First-Mover Quarterly:

Broker Review

1 First-Mover Quarterly: Broker ReviewBy Peter Bakker (aka Chewbakker)

Update 9 July 2021: I have reviewed all costs and terms and conditions as this sector is moving incredibly fast. Things have changed; take advantage!

It’s an excellent time for investors like you and me. Not only do you have access to a superb algorithm service like the First-Mover Algo Alert, but you also have access to outstanding low-fee brokers that exist solely to lower the costs of trades of everyday investors.

The more costs you save, the better the returns, especially when you start to compound your results. NerdWallet published an article that calculated that one could lose up to 25% of their investment potential when the fees are 1% higher than another investment option.

When I discuss the returns of the algorithm, I assume you use one of the cheap options, but you can use any broker to execute our trades.

So, this brings me to reviewing three broker options you can use here in Australia. These are just three we chose based on their low-cost structure. We have no business relationship with them, and they don’t know we are reviewing them. I just want to emphasise: this is not a recommendation in any form nor is this financial advice. You are free to choose any broker to execute your trades.

HIN/CHESS versus CustodianI have received many remarks and questions about the difference between the brokers when it comes to CHESS (Clearing House Electronic Subregister System) via your HIN (Holder Identification Number). CHESS is a system that registers the shares you bought on your HIN, which is connected to you. This system ensures that when the broker goes bankrupt, the shares are still yours, and you don’t have to request shareholder certificates to prove you are the owner of the stock. The process to register the shares this way costs between 30 cents and $1.30, but sometimes this gets recharged and marked up to $40, and most brokers charge high fees.

Some people are convinced that you risk losing all your stocks if you don’t trade via CHESS. In an extreme situation, that could be the case, but the legal constructions used by non-CHESS brokers or broker-sponsored CHESS brokers are almost as safe as CHESS, and you don’t have to pay the fees to register. Australia is one of few countries in the world that use a share registration this way. Most broker systems in the world work with Custodians in the form of Trusts, Corporations, or Co-ops. I don’t see the point of paying up to $40 every trade to cover a smaller risk than getting hit by lightning. No advice, just my personal opinion.

2 STAKE

Our publisher, Woody, and I are using STAKE to follow the First-Mover Algo Alert. STAKE is a relatively new broker. The remarkable thing is that this broker trades the US markets without any transaction fee. When a company gives you something for free, you always have to ask yourself: How do they make money?

In the case of STAKE, this is a bit harder to unearth.

STAKE makes money when you send money to your account:

they have a spread of 0.75% of the transaction as they convert Australian dollars to US dollars. When you cash out, the same fee is charged, so basically, you are paying 1.5% of your money if you don’t make a profit. Suppose you double your investment between depositing and cashing out; you will pay 2.25% of your deposit as total fees.

Another way STAKE makes money is on subscription fees. They

3 offer Stake Black for $60 a year. This will give you more options to trade, more data, and faster settlement.

STAKE could, but I have not seen this mentioned anywhere, match orders from STAKE members and ‘cross the tape’ and cash in on the spread between the Bid and the Ask price. I doubt that the volume on STAKE is big enough, and it doesn’t matter as it would not make a difference to you.

However, every trade you do is completely free. 100%! As the US markets are highly regulated, and every broker needs to provide the best Bid and Ask price available, you can trust that you get a fair price for the ETF or stock you want to buy.

Another notable feature of STAKE is that you can buy so-called fractional shares. With most brokers, you have to purchase shares in whole numbers, but you can buy one-third of a share or one-tenth of a share at STAKE. You can only do this with market orders, but it might be an excellent way to pick up a piece of that US$3,000 Amazon share or that US$310,000 Berkshire Hathaway share.

UPDATE 1: Stake has announced it will enable Australian trading as well. This is excellent news as Superhero has increased fees remarkably since its launch. We will follow this story with anticipation!

UPDATE 2: STAKE has launched an SMSF product. I have opened one to try, and so far, I’m pretty impressed by the service and the product itself. I would rather have more than less exposure to the US dollar. Therefore, I’ll be using this product to invest in the US in a tax-efficient manner.

If you want to make your life easy while trading the First-Mover Algo Alert, you can make a watchlist with the instruments: QQQ, TLT, or TQQQ, and TMF, and IVOL. The watchlist in STAKE has a little eye () icon. In Search look for QQQ, TQQQ or TLT, TMF; click on the stock and click the little eye . Now it’s in your watchlist.

STAKE is available on the App store and the web: https://hellostake.com

SUPERHERO

Superhero is a brand-spanking new broker here in Australia. It is not free but has a $5 flat commission on Buy and Sell Orders and no monthly or inactivity fee for the basic account.

What is unique about SUPERHERO is that they only have a $100 minimum investment for Australian shares. Due to ASX requirements, you usually need to invest at least $500 for every Australian-listed company.

Superhero also seems to have a deal with ETF issuers so that the transaction of certain ETFs is FREE.

The First-Mover Algo Alert uses two ETFs for the Australian market: VAS (the Market) and IAF (the Bonds). These ETFs are included in the list of ETFs eligible for free transactions.

In SUPERHERO, you can also create a Watchlist called ‘Following’. If you search for VAS and IAF or ILB and click on the star, you have them always available in your ‘Following’ list.

UPDATE 1: SUPERHERO has launched US trading through the same app with zero fees and low AUD/USD conversion fees. Even cheaper than STAKE!

UPDATE 2: SUPERHERO will launch a superannuation product. Pretty exciting to see more competition in the Super industry.

4 INTERACTIVE BROKERS

Finally, we look at Interactive Brokers. Interactive Brokers is a low-cost broker in the US, but they also have an Australian licence.

This means you can buy US-based ETFs and stocks and Australian-based stocks and ETFs. So, if you want to mix and match, this broker is very convenient. Interactive Brokers is often cheaper for stocks and options than ETFs, and the ‘no commission’ ETF list is minimal. If you trade First-Mover Algo Alert with $10,000, it will cost you about $8 to transact each way: not much at all, but not free!

I use Interactive Brokers a lot for my algorithmic option trading, and it is pretty advanced. The learning curve is a bit steeper than for Superhero and Stake, as they are built for interacting on a mobile app. Interactive Brokers is just less intuitive and is best used on their desktop application.

It is straightforward to create a watchlist (it’s called a watchlist), and from this list, it’s effortless to buy or sell. Interactive Brokers uses limit orders by default. If you want to make sure you execute the transaction, it’s best to use market orders as our ETFs are super liquid.

The most significant disadvantage of Interactive Brokers is that they only serve real-time data if you pay for your data. By default, you have delayed data, and if you want to know what is going on right now, you’ll have to purchase a data subscription.

Finally, the sign-up process is cumbersome. Not as easy as the other two we reviewed here.

UPDATE: Per 1 July 2021, Interactive Broker has waived the inactive fee that was $10 monthly. Progress and competition have their influence!

To finalise, we have made a list of the 12 most popular brokers in Australia, and we have assumed here that you follow First-Mover Algo Alert with $10,000.

Broker Online fee for $10,000 roundtripSuperhero (for the Australian market) $0.00

Stake (for US market) $0.00

Interactive Brokers $16.00

SelfWealth $19.00

Bell Direct $30.00

CommSec $39.90

Nabtrade $39.90

HSBC Online Share Trading $39.90

ANZ Share Investing $59.90

Saxo Capital Markets $200.00

Westpac Online Investing $220.00

Macquarie Online Trading $240.00

As you can see, the costs vary vastly, so it makes sense to opt for the cheaper options.

Cheers,

Peter Bakker Editor, First-Mover Algo Alert

All content is © 2005–2021 Fat Tail Investment Research Pty Ltd All Rights Reserved

Fat Tail Investment Research Pty Ltd holds an Australian Financial Services Licence: 323 988. | ACN: 117 765 009 ABN: 33 117 765 009

All advice is general in nature and has not taken into account your personal circumstances.

Please seek independent financial advice regarding your own situation, or if in doubt about the suitability of an investment.

Calculating Your Future Returns: The value of any investment and the income derived from it can go down as well as up. Never invest more than you can afford to lose and keep in mind the ultimate risk is that you can lose whatever you’ve invested. While useful for detecting patterns, the past is not a guide to future performance. Some figures contained in this report are forecasts and may not be a reliable indicator of future results. Any potential gains in this letter do not include taxes, brokerage commissions, or associated fees. Please seek independent financial advice regarding your particular situation. Investments in foreign companies involve risk and may not be suitable for all investors. Specifically, changes in the rates of exchange between currencies may cause a divergence between your nominal gain and your currency-converted gain, making it possible to lose money once your total return is adjusted for currency. The Reader acknowledges that the contents of this newsletter and all associated intellectual property rights of Fat Tail Investment Research Pty Ltd including copyright, design rights, property rights, rights to data and databases, trademarks, service marks and any other rights created or developed in the course of the provision of the newsletter shall be and remain the sole and exclusive property of PPP. No person is permitted to copy, forward or reproduce the newsletter and/or its contents without express consent of Fat Tail Investment Research Pty Ltd. Subscribers to the newsletter are permitted to use this material for their own personal and investment use.

If you would like to contact us about your subscription please call us on 1300 667 481 or email us at support@fattail.com.au

Fat Tail Investment Research Attn: First-Mover Algo Alert 96-98 Bridport Street, Albert Park, VIC 3206 | Tel: 1300 667 481