- Getting a trading account is the first step toward investing
- Three of the key features of a trading account you need to think about are brokerage fees, availability of research materials, and market access
Everyone knows that you need to invest at some point in your life. Of course, the earlier you start investing, the better it is for you. There are so many guides about how to invest you probably won’t finish reading them even if you sacrificed your sleep time.
But before you start investing, there’s one thing that you need to do first: Get a trading account. Despite it being the first step towards investing, there’re so few guides on how to choose the best brokerage account for you to make the best choice. We realized that, and we want to share with you our take on the best trading account.
Brokerage account vs CFD trading account
But first, let’s talk about brokerage and trading accounts. Brokerage and Contract For Difference (CFD) trading accounts are two types of trading account that you can choose from if you want to invest. The key difference between the two is the use of leverage.
Under a brokerage account, you need to have capital before you can invest. For example, if you want to buy S$5,000 worth of DBS shares, you need to have S$5,000 in your brokerage account. Under a CFD trading account, you do not need to hold the full S$5,000. Instead, you only need to hold a fraction of the value of shares that you want to purchase. The least amount you need to hold is S$1,000, according to Monetary Authority of Singapore’s (MAS) maximum leverage of 50:1 policy.
In Singapore, there are a total of 17 brokerages that you can choose from. Some brokerages like SAXO Capital Markets and Interactive Brokers offer both brokerage and CFD accounts. For comparison, let’s assume that CFD trading accounts are used in the same manner as brokerage accounts, i.e. no usage of leverage.
1. Brokerage Fees
Let’s start by comparing the brokerage fees that each brokerage provider charges.
Brokerage fee is the single factor that has the most direct impact on your investment returns. If your broker is charging you high brokerage fees, it translates to higher cost for you as an investor. This will directly impact your rate of return from your investments. Thus, this is one of the most crucial factors to first compare among the brokerages.
The traditional brokerages offer a relatively similar commission fee charge of 0.18-0.28%. The minimum commission fee is also very much the same at S$25. While traditional brokerages like FSMOne and Standard Chartered offers a lower commission fee, they do not deposit your shares into your CDP account. They safekeep the shares in their portfolio and act as custodian of your shares.
Compared to the traditional brokerages, CFD providers offer a more competitive commission rate. In particular, Interactive Brokers offer the most compelling rates, especially for investors with smaller investment capital.
Verdict: CFD providers (Interactive Brokers)
2. Research materials
Research materials are useful source of information for investing. Brokerage houses like DBS Vickers, CIMB, Maybank Kim Eng, RHB, Phillip Securities, Lim & Tan and OCBC Securities provide you with research reports regularly.
These research reports are provided free of charge to you if you have a registered account with any of the brokers. The research is useful for you if you are an investor that does not have additional time to research for shares to buy. The brokerage houses will help you sieve out potential stocks and provide their expected target price for the shares in their report.
In contrast, CFD providers like Interactive Brokers and CMC Markets do not have as much research reports as the traditional brokerage houses. They also do not provide as much in-depth research as the brokerage houses.
Verdict: Traditional brokers
(DBS Vickers, CIMB Securities, OCBC Securities, RHB Securities, UOB Kay Hian, Maybank Kim Eng)
3. Market access
For the more savvy and ambitious investors, market access will be another factor for consideration. Market access refers to the stock exchanges that you can invest in through your brokerage/trading account.
Traditional brokerage houses do not have access to most markets in the world. However, they do cover the important markets that most Singaporeans would venture into, e.g. Malaysia, Hong Kong, China, Japan, US and naturally, Singapore. Among traditional brokerage houses, Phillip Securities provides market access to the most markets, i.e. ASEAN, China, Japan, UK, US, Germany and Australia.
In terms of market access, CFD providers provide a different range of markets against traditional brokerage houses. CFD providers allow you to invest in the major and minor European markets like France, Portugal, Italy, Spain and etc. Some of them like SAXO Capital Markets even provide access to South Africa. However, CFD providers have limited access to the Asian markets. Most CFD providers only offer access to the major Asia Pacific markets like Japan, Hong Kong and Australia.
(Phillip Securities, Interactive Brokers, SAXO, CMC hold a slight edge)
You don’t just have to stick to one account
Having done the comparison of the various trading accounts for you, it’s time to make your choice. For those of you who are keen on doing your own research and exploring different markets, Interactive Brokers will be your best bet. If you are one of those hardcore fans of the quality research that traditional brokers offer, then get on board with one of the traditional brokers.
And if you cannot decide between the two, fret not. You can have more than one brokerage account under your name! There’s no fees to maintaining multiple brokerage accounts because you will only be charged a fee upon any transaction made! (We would like to issue a note of caution to signing up for an account with every single provider as it can be intensive for you in terms of the administration.)