Is trading through your bank a good idea?

Banks obviously have a far more captive audience while brokers have to compete (often aggressively) to win new business and even retain clients.

There is no doubt that investing and trading through your bank is convenient and relatively hassle free; after all, you are a “valued customer” – or are you?

When it comes to the actual cost of trading ie buying and selling of shares, banks and independent brokers are relatively on par.

Like I said, we work in an extremely competitive environment so nobody can really afford to get too clever on the transaction cost side of things. Lucky you.

I found the “brokerage” charges vary between 0.4 per cent and 0.6 per cent per trade when buying and selling.

So the playing fields are pretty even when it comes to that cost.

Another area where banks and brokers compare evenly is the “monthly admin fee”.

The fees charged on a standard “plain vanilla” share account is around R70 a month plus VAT.

Still all good there because that fee not only includes the cost of administration, but also some mandatory Johannesburg Stock Exchange (JSE) cost. Some charge R60 per month and others charge around R80.

What’s the difference then?

In one way brokers have kind of “missed a trick” when it comes to charging for support and expertise, but on the other hand, not charging certain fees does give them a competitive advantage.

For example, stock broking firms are not banks.

This means that they are not equipped to charge deposit and withdrawal fees.

Banks on the other hand are banks.

They charge for deposits and withdrawals because they can.

Both banks and brokers offer some kind of trading platform where you can trade on your own.

What they also have in common is that they also both have trading desks.

The trading desk is there for the execution of trades; let’s call it the “front line”.

Here’s the difference though.

Some banks who offer online trading services charge you if you call them to place an order to buy or sell shares.

I’m not aware of any brokerage firm who charges a client to speak to them.

I would feel quite aggrieved if I had to pay R35 (plus VAT) for a phone call, but hey, like I said, maybe brokers may have missed a “trick”.

The “grey area” in all of this is for the shorter term trading clients – those of you who trade contracts for difference (CFDs).

No broker would levy a monthly admin fee on their clients and I cannot say that banks do or don’t, but it’s always worth checking.

I guess it’s all about transparency in this case.

The banks (usually) clearly specify their fee structure so it’s not like they are hiding anything.

In fact, any financial service provider must by law disclose all fees and commissions to their potential clients.

Make sure you know what you are paying, because when it comes to trading and investing, the fees you pay to play have a material impact on your profitability.

Also read:

Manage your own wealth

Follow us on these platforms:

Like our Facebook page and follow us on Twitter.

For news straight to your phone invite us:
Instagram: benonicitytimes.co.za