Let's answer the investing question finance bros just assume everyone knows - how the heck do investing platforms work?
You want to get started investing, but your brain cells experience physical pain every time you try to get your head around the actual process of investing.
We get it - there are so many phrases you may have heard that make it feel almost-impossible.
What’s a broker? What platform are you supposed to use? There’s fees? What fees? Is that bad?
Arghhhh!
But fear not!
Today, most retail investors use share-trading platforms so you don’t need to be ultra rich to get your hands on some shares anymore.
But the world of investing looked very different before the internet.
Mini history lesson:
The first ever publicly traded company was the Dutch East India Company in the early 1600’s and this popularised the idea of trading a share of a company.
At this point, buying and selling shares was only available to the wealthy.
Over time, share trading became more popular and marketplaces (which we now refer to as stock exchanges) were created. A bunch of people would rock up trading sheets of paper with share trades written on them.
These people were called stock brokers.
What’s a stock broker?
A stockbroker is someone who buys and sells stocks on behalf of investors, and they get a fee in return.
Online share-trading platforms are pretty much a modern-version of stock broker services.
Unlike some stockbrokers (called full-service stockbrokers), most share-trading platforms don’t really give advice on what’s a good stock and what isn’t, they just execute your buy and sell orders.
Two of the most popular online brokerages in Australia are CommSec and SelfWealth.
These platforms charge a brokerage fee for each transaction they put through on your behalf, and that’s the commission they earn.
Features of share trading platforms
Online share-trading platforms also offer a tonne of features like educational resources, charting tools, live news feeds, face-to-face support and more.
Some of these platforms are designed for newbie investors, with a simple to use platform, support access and foundational education resources to help ease you into your investing journey.
Others, catering for more experienced investors, offer more in depth educational resources, insights from professionals, and financial products other than shares.
What to consider when choosing an online investment platform
There’s two main things to consider.
If you’re just starting out, you probably want a platform that’s easy to understand and walks you through the basics.
Butttt if you’re looking to level up, you might be after a platform that has a variety of researching tools and features.
The Australian Investing Association has a list of great questions to ask yourself about your investment needs when you’re choosing a platform.
All share-trading platforms have a brokerage fee.
There’s usually a minimum amount between about $5 - $15 and then an added percentage for buying and selling shares above a certain amount. Eg. 1% on top for investments above $1,000.
Fees might matter more to some investors than others.
If you’re planning to be a long term investor, you won’t be buying and selling stocks frequently so differences in fees across platforms might not matter too much to you
But if you’re planning to dabble into day-trading, then fees would be super important.
It’s also important to be aware that trading platforms can have other fees too like maintenance fees or fees to access a pro/advanced version of the trading platform.
The main thing is being aware of these fees.
There are plenty of comparison websites such as Finder and Canstar you can look at to see what platforms offer what features and what fees to choose what’s best for you.
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