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Online Brokerages Vs Traditional Brokerages: What Exactly Are The Differences Between These Brokerage Accounts?

Singapore investors today have plenty of choices when it comes to choosing which brokerages to use.


This article was sponsored by Futu Singapore. All views expressed in this article are the independent opinion of DollarsAndSense.sg based on our research. DollarsAndSense.sg is not liable for any financial losses that may arise from any transactions and readers are encouraged to do their own due diligence. You can view our full editorial policy here.

For many of the things that we regularly do, there are old ways and new ways of doing so. If we are watching programmes, we can catch it on television whenever it’s being broadcast or use a video-on-demand app like Netflix to watch it whenever we want, wherever we are.

This also applies to investing and trading as well. While the concept of investing and trading has been around for a long time, the way we invest and trade today can be very different from how it used to be 30 years ago. Gone are the days when we refer to the Teletext to find price information on stocks and to call our broker to make an order over the phone.

One of the things we do need to start investing in the financial markets is a brokerage account. A brokerage account is an account that gives you, via the brokerage firm, access to the financial markets where you can buy financial assets such as stocks, bonds, ETFs, REITs and other listed products that are found on exchanges such as the SGX, HKEX, NYSE and NASDAQ.

Online Brokerages Vs Traditional Brokerages?

If you are a new investor, you may be unsure of which brokerage account to use. After all, the important part of investing is what you invest in, rather than the platform you choose to invest on.

For retail investors, something to think about is the difference between online brokerages and traditional brokerages. Traditional brokerages are brokerage firms that have been around even before the internet days. Back then, investment orders are usually communicated by investors to their stockbroker (a representative of the brokerage firm) over the phone. The stockbroker will then help to execute the order to the exchange on behalf of their clients.

Today, most traditional brokerages still offer these services. However, you can also trade online on your own with these brokers.

Unlike traditional brokerages, online brokerages are usually much younger and only started during the Internet age. Instead of trading through a representative, online brokerages offer a platform where investors can trade directly on their own.

Whether you choose online brokerages or traditional brokerages, it’s worth remembering that brokerages ultimately offer us the same proposition – allowing us to invest in assets on the financial markets.

“5C” to consider when choosing brokerages:

In true Singapore fashion, we have identified 5Cs that explain some of the notable differences between traditional brokerages (or banks that offer brokerage services) and online brokerages that you should look out for.

#1 Cost

The biggest distinction that investors would care about is obviously cost. After all, the goal of investing is to make profits. One way of doing so is simply by minimising our transaction costs.

One of the biggest advantages for online brokerages have over traditional brokerages (or banks that offer brokerage services) is their ability to leverage on technology and allow their services to be provided to investors at a competitive price. For example, when we open a brokerage account with Futu Singapore, we can see that the cost of trading is extremely low compared to traditional brokerage firms. Futu charges $0 commission on US market trading forever and also a 1-year platform fee waiver.

To trade Singapore counters via Futu, fees are at 0.06% of the transaction amount with a minimum fee of S$2.49/order.

In contrast, for many traditional brokerages that operate in Singapore, commission charges for Singapore counters are usually at about 0.27 – 0.28% of the transaction amount, with a minimum of SGD 25 per transaction.

Whether you invest through online brokerages or traditional brokerages, what you are ultimately interested in is the investment that you have.  Thus, it makes no sense to pay more than you need because high transaction costs will reduce your returns.

The added advantage of a lower cost per transaction is that it gives investors more flexibility to invest in lower quantum. For example, if your intention is to invest USD 500 each month on US stocks, you will not need to pay any commission for the stocks you purchase via Futu Singapore. In contrast, with a traditional brokerage, you will be charged a minimum of USD 25, which represents a whopping 5% of the capital that you are investing with. This means that you end up paying USD 525 to buy stocks that are valued at USD 500 at the time of your purchase. Thus, your investments need to increase by at least 5% just to breakeven.

Read Also: DollarsAndSense Experiences: How It’s Like Investing For The First Time In US Stocks

#2 Content

When I first started investing more than a decade ago, the (traditional) brokerage platform I used was mainly for transactional purposes. I log on – on my home desktop – whenever I wanted to trade and that is the sole purpose that the brokerage platform serves.

Today, using the moomoo app, I don’t just use my online brokerage platform for transactional purposes, but also to stay up-to-date with the market. Within a few taps on my phone, I can easily follow the share prices of the stocks that I have invested in, or those that are on my watchlist.

Beyond that, moomoo also has a News tab that helps to curate relevant market news that I might be interested in to stay up-to-date with financial news. This is useful not just for investment purposes, but also as a general financial news feed, like how we use Facebook for social news and LinkedIn for professional networking.

Besides headline news, we can also watch video content, get IPO-related news, and access a financial calendar that informs us of any upcoming major financial events. All these can be found on the same moomoo app that we can also use to invest.

#3 Customer Support

Another notable difference between online and traditional brokerages is the way customer support tends to be delivered.

For online brokerages, customer support tends to be done online. Usually, this can be found within the mobile app itself that we use for trading. For moomoo, this is in the form of a Customer Service or Help Centre.

If we need support, we can submit an online inquiry or a phone inquiry.

For traditional brokerages, there will usually be a designated dealer, or a team of dealers, who are assigned to you. If you have any questions or issues, you usually give the person a call. This is useful if you have a complex problem and prefer to talk to the dealer about it but it may be less preferred if you have a simple issue that just requires a quick, online answer.

The other key difference is the 24/7 support. With traditional brokerage firm where you have a dealer that is assigned to you, you may be limited to official (Singapore) working hours and that could be inconvenient, if like us, you tend to trade in the middle of the night and encounter an issue. With online brokerage firms, customer support is usually 24/7.

#4 Connectivity

What does connectivity refer to when it comes to stock brokerage accounts?

The primary objective of any brokerage firm is to give us access to the financial markets. Traditionally, this meant the Singapore Exchange (SGX). However, in the globally connected world that we live in, this is no longer good enough. Instead, even first-time Singapore investors will expect to be able to invest in major financial markets.

With online brokerages such as Futu Singapore, we can open a brokerage account and immediately invest in major financial markets such as the US, Hong Kong, China and of course, Singapore.

Investing in overseas stocks also means that you need foreign currencies. Through Futu Singapore, we can exchange and keep foreign currencies in our brokerage accounts, giving us the ability to fund future investments that are denominated in foreign currencies such as the USD and the HKD.

The other objective of connectivity is to ensure that we can always connect to the financial markets regardless of where we are. In the past, even when I am doing online trading, I will need to be at home on my desktop with good Internet connection to be able to trade. Unfortunately, this also means it’s hard to trade the markets if I am not at home.

These days, however, many of us would use our smartphones to trade. As such, you would want your brokerage firm to have a dedicated mobile app, as opposed to having to use the phone’s internet browser to access the brokerage platform.

This is where online brokerages such as FUTU Singapore tend to have an advantage. With its mobile app, moomoo, investors can trade through a brokerage firm that offers a mobile-first design. As long as we have an Internet connection, we can stay connected to the financial markets.

#5 CDP Or Custodian?

If you are based in Singapore and new to investing, the term CDP and Custodian may be a little confusing. Let us explain.

Operated by the SGX, your CDP account provides integrated clearing, settlement and depository facilities for people in the Singapore securities market, for stocks, bonds and other listed securities.

When you purchase Singapore counters listed on the SGX through a traditional brokerage firm, the stocks are usually (though not always) credited into your CDP account. This means that your CDP account holds these stocks. It also means that you can choose to sell these stocks in your CDP account through another brokerage firm in the future if you want, as long as the brokerage firm offers a CDP-linked account option.

On the other hand, there are also custodian accounts. A custodian account is typically operated by its respective brokerage firm, rather than in a centralised location. This means we can only buy or sell stocks initially bought with the same brokerage firm if we want to liquidate our investments.

For traditional brokerages, we pay higher fees for local stocks but the stocks will be credited to our own CDP account. For online brokerages, these stocks would be held via a custodian account.

However, if we are investing overseas such as in US stocks, all our stocks are automatically held under a custodian account as CDP accounts are only applicable for Singapore-listed securities. This applies whether we use online brokerages or traditional brokerages. So the differences between traditional and online brokerages when it comes to trading and investing overseas become much lower.

The Ease Of Opening An Online Brokerage Account

Having opened both online brokerage accounts and traditional brokerage accounts, I would say that it’s way faster and easier to open an online brokerage account. One of the reasons for this is because every form or detail that we need to open an account can be done online, with no print copy needed. You can read about our experience opening a FUTU SG Securities account here.

For anyone who is opening their first brokerage account, we would advise you to open an online brokerage account such as with Futu Singapore which can be done within a few minutes. Doing so automatically gives you access to major financial markets within your fingertips. You can trade on your mobile phone by downloading the moomoo app on the App Store or on Google Play.

Read Also: Step-By-Step Guide To Opening A FUTU SG Securities Account With moomoo

Disclaimer: This article has not been reviewed by the Monetary Authority of Singapore.