‘Get
price wise when dealing on the net'
THE OBSERVER- 06/08/06
Cybertrading can help you ride the bad times, says Sally McCrone,
but it still pays to compare deals.
Direct share dealing has never been easier, but if you choose the wrong
deal, the trading costs can eat away at your gains like a ravenous Pacman
in the iconic computer game.
The internet is the surest way to cut costs and has steadily become
the preferred method of choice for private investors who want to go
it alone. Spurred on by the fast and easy access to free research and
share price information offered by many online brokers - even as the
markets trudge through a difficult period - more confident investors
have learned that through the net they might even make money in less
predictable times.
Lisa Freeman, associate director of Barclays, says that from January
to June, Barclays saw more sellers (51 per cent) than buyers of shares,
as investors cashed in on the highs. Since then, 54 per cent of trades
have been purchases as investors have changed tack and sought out bargains.
Of the 2.6 million execution-only trades carried out in the first quarter
of 2006, 58 per cent (1.5 million) were online, according to market
research group ComPeer. In the same period in 2002, just 44 per cent
(or 600,000) of the total 1.35 million trades were over the internet.
Online
trading has also knocked telephone dealing into a cocked hat in terms
of cost. For example, Halifax Share Dealing charges £11.95 for
an online deal, but the rate for phone-based trading starts at £15.
Halifax says 65 per cent of its trades are now carried out online. But
don't be fooled into thinking that internet trading is always a bargain
- there will be plenty of hidden extras to pay if you choose a deal
that does not match your regularity of investing. 'Inactivity fees'
- designed to penalise the lazy investor for not trading - administration
or management fees, and other costs such as tiered commission rates
all add up and vary between providers.
If you have a self-select Pep or Isa with an online broker, the typical
annual management fee is £25 to £60. And investors with
self-invested pension plans (Sipps) might pay hundreds of pounds a year
on top of setting-up charges.
According to moneysupermarket.com
- the online comparison service that monitors scores of execution-only
services - the top three online deals for an investor trading once a
month at a trade value of £500 are from Hoodless Brennan, the
Share Centre and E*Trade. Next best are ShareCrazy*, Jarvis Investment
Management, Virgin Money and IWeb.
When picking an online stockbroker, it pays to look beyond the headline
dealing charge and consider all likely extra fees. And don't forget
that whichever one you use, there is stamp duty on all purchases at
0.5 per cent and, for those buying or selling pounds 10,000 or more,
there is a £1 fee for the PTM levy, which helps to fund the Panel
on Takeovers and Mergers.
Investors also need to decide at the outset whether they are active
or inactive traders and be clear about how their chosen stockbroker
defines this. Investors should also ask whether they can trade any shares
they like. Some brokers will limit deals to UK markets only, or will
charge more for foreign share dealing or ask that you make the trades
by phone rather than online, which might cost more.
Most online brokers also hold your shares in a nominee account, because
it is cheaper to manage. But this does mean that under current rules
you will not have any share certificates and will lose the automatic
right to shareholder benefits, such as annual reports, and to perks
such as discounts on products or services provided by the company in
which you are investing.
*ShareCrazy Trader charges a flat rate commission of £9
per trade. ShareCrazy Trader accounts carry no monthly, quarterly or
annual fees and are not subject to any form of inactivty charges.
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