Ah, brokerage… the scourge of investors everywhere.
As all seasoned investors would know, brokerage is an inevitable part of investing in Australia. No matter who you do your investing through, your broker is going to clip your ticket every time you wish to make a trade. It's one of the worst 'hidden costs' in investing, and usually adds up to a very princely sum of money if you've been buying shares for a long time.
It's not exactly cheap either.
Our largest brokers – those run by Commonwealth Bank of Australia (ASX: CBA) and National Australia Bank Ltd (ASX: NAB) will charge you $19.95 and $14.95 respectively for a trade worth under $5,000. That equals a cost basis of 1% or 0.75% respectively for a $2,000 trade – gains you must make up from the investment before you even break even.
Of course, there are alternatives to these brokers, but chances are you won't get away from paying at least $9 per trade.
But there are signs that this comfortable status quo (for the banks) might be coming to an end.
Over in the US, a broker named Robinhood has been offering zero-brokerage stock trading since 2013. Robinhood is now the most popular broker for the millennial generation and says its mission is to 'democratise finance for all'. The company now also offers cryptocurrency trading on top of stocks.
Robinhood's entry into the market was ignored by the big US banks for years but as of last week, several large US banks and brokers like Charles Schwab, Fidelity and TD Ameritrade have now gone down the 'zero-brokerage' route – it seems they could ignore the flood of customers moving to Robinhood no more.
When can we expect to see free trades on the ASX?
Well, the ASX is much smaller than the US market, both in value and volume. Therefore, its likely that facilitating a brokerage service is more expensive for us Aussies. But saying this, Robinhood has apparent plans to launch in Australia with fee-free trades at some point in the future, as you can see from the above picture.
Once this occurs, I predict it will set off a pricing war like we have seen in the US. How long will we have to wait? Well, the jury's still out on that one!
