The most popular way to buy stocks and bonds and other investment securities is to go to a broker who will advise on purchase and manage the investment portfolio on their behalf. There are commissions and fees associated with such a service, of course. On the other hand, a small but growing number of investors prefer to rely on their own research when making investment decisions and want to manage their portfolios themselves.
These DIY investors usually opt for what is known as an execution-only service from a broker. This means that all the broker does is buy, hold and sell the shares on the investor’s behalf. “This type of service has changed in recent years,” says Investec investment manager Dan Moroney. “Execution only means just that; the broker can’t provide any advice whatsoever. Even if you call your execution-only broker for a chat and say that you’re thinking about a certain type of investment and ask their opinion, they can’t answer.”
You literally get what you pay for. “It comes down to price,” he adds. “It’s a commodity now. Some brokers charge a percentage of the trade, some charge a flat rate fee up to a certain level, others charge a combination. Apart from price, another important issue is the nature of how the assets are held. Do you believe your assets are safe with the company you have chosen?”
According to Moroney execution services tend to be used for short-term trading rather than for an investor’s entire portfolio. “They might see it as their ‘punting’ account,” he continues. “We would have clients who have the vast majority of their capital in long-term investments but they might also have some spare cash that they feel they can be a bit more adventurous with. They do a lot of reading and research and then see a stock that they think might be worth taking a punt on. The danger is mismatching long-term goals with short-term strategies. If you are not trading all that frequently, the cost is less important. But if you are doing something like day trading, the cost becomes everything. It is very difficult if not impossible to make money in those circumstances.”
For customers looking for good value and a fast, efficient and easy to use service, there is Degiro. Founded in the Netherlands in 2008, it is Europe's fastest growing online stockbroker. As of June of this year, it had 180,000 active clients across 18 European countries.
The secret to the company’s success can be boiled down to speed, simplicity and – most of all – cost. Degiro’s fees for trading in shares and other financial instruments are just a fraction of those charged by competitors. For example, an Irish person purchasing €1,000 worth of Bank of Ireland shares on degiro.ie will pay just €2.40 in trading fees as opposed to an average of €49.17.
“We are an online execution only service,” says Paul Laverty of Degiro. “Our clients have access to over 60 markets worldwide including all the major stock markets such as London, Paris, New York, Toronto, and Tokyo. There are no management or custodian costs for our Irish customers. And there are no fees for lack of activity. You don’t pay if you don’t use the service. There is an annual charge per additional market of just €2.50 per calendar year.”
It takes just 10 minutes to complete the Degiro account set up process and it normally takes two to three working days for Degiro to go through the necessary verification steps and then customers are ready to trade. Investors with accounts in banks that support the Trustly app can set up accounts and start trading immediately.
Execution-only accounts aren’t restricted to equities. Investors can trade commodities or currencies or just about anything else, but Moroney sounds a word of warning. “That requires a lot of dedication, time and commitment. There are so many different variables and parameters that if you are not up to the minute on the fundamentals, you can find that your positions have moved against you in the time it takes to go out for a cup of coffee.”