Brokerage platform Stake is the latest broker to hop on the 'cheap shares' train. The previously US-only broker is expanding into ASX shares, offering a market-leading $3 brokerage fee as a start.
Stake announced its new expansion plans this morning. It will be opening up to ASX trading for a select number of Beta users starting today, with a waitlist for investors to make it onto the Beta. Those that do make the Beta will be offered $0 brokerage until 2022.
So why now for ASX trading on Stake? "It was led by customer demand," Stake CEO Matt Leibowitz tells The Motley Fool. "It was something our customers have been clamouring for, so we were happy to provide it".
Stake reckons that its $3 brokerage will make it "the lowest cost CHESS-sponsored offering bar none". By 'CHESS-sponsored offering' Stake is referring to how it will keep a conventional CHESS-sponsored model, which allows investors to use an individual HIN (Holder Identification Number).
This allows investors to hold their shares under one HIN via the CHESS system. This is similar to the model offered by existing brokers like CommSec and NABtrade.
However, it does draw a point of difference with the rival broker Superhero.
To HIN or not to HIN…
Superhero made quite the splash when it launched its own ASX trading last year, complete with a $5 brokerage fee and free ETF trading. However, Superhero doesn't assign individual HINs to investors, instead using a custodian model. This means customers' assets are held under one broad HIN, rather than each investor having an individual HIN.
Stake is clearly seeking some differentiation with its new product, so will offer $3 brokerage for all trades, including ETFs.
Aside from Superhero's $5 brokerage, other 'cheap' options for ASX investors are currently the $9.50 brokerage being offered by SelfWealth Ltd (ASX: SWF). The largest brokers in the country such as Commonwealth Bank of Australia's (ASX: CBA) CommSec or National Australia Bank Ltd's (ASX: NAB) NABtrade, typically charge users between $10 and $20 per trade, depending on position size.
US and ASX markets now open for Stake users
When asked if the company could turn a profit on such a low flat fee, Leibowitz was unequivocal. "Absolutely," he told the Fool. "With our scale, this is something that we can see generating a positive return for Stake".
"We just saw an opportunity," says Leibowitz. "Lower brokerage benefits the users at the end of the day. Paying brokerage fees from the 1990s has always been normal for Aussie investors… but we don't see why [other brokers] should enjoy such high margins."
So until now, Stake only offered ASX users access to the US markets. For US shares, users are charged zero brokerage, with the company only taking a 0.7% foreign exchange currency fee for cash transfers. Stake's ASX site will also have a wallet for cash transfers, albeit with no fees.
Stake does currently offer fractional shares for US trading, but Leibowitz confirmed that this won't be available for ASX shares. "It just doesn't work with the ASX," he said. "The systems don't really allow it, so it's not something we can really offer."
What's next for Leibowitz?
But since the ASX lacks the kinds of high-cost shares that are present on the US markets (think Amazon.com Inc (NASDAQ: AMZN) at US$3,470 or Warren Buffett's Berkshire Hathaway Class A (NYSE: BRK.A) at US$418,000), Leibowitz doesn't think too many ASX investors will find it useful anyway. "You've got plenty of ASX shares under a dollar," he says.
As for future plans, Leibowitz says the company is just focused on getting the rollout of ASX trading right before it considers other avenues. When pressed though, Leibowitz did admit the team "has talked" about offering cryptocurrency trading.
Stake says it is now the fourth-largest broker on the ASX, boasting 360,000 customers across Australia, New Zealand, Brazil and the United Kingdom.
