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What 12 Years Of Investing Taught Me About Local And Overseas Brokers

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So you want to start investing? A lot of my friends have asked me on how should they begin investing, which explains this article to share my own journey. Apart from reading up investment news, the very first step to buying shares, stocks, trading, etc will be to setup a brokerage account.

What Is A Brokerage Account?

It is an arrangement between an investor and a licensed brokerage firm that allows the investor to deposit funds with the firm and place investment orders through the brokerage, which then carries out the transactions on the investor’s behalf. The investor owns the assets contained in the brokerage account and must usually claim as income any capital gains he or she incurs from the account.

In Singapore we have a few brokerage firms to choose from:

*There are way too many brokers out there, I am only highlighting a few of them for comparison. Personally, I have experienced using POEMS, OCBC Securities, OptionsXpress and Interactive Brokers.

Summary: Choose Overseas Brokers to save in the long run

  • There are many brokers to choose from and you are unlikely to switch once you have picked one.
  • For intermediate to advanced traders, choose Overseas Brokers (such as Interactive brokers or SCB)
  • Especially if you trade actively above (20 to 30 trades a year)
  • Save up to $580 of fees in a year (if you execute more than 40 trades of value $10k)

Local Brokers/Banks

We look at some of the pros and cons of investing through local brokers.

Pros
  • Local Presence
  • No Min Deposit
  • Easy payment/ Withdrawal as they link to your local bank account.

I started trading about 12 years ago when I first open my student account with POEMS. For local brokers, there is no minimum deposit required to start an account. One can easily pay the brokers via Online banking, and when you sell your shares, your proceeds are automatically transferred to your designated bank account.

Cons
  • Crappy platform – No stop loss, no trailing stop, etc
  • No Portfolio Analysis
  • High Rates (average 0.2% – 0.3% per transaction, with minimal cost)
  • Limited products – No options, bonds, limited ETF, etc.

I switch out of local brokers about 2 years ago due to the reasons stated above.

Local brokers cannot really satisfy my needs when I start investing and trading more. The main reason attributing to my switch is the cost involved. I trade on average 20+ times a year, which is a volume high enough to incur a trading cost of $500-$600 a year. Motivated to keep this cost lower, I looked around for better alternatives.

Overseas Brokers/ Banks

While exploring overseas brokers and banks, here are some of the features I found out.

  • Better platform
  • More complex trading options
  • Lower rates
  • Huge Range of products
  • Portfolio Analytics – A must have for me

Standard Chartered (SC), Option Xpress and Interactive Brokers were the top 3 preferred options when I search for overseas brokers. SC has a local presence with 0.2%. However, SC platform is just as crappy as the other local brokers.

Standard Chartered has a local presence of 0.2% market share. Their platform, however, is just as crappy as other local brokers. The only thing that is positive about SC is the local presence – if something doesn’t work out, one can head down to any SC branch to get it fixed!

OptionsXpress has a local presence, a really good platform and transaction cost is at about $10 per trade. I played around with OX for a while and almost committed myself to OX. At $10 per trade, I would essentially save $250-$300 on a yearly basis! On top of that, OptionsXpress is own by Charles Schwab and they are reputable and listed on NYSE.

I ended up choosing Interactive brokers after a long research.  They have the lowest rates for only $1 dollar per trade! With such a low transaction cost, I will never need to worry about my transaction cost. To seal the deal, their FX rates are done on the spot which means that I can keep different currencies. This is a very important factor, especially when you buy overseas shares – the currency exchange’s bid and ask spread can eat out 1-2% of your profit when using local brokers. IB, however, does not have a local presence, but they are a public company listed on NASDAQ.

Further Reading: More on Interactive Brokers

Since I’m already on Interactive Brokers (platform), allow me to elaborate more on it before you jump ship over to it.

Disadvantages of Interactive Brokers
  • 10K USD to start an account (equates to around S$14K, quite high to start)
  • Complex trading platform (It took me about 1-2 hour to learn how to buy and sell on IB on youtube)
  • A monthly Activity fee of USD 10 dollars – if your trading fees is less than $10 per month.
  • Can’t Trade SG Stock (I’m guessing that SGX banned IB from letting Singaporeans trade SGX stock to protect local brokers)
  • No Local presence (So you cannot get help at a helpdesk)

There is a fixed annual platform fee of US$120 – whether you trade or not. If you simply just buy 1 share a year and don’t do anything, local brokers will suffice.

Advantages of Interactive Brokers
  • Trading with IB is really really cheap. Most of the time its less than a dollar – take a look at the chart below (allow me to hide some of my sensitive information).
  • On the right column, you can see that most commission is a few cents. With the exception of Hongkong dollar stocks with cost about 30HKD – about S$6.

Interactive Brokers

  • You get access to real cheap ETF funds like Vanguard VOO (S&P 500 ETF) and BND (Bond ETF) with expense ratio as low as 0.04%. In comparison, Nikko AM Singapore STI fund is 0.35%
  • You get to be your own money changer too if you have DBS multi currency account. It really saves you money in the long run.

Comparison Between Standard Chartered vs Interactive Brokers 

For each trade value at S$1,000

We can see that Interactive Brokers is cheaper if you invest 20 trades and above.

Trades / YearValue / TradeSC (Fees)IB (Fees)Savings
0$1,0000$120-$120
10$1,000$100$130-$30
20$1,000$200$150$50
30$1,000$300$180$120
40$1,000$400$220$180

For each trade value at S$10,000

We can see that Interactive Brokers is cheaper if you invest 10 trades and above.

Trades / YearValue / TradeSC (Fees)IB (Fees)Savings
0$10,0000$120-$120
10$10,000$200$130$70
20$10,000$400$150$250
30$10,000$600$180$420
40$10,000$800$220$580

Do your own due diligence and save on costs!

I currently use Interactive Brokers for overseas related shares and OCBC Securities for shares listed locally. IB is not really for everyone, especially if you need the local presence and lots of guidance on how to trade. However, if you do trade at least 20 -30 times a year or you transacted in the north of S$10K, it is time to switch and save up on the deadly transaction cost.

Before you jump into any platform, always remember to research, research and research! There are tons of fraudulent brokers out there just waiting to cheat your money! For overseas brokers, I highly recommend selecting only brokers that are listed in the stock exchange and have a history of surviving through financial crises.

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