More than just cheap trades

A report released by Pty Ltd last week revealed large variations in the time it took online brokers to process trades. The largest variation was between those online brokers that offered Straight Through Processing (STP) and those that process trades manually.

With STP there is no human intervention when trade orders are made. The investor is therefore solely responsible for inputting their order and checking that this is done correctly. It is therefore important that the investor is able to check the progress of their order and be able to cancel this easily when required. Manual processing of trade orders placed over the internet is not dissimilar to placing orders via a fax or phone and the investor is relying on the broker to place the order accurately.

Results of the report, printed in the Weekend Australian, 17 – 18 June, show an average time to place a trade amongst online broker with STP at 12 seconds, while non STP online brokers recorded an average of 5.02 minutes. There was also a degree of variation occurring within each of these categories, indicating non – technology related factors also affecting the speed at which trades were processed. Of particular note was the variation between St George and HSBC InvestDirect, given that HSBC InvestDirect processes trades placed via the St George service.

The report shows that STP will be more critical to frequent traders who are acting upon real time information and relying upon speedy execution. Additionally, those wishing to respond quickly to wild swings brought about volatility in overseas markets will also be concerned by these results.

Investors should be aware that signing up with an online broker is a package deal. The major considerations are brokerage fees, access to all ASX stocks / overseas markets, real time market data, company research, how orders are processed, access to floats.