Online trading: a profitable investment option for 2011-12?

July 25, 2011

Despite the well-known “two-speed” nature of the Australian economy, there are plenty of Australians who enter the new financial year to 30 June 2012 with plenty of confidence – and some spare cash to invest. Volatility in Australian and global stock markets has kept many investors on the sidelines, with a big jump in investments going into “safe havens” like term deposits.

But with the increasing popularity of very low-cost online trading platforms, many cashed-up investors are returning to the market and purchasing shares. The Australian Stock Exchange (ASX) did a survey in May 2011, which found that 43% of the adult Australian population owned shares either directly, or via managed funds. This figure – which is around 7.3 million Australians – doesn’t even include the many millions more who have superannuation funds with investments in shares.

The figure of 43% was an increase of 2% from the last survey done by the ASX in 2008. The fact that there’s been any increase at all during such a volatile time (notably the Global Financial Crisis which began in late 2008) is pretty remarkable. The big jump from 2008 was in fact in direct share ownership. In 2008, 25% of adult Australians owned shares directly. The figure is now 30%. In terms of future intentions, 8 out of 10 investors believed it was a good time to buy or hold shares.

Given this level of interest and confidence in the market, online trading providers play a very important role. First and foremost, they put the control of trading strategies into the hands of individual investors, with much less reliance on “intermediaries” such as traditional stockbrokers to make recommendations or give advice. Investors can now finalise a trade within minutes of deciding, and use exclusive research and online tools to assist them in their trading decisions – all from the comfort of home, office or even on the train or bus!

The ASX survey revealed that most investors want to embrace control over their investment management. Only 12% of investors who own shares want to delegate their investment management. This shows that as research and self-managed tools become more available, more and more investors want to make their own decisions.

Secondly, because most online trading providers have multiple products and fee structures, they offer a way for several different kinds of investors to have a low-cost entry into the trading market. Brokerage fee structures offer quite low costs for casual investors, while some of the tiered fee structures for high-volume and high-value traders allow them to trade as aggressively as they’d like at relatively low cost.

Stock market trading – whether done online or via a stockbroker – isn’t for everyone, and most importantly, it has higher inherent risks than some other forms of investing. But for those who are ready to trade, online trading can be a useful tool towards a profitable trading approach.