Online trading competes with two other methods for individuals to invest in companies that are listed on the JSE, the others being investing in what is called an index tracking fund like Satrix, which invests in the largest companies on the JSE and investing through a unit trust or fund manager.
What’s on offer
Online trading is typically seen as an integral part of private client services for banks and stockbrokers. You can surf through the websites of the major local online share trading players, including FNB, Absa, Standard Bank, PSG Online, BoE Private Clients, Sanlam iTrade, ShareNet, Investec, Imara and Barnard Jacobs Mellet, to find the online facility that best suits your needs. You need not be a bank customer to use the online offering of a bank, as the facility is run by its stockbroking division.
Leanne Parsons, head of equity trading at the JSE says: “There has been a lot of growth and product development in online trading, such as trading offerings that cater for first time investors by merging financial advice with trading services. “From 2007, retail investors had access to all live equities and indices data discounted by 70% via their relevant data providers. The intention of the move was to enable market access for novice and potential investors. This allowed the private investor to have a view of how the market is performing on a real-time basis,” she continues. “In March 2010 we revised the equities billing model – the new billing model incentivises low value traders which are typically retail investors.”
The thorny issue of costs
In fact, one reason for the low level of private investing in South Africa is the relatively high cost of investing on the JSE, especially in the case of the investor who wants to invest between R500 and R5 000 a month. Direct investing – whether through a stockbroker or online – is not cost effective because the costs of investing would erode the return you make. Economies of scale can only be brought about by aggregating capital in unit trusts – or, of course, earning great returns.
For the person determined to do it himself, chief operating officer of Absa Online, Duncan Ingram offers advice to new online investors: “If you are not going to trade often, select a platform with a low monthly cost. There are many fly-by-night companies – it is advisable to check up the companies’ credentials and ensure that they are run by an approved JSE member or an approved financial services provider.” There has long been a battle between Absa and Standard Bank to offer the lowest cost online share trading service, despite the fact that for the private investor it is difficult to assess which is cheapest. FNB has now entered this price war, which is the usual method for a new entrant to build market share.
Gusta Binikos, the head of FNB Share Investing says: “Affordability is vital to the beginner who is price sensitive and that’s why Share Builder has an admin fee of R17 per month, the lowest in the market, and we will be keeping it at this level until 2011. We know that the beginner does not trade frequently in a month so we chose not to reward behaviour that is unlikely to occur in our base. Instead we have gone for a permanent low admin fee that applies to everyone.“The Share Builder customer also finds the transaction pricing in the market confusing and prefers a flat fee per trade. That’s why we charge a flat 2% of the value of the trade which make small trades of around R2 000 very competitive. There is a minimum of R50 per trade. The 2% includes everything except VAT.”
