Since October last year, the number of daily trades on the London Stock Exchange has almost doubled from an average of 60,000 trades a day to over 111,000 a day in February. Much of this increase has been as a result of the explosion in online trading. There are currently 21 online brokers in the UK and a full list including contact details and commission rates can be found by logging onto the Investment Gateway web site at www.investment-gateway.com.
In an independent survey carried out recently, trading accounts were opened with eight online brokers. In order to fully test the trading systems of each broker, the exercise was carried out at a particularly busy time on a Macintosh computer.
Each online broker in the survey was awarded a star rating for how easy it was to open an account, with five stars indicating a quick and simple online application procedure which works for all computer systems. The survey revealed that the level of service and flexibility from different online brokers varies enormously.
The second part of the survey entailed simultaneously buying a smaller company share through each of the online brokers. The best rating - five stars - indicates a user friendly trading system which had no problem in handling the chosen trade. Only half of the brokers in the survey were actually able to deal the chosen share over the internet, and one broker was unable to deal in the selected share at all.
Barclays: www.barclays-stockbrokers.co.uk Barclays Online stockbroking service is fully certificated with real time dealing and an on screen countdown. The actual dealing system is excellent and very simple to use. Unfortunately, the web site is poorly designed and the trading system only works with the Netscape browser when a Macintosh computer is being used. The trading system relies on clients downloading a unique 'digital certificate' to their computer, which means that you can only trade from that particular computer terminal. A very poor aspect of this service is that you can literally spend days trying to get through on the telephone when the stockmarket is busy, and e-mail responses can take 10 days or more.
Charles Schwab: www.schwab-europe.com Charles Schwab is the largest internet broker in the UK with over 50,000 accounts including online PEPs and ISAs. The online application procedure works well and it is relatively quick and easy to set up an account. The trading system is user-friendly and works well with all browsers and on all computer systems. Charles Schwab is not the cheapest online broker although new customers currently get 30 days free trading. With so many customers, getting through on the telephone can be a nightmare and the promised 24 hour response time to e-mails is not achieved at busy times.
DLJ Direct: www.dljdirect.com DLJ Direct has relatively low standard charges and is currently offering 30 days free dealing. The trading bank account pays an attractive flat rate of interest regardless of the sum held on deposit. The literature and service from DLJ Direct is excellent and a particularly nice touch is the free "Investment Calendar". Unfortunately the online application doesn't work on some computer systems. Another negative factor is that DLJ Direct is not able to deal in all shares over the internet. Although it generally takes less than 10 minutes to get through on the DLJ Direct free phone number, any form of delay when buying or selling shares can prove costly when markets are moving quickly.
E'Trade: www.etrade.co.uk E'Trade has a low maximum dealing charge of just £24.95 and is currently offering new customers the first three deals for free. The web site has excellent background share information, and the trading system works well for all UK shares. Whereas most online brokers in the UK started life as traditional telephone based stockbrokers, E'trade was the first pure internet broker in the UK. Most correspondence is e-mail based which means that you are not notified by letter or telephone if problems occur whilst setting up your account. The onus is on the client to check that everything is OK and because of this it took an unacceptable six weeks to set up an account with E'Trade.
Hargreaves Lansdown Stockbrokers: www.h-l.co.uk Hargreaves Lansdown is a relative newcomer but offers the lowest standard commission rate of just £9.95 a deal regardless of deal size. There is a rather complicated online registration procedure and the web site doesn't work properly for Macintosh computers. The actual online trading system is one of the most user friendly and the whole account was set up in the shortest period of time - just nine days. Hargreaves Lansdown does not yet have real time straight through processing. This means that when you place a deal online, you are effectively e-mailing your order to an individual rather than connecting directly to the Stock Exchange Automated dealing system. The disadvantage of the e-mailing system is that orders can stack up on the dealers screen when the stockmarket is busy and this can lead to delays in placing a deal.
Sharepeople: www.sharepeople.com Shaprepeople is a new online broker, and its service offers a number of unique features. Investors have the ability to deal in US and UK stocks from the same account and for a small additional fee of £2.50 clients can opt to have certificates for their investments. Another good feature is the ability to deal online in unit trusts although at present the range is rather limited. One of the disadvantages of dealing through a new online broker is that its systems and staff will not have been tested to the same extent as more established brokers. The survey bears this out. Sharepeople was the only broker who couldn't buy the chosen share either over the internet or over the phone.
Stocktrade: www.stocktrade.co.uk Stocktrade has the shortest possible settlement period of just one day (T+1). The online application form works well, and a set of clear and simple pre-filled-in forms arrives in the post the next day for signing. Stocktrade is one of the few brokers to offer clients "sponsored membership of CREST". This is a half way house between a "nominee account" where the broker controls your investments and a fully certificated service where you hold the certificates yourself. As a sponsored member of CREST, your name appears on the company share register and therefore Report & Accounts, dividends and any other relevant share information is sent directly to you. Unfortunately, compared to other online brokers, the Stocktrade trading system is slow and extremely unuser friendly. The trading system is not fully compatible with Macintosh computers and not all shares can be bought over the internet.
XEST: www.xest.com XEST has a low fixed dealing commission of just £20 and there are no costs for transferring shares to another broker if you should decide to close your account. Xest is another online broker which offers clients sponsored membership of CREST. The disadvantage of sponsored CREST membership is that there is more paperwork to complete and the account generally takes at least two weeks to set up. Currently the Xest service does not offer real time straight through processing and not all shares can be dealt over the internet.
Michael Scott is the author of 'The UK Guide To Online Investing' published by McGraw Hill and a new book entitled 'The UK Guide To Online Brokers'. Further details of both books can be found online at www.investment-gateway.com. For a limited period, both books are available for the price of one on freephone 08000 564003.Reuse content