Australia may not yet have the zero-cost brokerage model for local stocks popularized by the US platform Robinhood – or not yet anyway – but that hasn’t stopped young Australians from finding out. the pleasures of stock trading.
Call them Millennials or Zoomers, they used their last lockdown time to good effect. Plus, they don’t just trade “meme” stocks plugged in by dubious influencers on Reddit or TikTok.
Trends bode well for Personal wealth (SFW), the only listed low-cost brokerage that works with a flat fee of $ 9.50 per trade.
The company claims to be the fifth-largest retail broker in the country overall, with a 7% market share in a market competed by as many as 40 vendors.
“We have grown at a fantastic rate over the past 18 months from where we were at the start of the pandemic,” said CEO Cath Whitaker.
On Monday, the company’s shares resumed trading after a $ 10 million placement at 39 cents, a 9% discount. A share purchase plan is expected to raise an additional $ 2 million.
The funds will be used to support “aggressive” expansion, such as the launch last November of a US platform to trade US stocks (just in time to ride the surge in trading sparked by Gamestop’s short-selling frenzy) .
This month, the company announced plans to add a cryptocurrency trading platform, after a survey of 3,500 of its clients found that 30% had invested in “cryptos” and An additional 38% intended to do so.
Under the no-fee model that has flourished in the United States, brokers earn their money from fees paid to so-called market makers: middlemen who consolidate transactions and execute them at a slightly lower price. to that stipulated in the order.
It is a volume based margin game.
Australia does not have toll-free brokers, but competition is certainly increasing in the low-fee industry.
Whitaker describes competition as a ‘look left, look right’ case.
On the left are the brokerage operations of the Big Four Banks – run by the monolithic Commonwealth Securities – and CMC Markets (which is in alliance with ANZ Bank).
“When I look closely, it’s the newcomers like Superhero, Stake or Raiz and Spaceship with a slightly different offer than ours,” she says.
Superhero, which offers local $ 5 trades and free trades in US stocks and ETFs, has been splurging on prime-time advertising. Stake plans to expand its trading offering from the US market to ASX.
The other strong competitors are eToro in the United States and IG Markets in the United Kingdom.
SelfWealth claims to be the only low-cost platform to offer direct legal property rights with Holder Identification Numbers (HINs) rather than custodial agreements.
Two intermediary custodians, BBY and Halifax Investments, have gone bankrupt over the past five years, while Opus Prime imploded during the global financial crisis.
The approximately 12,000 clients in Halifax only recently announced that they would recover their shares following the broker’s collapse in November 2018.
“This is not a theoretical discussion, it has hurt thousands of Australians,” Whitaker said.
However, Whitaker believes that near-zero competitors will emerge in the local market, using a loss-making strategy based on generating revenue from foreign exchange fees or other peripherals.
“In the digital world, you pay for the product or you are the product, they’re going to make their money one way or another,” she says.
Whitaker says investors should be asking how these companies make their money.
“If something is too good to be true, it just might be,” she said. “We would be happy to have a conversation with ASIC to make sure the risks are understood by mom and dad’s investors.”
Younger investors are seen as being too influenced by questionable online advice, but Whitaker says they’re more diligent in their research than one might think.
While trendy sectors such as buy now, pay later (BNPL) stocks have been popular with novice traders, iron ore miners have been popular as well.
“The big four banks were among the most traded stocks in May,” she said, adding that investors are more wary of BNPL stocks.
SelfWealth’s quarterly report in June showed revenue increased 22% to $ 5.11 million, with positive cash flow of $ 140,000 (just over $ 1 million overall. year 2020-2021).
The number of active customers increased by 105% to 95,189.
Compared to the March quarter, however, revenue fell 11% and the number of transactions was down 30%.
SelfWealth shares have fallen about 30% in the past 12 months, but they still nearly doubled their November 2017 listing price by 20 cents apiece.
While the company’s $ 80 million market valuation appears modest, the challenge for management is to shift to profitability.
In underlying terms, the loss for the year through June 2021 is expected to decrease to between $ 400,000 and $ 900,000, compared to a deficit of $ 2.9 million for the year 2019-2020.
The actors of Minnow tread the boards of the ASX
Meanwhile, SelfWealth’s ASX “orphan” status is set to be challenged by two new entrants, albeit with different product proposals.
After raising $ 10 million in IPO funds, OpenMarkets plans to go into debt later this year.
OpenMarkets is more about providing business-to-business services to other brokers (including SelfWealth). Behind the scenes, he clears more than $ 50 billion in transactions per year, on 200,000 accounts.
But it also has an Open Trader trading platform, a “self-managed” platform for “serious active investors”.
Perth-based Marketech is planning an IPO for its platform, which targets “serious active investors” with add-ons such as live streaming.
In June, the company toured for $ 1.5 million from investors, including former Afterpay director (and first investor) Mike Jefferies.
Dare dream …
Meanwhile, the remaining listed full-service brokers show a mixed picture, with shares in Bell Financial Group (BFG) 41% raised in the last year and 180% in the last five years.
Following the acquisition of local rival Hartleys, the Perth-based company Euroz Hartleys (EZL) said it would pay a final dividend of 13.5 cents, which equates to a practical 8% full-year return.
Euroz shares have gained 87% and 155% over one and five years respectively, but the broker relies on dynamic mining conditions in WA.
Now known as E&P Financial Group (EP1), Evans Dixon has lost 70% of its value since its listing in 2018. As part of a negotiated settlement this month, the group agreed to pay a fine of $ 7.2 million for failing to act in the best interests of clients by directing them to a related US real estate fund.[email protected]