Comparing Brokerage / Trading Platforms – Part 2
Don’t Listen To Me, But Please, Hear Me Out: # 18
Shaheeda Abdul Kader, Aug 25 2020
You’ve decided you want to do the adulting bit. So, now you’re ready to sort out your savings and invest to grow your wealth. Wonderful! But how do you start? Well, you need a brokerage firm.
If you’ve not read Part I, please do read it first, because we reviewed an exhaustive list of questions to ask your broker or brokerage platform before you sign up.
In this Part II, I have tried to compare and contrast 9 brokerage services. Please note that this blog is for beginner investors or anyone who is investing for the long term. This is not for professional day traders or Forex traders.
I will share pros and cons of certain platforms based on the following criteria:
- Eligibility: Unfortunately, almost all of these platforms have restriction for residents or citizens of certain countries.
- Application Process
- Regulation & Safety
- Products & Features
I reviewed the following brokerage platforms or services:
- Charles Schwab
- Interactive Brokers (IB)
- IG Market
- Sarwa (Robo Advisory)
I looked at MenaCorp Finance, TDAmeritrade, Zacks Trade and a few others as well. However, I decided to share information on the above because for you, my audience my readers. I recommend that if you are an “investor” and not a trader, then you choose a brokerage service that provides the following straight forward securities to invest or trade:
- Exchange Traded Funds (ETF’s)
- Mutual Funds (MF’s)
- Metals (Limited, like Gold, Silver)
So, if I decided to skip over many brokerage services, it is because they mostly cater to professional traders and/or only offer Contract For Difference (CFD’s).
I recommend you stay away from:
Now then let’s begin.
|Brokerage Services||ADSS||Charles Schwab||Etoro||IB||IG Market||Robinhood||Sarwa||Saxo Bank||Swissquote|
|Eligibility||US Citizens or residents are not eligible; There may be other natiionalities that are restricted.||Opens accounts to citizens / residents of over 100 countries, including the European Union||Opens accounts to citizens / residents of over 100 countries, including the European Union||Most wide reach serviing over 200+ countries. Check Here for list of countries||Residents of countries with unstable economic or political background are restricted For more, check here and you have to choose your country.||Only US citizens or residents are eligible.||US Citizens or US residents, single passport holders of Syria, Libya, Yemen, Iraq, Nigeria are not eligible.||Residents of countries with unstable economic or political background are restricted For more, check here and you have to choose your country.||Residents of countries with unstable economic or political background are restricted For more, check here and you have to choose your country.|
As I mentioned, many of the brokerages do not serve customers in certain countries like Afghanistan, Nigeria, Zimbabwe etc., due to international regulations or political instability. However, I am providing links to the exact page where you can check and see if your country is exempt. The good news is that if you are a Nigerian citizen, but are legally residing in the USA with a Social Security Number, you can enroll in Charles Schwab for example. So, please double check with the brokerage before you feel disheartened and give up.
Click on links below to see if your country or country of residence is eligible:
- ADSS: Need to call E: firstname.lastname@example.org; T: +971 2 652 9777;
- Charles Schwab
- IG Markets
- Saxo Bank
|Brokerage Services||ADSS||Charles Schwab||Etoro||IB||IG Market||Robinhood||Sarwa||Saxo Bank||Swissquote|
|Application Process||Online||Download, Print, Fill, Sign, Scan & Upload||Online||Online||Online||Online||Online||Online||Online|
|Basic Personal Info||Y||Y||Y||Y||Y||Y||Y||Y||Y|
|Questions To Assess Trading Knowledge||Y||N||Y||Y||Y||Y||N||Y||Y|
|Questions To Assess Investing Knowledge||Y||Y||Y||Y||Y||Y||Y||Y||Y|
|Upload Documents (Some or all of these: Passport, ID, Utility Bill, Address Proof , 3-6 month bank statements, etc)||Y||Y||Y||Y||Y||Y||Y||Y||Y|
|Time to Complete||10-20 Minutes||20-30 Minutes||10-20 Minutes||10-20 Minutes||10-20 Minutes||10-20 Minutes||5-10 Minutes||20-30 Minutes||20-30 Minutes|
|Time to Get Approved||1 – 24 hours||1 – 30 days||1 – 24 hours||1 – 30 days||1 – 30 days||1 – 24 hours||1 – 7 days||1 – 30 days||1 – 30 days|
|My experience with customer service||Very Good||Excellent||Good||N/A||Unpleasant||N/A||Very Good||N/A||N/A|
The lady I interacted with at IG Markets was polite and professional. But, the policies and procedures in place to do KYC (Know Your Customer) was so painful, intrusive and downright insulting that I decided not to pursue it further.
If you are employed and have a steady salary reflecting in your bank statement, you should be fine. Unfortunately, if you are a business owner or derive a lot of your income from other investments or real estate in UAE, please expect a much longer and more intrusive KYC procedure. I’m sure to dedicate another rant blog on how to do customer focused KYC and not a CYA (Cover Your Ass).
Regulation & Safety
|Regulation & Safety||ADSS||Charles Schwab||Etoro||IB||IG Market||Robinhood||Sarwa||Saxo Bank||Swissquote|
|Tier 1||HK, UK||USA, UK, HK, Singapore||UK, Australia||UK, USA, India, Australia, Canada, Japan, HK||Australia, Japan, Singapore, Switzerland, UK, USA||USA (SEC & FINRA).||Denmark, UK, France, Switzerland, Singapore, Japan, South Africa, Australia||Switzerland, UK|
|Custodian Bank||UAE Local Bank||Charles Schwab Bank||National Australia Bank||Bank of New York, Fifth Third Bank, Huntington Bank, Northern Trust, J.P. Morgan State Street Bank, UMB Bank, Union Bank, US Bank||Citi Bank||Uses several banks (Sutton Bank is one) but not explicit in website.||Interactive Brokers?||Saxo Bank||Swissquote Bank Ltd; Custodied under Swiss Financial Market Supervisory Authority (FINMA).|
|Insurance / Customer Investment Protection||No information online||Cash up to $250,000. Securities of up to $500,000||Up to €20,000 or up to £85,000 depending on jurisdiction||Cash up to $250,000. Securities of up to $500,000||All deposits & Net unrealised running profits are held in a trust and are protected.||Cash up to $250,000. Securities of up to $500,000. No protection for cryptocurrency||SIPC protection for secutities of up to $500,000||Up to € 100,000 for cash deposits.||Up to CHF 100,000 for cash savings; securities are fully guaranteed|
|Tax implications||You need to find out and comply based on where you invest and where your tax residency is.||US Capital Gains Tax; taxes on Dividends maybe withheld; Estate Tax (death tax) of 40% may apply||For investments in US Stocks, Bonds etc, US Capital Gains Tax & taxes on Dividends maybe withheld; Estate Tax (death tax) of 40% may apply||US Capital Gains Tax & taxes on Dividends maybe withheld; Estate Tax (death tax) of 40% may apply||For investments in US Stocks, Bonds etc, US Capital Gains Tax & taxes on Dividends maybe withheld; Estate Tax (death tax) of 40% may apply||US Capital Gains Tax maybe withheld; Estate Tax (death tax) of 40% may apply||You need to find out and comply based on where you invest and where your tax residency is.||You need to find out and comply based on where you invest and where your tax residency is.||35% Swiss withholding tax may apply to interest on savings.|
Tier 1: Financial Regulators of Countries with high trust factor
Tier 2: Financial Regulators of Countries with moderate trust factor
Brokerages with Tier 1 regulatory licenses are more trusted.
I am concerned with Etoro and Robinhood as I could not find clear information on who the Custodian banks are. Neither Etoro nor Robinhood are banks. So, they must have a properly licensed bank to hold your deposits and savings. When I spoke to the Etoro customer service, he mentioned that for me it would be National Australia Bank which is indeed a highly trusted entity. But the fact that this critical information is not transparent on their website is concerning.
“There is counterparty risk at eToro, in other words if eToro where to go bankrupt your money would be at risk. For European Traders they are however protected by the Cyprus Securities & Exchange Commission (CySec) which provide deposit insurance limited however to €20,000.”Source: Investorcurve
Insurance for your cash deposits and securities are critical because it tells you what will happen to your funds should the brokerage firm go bankrupt. Once again, Etoro’s website is not transparent and I got some information from other websites. You can see that the coverage is very minimal and not clear how customers not in Europe or UK would be protected.
Most US Brokerage Firms such as Charles Schwab, Interactive Brokers, Robinhood, etc., will provide FDIC (Federal Deposit Insurance Corporation) insurance of up to $250,000 for cash deposits and SIPC (Securities Investor Protection Corporation) insurance up to $500,000 for securities (stocks, bonds, ETF’s etc) held with the brokerage firm. Sarwa, uses IB services and therefore also provided SIPC coverage. No information was available regarding cash deposit coverage.
SaxoBank, SwissQuote and IG Markets also have well regulated protection for customers.
Click on links below for more resources for insurance protection.
Taxes are a big issue because I could not find good advice or clear information regarding taxes. For example, the USA has capital gains tax, dividend taxes as well as an Estate tax or death tax on income generated or parked in the USA. So, if you use Charles Schwab for example, the brokerage would withhold dividend taxes and any capital gains tax before crediting your account after any relevant transaction. Upon your death, your estate would be taxed 40% of the total assets after the first $60,000. It is up to you to plan well and either claim back the taxes or pay taxes as applicable.
Switzerland withholds 35% taxes for dividends. So, you will have to consult a tax professional to maximize your returns.
Products & Features
|Features||ADSS||Charles Schwab||Etoro||IB||IG Market||Robinhood||Sarwa||Saxo Bank||Swissquote|
|Transfer funds||Please note that there may be currency exchange fees if you transfer in a currency not accepted by the brokerage|
|Debit / Credit card||Y||Y||Y||Y||Y||Y||Y||Y||Y|
|Electronic Wallets (Ex. PayPal)||N||N||N||N||N||N||N||N||N|
|Cash in account earns interest||Info not available online||Y.(Schwab Value Advantage Money Fund)||N||Y (Insured Bank Deposit Sweep Program)||N||N||N||May charge Negative Interest Rates||N|
|Copy Trading / Social Trading||Y||N||Y||N (Insured Bank Deposit Sweep Program)||Y||N||N||Y||Y|
|How many Stocks/ETF’s||~1000||US Stock Market Plus Some Int’l Stocks, 3,000+ Mutual Funds||1000 stocks; US, German, UK stocks||US Stock Market, 4300, Zero fee Mutual Funds||Can’t trade stock directly only CFD’s||5000 stocks, 500 ETF’s – all US markets||Limited selection based on robo advisory||3000||Very large selection, multiple Exchnages in many countries|
|International Stocks||Y||Some, but high fees||Y||Y||Y||Y about 250||N/A||Y||Y|
|Forex||Y||Only in Global Account||Y||Y||Y||Y||N||Y||Y|
|Cryptocurrency||N||Y||Y||Only as CFD||Y||N||Y* ( (Cryptocurrency trdaed as actual or CFD not available)||Y|
Note: ADSS may offer stocks to invest, but it is a bit tricky. There maybe overnight holding charges
Table 4: Compare Products & Features Across Brokerage Platforms
Demo accounts are good for you to practice investing without any risk. Demo accounts pretend you have $100,000 to invest. You can create a watchlist of Stocks, ETF’s, or Mutual Funds you want to buy. You can buy and sell these in your demo account with the fake $100,000 and see how you do. While a Demo account will never mimic the exact panic or euphoria you may feel when you lose or win with your investments, it can at least help you practice and learn the market before you invest real money.
The safest way to fund your account is to wire transfer from your bank. Some brokerages allow you to transfer money via credit or debit cards as well as electronic wallet (PayPal etc), but may charge you 2-3% fee for that.
If you have some cash left in your account after investing, some of these brokerages will pay you interest. Some may charge you a custody fee or even a negative interest as with Saxo Bank. So, be careful and transfer your cash back to your main bank if you need to.
Copy Trading is where you can copy the trades of traders on the platform who seem to have great returns. Etoro wins in this feature. However, WARNING, if you choose to copy traders who trade using leverage, you will also be trading with leverage. Leverage trades are very risky, and you can lose much more than your initial capital. Moreover, some trades may involve overnight charges and can significantly erode your profits.
It is good to choose a platform that gives you access to a very large selection of Stocks, ETF’s, Mutual Funds etc. Charles Schwab, IB, Saxo Bank and Swissquote are good for this. Etoro and ADSS have limited number of stocks. If you are like me and are watching IPO’s and want to invest in those, then most likely you will not find them in Etoro, ADSS etc., who are not directly buying the securities from the exchange, rather they buy from IB for example.
Most of the brokerages offer US securities, some offer other international securities from UK, Germany, Japan, HK etc., but please remember to ask if there are additional fees to invest in those. Charles Schwab does charge commission for certain international securities.
You want to choose a brokerage that offers at least most of the following securities:
- Mutual Funds
- Metal (Gold, Silver etc.)
The table below is self-explanatory.
|FEES||ADSS||Charles Schwab||Etoro||IB||IG Market||Robinhood||Sarwa||Saxo Bank||Swissquote|
|Management Fees||0||0||0||0||0||0||0.85% – 0.5%; 0% on first $500||0.12% per annum or monthly minimum of Eur 5||Electronic deliveries out of securities cost $50 equivalent.|
|Custody Fee||$0||$0||$0||$0||$0||$0||$0||0||0.375% with $15 minimum, but these are not charged on cash holdings|
|Withdrawal Fees||N||$50 to close account; $25 for partial transfer of assets||$5||1 Free withdrawl per month||$0||$0 if cashing out and transfering to your bank; But if you are switching brokers, then $75||$0||€ 100- 160 exit charge||$10|
|Inactivity fee||Info not available online||$0||$10 per month after 1 year of inactivity||$20 per month if you have less than $2,000 account balance and if you don’t generate minimum $20 in commissions||$12 per month after 2 years||$0||$0||$100 for inactivity over 6 months||$0 for bank transfers but 2.2-2.5% for Credit Card transfers|
|Stocks||Spreads||$0||$0||$0.005 per share, min. $1, max. 1% of trade value.||N/A||$0||N/A||$9.50 – $20||$15 – $190 flat commission depending on trade, US stocks only|
|ETF||Spreads||0||$0||$0.005 per share, min. $1, max. 1% of trade value.||N/A||$0||$0||$9.50 – $20||0.25% with $35 minimum|
|Mutual Funds||N/A||3500 Funds w 0 fee; But some may have fund fees||N/A||$14.95 per transaction or 3% of trade value, whichever is lower; 4300 0 transaction fee MF||N/A||N/A||$0||$0||0.5% with a $50 minimum|
|Bonds||N/A||$1 per bond online $10 min./$250 max. online*||N/A||https://www.interactivebrokers.com/en/index.php?f=1590&p=bonds||N/A||N/A||$0||0.05% – 0.2%||$9 – $190 flat commission depending on transaction value|
Note: If you trade on margins or use leverage, there will be fees for that.
Few points to note:
- I mostly recorded fees for the basic accounts. Upgraded accounts may have different fees.
- Minimum deposits for Etoro is $200 for most countries except for residents of Israel is $10,000, Australia and USA is $50, Russia, China, Hong Kong, Taiwan and Macau, is $500. The minimum amount for a bank transfer is $500. In Robinhood, if you upgrade, then the minimum deposit is $2,000.
- Although deposit fees are mostly zero, please note that you bear currency exchange fees if you are transferring a currency that is not accepted in the brokerage.
- Swissquote is the only one that charges custody fee. If your portfolio is worth $100,000 and $20,000 is in cash, then they would charge you 0.375% on the $80,000 invested in securities, or $300.
- Withdrawal Fees. You may incur this when you transfer cash out of your trading account to your normal bank account. Please clarify with the brokerage that you can transfer your securities to another brokerage WITHOUT cashing out your securities. Etoro does not allow you to do this. You have to close all your positions and cash out all your securities. You may then transfer this cash to your bank or new broker. This is not good. You may be holding Apple shares in Etoro and you may decide to switch to Charles Schwab brokerage. In this case, you will be forced to close (sell your Apple stock) your positions. By the time your transaction is settled, and you are able to operate your Charles Schwab account, you may have lost on Apple stock gains. Please ensure you own the shares in which case you should be able to easily transfer to another brokerage.
- Inactivity fee is if you do not do any trades in a given period of time. I don’t like this because I hold stocks for 5-10 years, so it is very likely I could be inactive for a year or two.
- Commissions. Be careful if you buy securities from ADSS or any brokerage firm whose main product is Forex or CFD’s. You can technically buy stocks or ETF’s in these platforms, but you will pay commission in spreads as well as overnight holding fees for how many ever days you hold the stock. Please avoid them. These are better suited for professional or day traders.
If you are very new and are feeling overwhelmed with all the information, then I suggest you start with a Robo Advisory broker like Sarwa available for UAE residents. Sarwa will ask a few questions to assess your risk profile and your wealth goals and the Robo Advisory algorithm will automatically create a portfolio for you. It will automatically rebalance your portfolio when market conditions or risk to returns ratios change in your portfolio.
What I don’t like is that Sarwa only offer ETF’s and their selection is limited. You cannot see the list of funds they offer. As I prefer to research and choose my securities, Robo Advisory is not my cup of tea. However, for a beginner it can be great and Sarwa’s fees are low.
If you are able to get an account with a large brokerage, then the best are US based platforms like Charles Schwab or TD Ameritrade. Unlike Charles Schwab, TD Ameritrade does not require a minimum deposit and offers services comparable to that of Schwab. I’ve been using Schwab for many years and I love their service. The only glitch is we have to figure out tax implications but that is true for all brokerages I have reviewed here.
Unless you are a high income, high net worth individual with European passports, I don’t recommend Saxo Bank or Swissquote as they are too expensive. There is a Saxo Bank lite version but unfortunately not available for international clients yet.
Interactive Brokers is also best for active professional traders. The IBKR Lite version is only available for US citizens or residents.
I know this is a long and comprehensive blog, but I sincerely hope it has helped you.
If you would like to understand more, please feel free to reach me, on Twitter @saq3 or LinkedIn @Shaheeda Abdul Kader, or leave a message at email@example.com. I’d be happy to offer you my services.
I am NOT a certified broker or financial advisor. Please DO NOT make investment decisions based solely on my blogs. My intention is to show you how to research stocks or funds for yourself so you can feel empowered and knowledgeable to do your own investigations and invest with confidence. It is best to consult with your broker or advisor if you have questions. You can also reach me and I’ll do my best to help you with your queries.