongst investors who have incurred losses and then tried to offset these against their other income.


6. Check cash account requirements

Before you sign up, check the account opening requirements of the brokers. These may involve initial deposits of up to $5,000. And can you monitor your balance in this account online? Some brokers allow you to buy up to $25,000 worth of shares in Top 150 companies without having the cash in your account until settlement (T+3).


7. Check the level of 'international' access
Access to international shares generally only means the main US exchanges, NYSE (Wall St), NASDAQ and the American Exchange.
Access to Asian and European exchanges is growing but if that's what you want, you may have to hunt around for it.

8. Check your rego
If you've acquired shares in previous floats you may need to transfer CHESS registration of these securities to your online broker before you can sell them.

9. Consider float offers carefully
If allocated shares in a float by your broker, consider first whether they suit your investment strategy before accepting. Don't just buy in because you have privileged access to new listings.

10. Consider the size of your trades

When comparing fees among brokers, consider the likely size (dollar value) of your trades. Fee scales can vary considerably so that a broker who is cheap for smaller trades may not be at higher levels.


11. Don't pay entry fees on managed funds
If you want to buy managed funds online through your broker, check that they will rebate the standard upfront entry fee charged by fund managers. If they're not giving you advice on fund investment, this fee should not be charged.

12. How deep is your research?

Check what the broker offers in company profile and recommendation report information – just how detailed is it?


13. How timely is your price data?

So-called 'Real time' market price data offered via a website is not always instant – it can be delayed by minutes. Even when it is not delayed, you must refresh the page in your browser to see the latest prices. If you really want to be sure you are seeing up-to-the-second prices, get 'dynamic' data which updates on the page before your eyes without you having to refresh the page. This is usually a more expensive option.


14. Make sure trading tools suit you

Make use of watchlists, market depth and charting tools to help you analyse stock peformance. However, before committing to a broker check that any charting and portfolio management software on offer suits your needs – packages can vary considerably.


15. Stay vigilant
The ability to monitor news and ASX announcements for changes in price-sensitive information is an important part of an online broking service. Check that the broker's offering suits your needs.

16. Take tax into account for investment planning

When judging performance, investors often look at the wrong number, since many published comparisons of investment performance do not take into account tax. For example, money invested in a cash trust earning interest at 5.3 per cent a year would produce a net return of 2.73 per cent for anyone on the top marginal tax rate. Our tax system divides investment earnings into two streams. Income earnings are taxed at full marginal tax rates. But the profit on the sale of the shares or property gets concessional treatment for the gain in capital value. So the form in which investment earnings come to you makes a major difference to how much you get to keep in your pocket.


17. Tax advantages of borrowing to invest

There are several tax advantages when you borrow to invest in shares:

  • you can claim your interest payments against your taxable income and if earning less on the share investments than the interest payments you can claim the interest against other assessable income
  • you can prepay the interest up to 13 months ahead, prior to June 30, which is helpful for cash-flow planning and also allows you to claim the deduction a full year in advance
  • you can defer any capital gains tax liability until the shares are sold
  • as you're geared into the market you will own more shares than if you had paid cash, so you will receive more dividend payments. If the shares are franked then you can offset the franking credits against your assessable income

18. Understand straight-through processing
When a broker offers 'straight-through processing' this means trades are fully automated - you're trading direct into the market yourself. Once you submit a buy or sell order, that's it, it can't be cancelled and the trade will be automatically executed. Manual processing sees trades go to a human being in the broker's office first before being submitted to the market.





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