How to find the right share trading platform for you


A lot has been said in recent months about the spike in retail (smaller) investors who are trading shares on the ASX and other exchanges overseas.

The COVID-19 pandemic and its impact on sharemarkets has no doubt presented smaller investors with daily buying opportunities. And there are several online, low-cost trading platforms that make buying (and selling) shares easy to do, charging as little as $5 commission for trades from $100.

But buying shares and turning a profit is not as easy as it sometimes looks. The regulator ASIC points this out in a sharemarket analysis it conducted in May this year.

how to find the right share trading platform for you

It said the activity of retail investors had led to the increased daily trading of shares and the duration of holding these shares had significantly decreased. This indicated retail investors were now participating in dangerous short-term and "day-trading" activities.

There were also reports that this activity was being driven by increased social media boasts and people wanting to make the same trades and/or profits.

"Even market professionals find it hard to time the market in a turbulent environment, and the risk of significant losses is a regular challenge," says ASIC.

"For retail investors to attempt the same is particularly dangerous, and likely to lead to heavy losses - losses that couldn't happen at a worse time for many families."

During ASIC's review, on more than two-thirds of the days on which retail investors were net buyers, share prices declined the next day. On days when retail investors were net sellers, share prices more likely increased the next day.

The message here is that if you're thinking of starting a share trading account, think about the real reasons you want to do so. If it's to see your money grow over one to three years or more, then getting caught up in the daily movement of share prices is unlikely to do you any favours.

Going with the cheapest trading platform may be what you decide but weigh up whether that platform and cost really cater for what you want to achieve. For example, does it offer access to international shares; or does it offer access to the platform's full suite of research and data?

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Darren Snyder was the managing editor of Money magazine from March 2019 to November 2020. Prior to that he was editor of Financial Standard.