This post was most recently updated on April 29th, 2023
Retail trading is becoming increasingly popular in Australia due to its high accessibility and flexibility, and more and more are participating in the financial markets ranging from forex and stocks to commodity trading. Nevertheless, with the plethora of online trading platforms and accounts, it may be difficult to find the best one for you if you are looking to get started.
In this article, we look at the types of trading accounts available for Australian retail traders and the factors you should consider before you create one with a broker. But first, we take a look at some of the regulatory bodies in the nation, which every trader should have knowledge of to increase the safety and security of their trading.
Financial regulatory bodies in Australia
In Australia, there are a few financial regulatory bodies you should be aware of as a retail trader. These bodies are responsible for setting and enforcing regulations in relation to financial activities, including trading, and they supervise market participants to promote fair and efficient markets in the country.
These include the Australian Securities and Investments Commission (ASIC), which is responsible for regulating financial markets and financial services providers. Your broker must be ASIC-licensed, as this commission helps protect customers like you when trading.
There is also the Australian Prudential Regulation Authority (APRA), which is an organization you should look out for if you want to open an account with a bank or a credit union. They supervise and regulate banking, credit-issuing, and insurance-related activities in the country to ensure their stability and efficiency.
Next is the Australian Stock Exchange (ASX), which is the primary securities exchange in Australia. They provide market services to investors and traders like you, and they operate a clearing house for settling trades. Generally, retail traders do not have to know too much about how the ASX investigates listings and clears trades, but all Australian traders should be aware that the exchange exists.
Types of Australian trading accounts
If you are considering opening a trading account in Australia, there are several options for you, depending on the broker you work with and the type of investments you want to make.
Cash trading account
A cash trading account is the most basic type of trading account, and many retail traders use one to participate in financial markets. With this type of account, traders verify their identity and fund their accounts by direct deposit or other payment methods. They can then buy and sell shares, Exchange-Traded Funds (ETFs), and other securities.
Margin lending account
A margin lending account is a type of investment account that allows traders to borrow money from the broker to invest in financial markets. Similar to a cash trading account, traders may be able to access shares, bonds, ETFs, and more products. The purpose of margin lending is to give traders greater buying power than they could normally have done by giving them additional funds.
The lender holds the securities the trader buys with the borrowed money as collateral. Depending on the value of the trader’s portfolio, the lender may issue a ‘margin call’, which is a request that the margin trader deposit more funds into their account to continue trading.
High-frequency trading account
A high-frequency trading (HFT) account is a type of account that allows traders to execute trades at high speeds using advanced technology and algorithms. Usually, brokers offer them to traders who qualify for high-frequency trading based on their trading history and experience.
Traders with HFT accounts often get to access sliding scale commissions or different fee structures that enable them to make many trades a day without having to incur fees a trader with a regular trading account may incur.
Considerations before opening a trading account
There are several factors you should consider before deciding on a trading account with a broker. Below, let’s look at some of them.
Fees and charges
The most important factor to consider is how much the broker charges in trading fees. Typical trading costs incurred in financial markets include brokerage fees, exchange fees, clearing fees, and financing costs. It is crucial to carefully review the fee structures and charges associated with a trading account before opening one to ensure they are reasonable and align with your trading strategy.
A broker may provide their own trading platform or grant you access to popular trading platforms such as MetaTrader 4 or MetaTrader 5. Choosing a platform that is easy to use and offers the features and products you want to trade is crucial.
In Australia, all brokers must follow local regulations. This means obtaining the proper licensing from the national financial authority, the ASIC (Australian Securities and Investments Commission).
If you are someone who prefers to trade while on the go, you may want to choose a broker that has a mobile app. If you are someone who prefers to trade at your desk, how customizable is your trading terminal? These are a few things you must consider before you settle on a broker.
Consider the level of customer support you need and what a broker offers with a trading account. Does the broker have local representatives on the ground to support you? Do they have native speakers, and how often are they available? You should also check how responsive they are, which you can do by sending a request or filing a claim.
Research and analysis tools
Not all brokers offer this, but many provide research and analysis tools when you open a trading account with them. This includes technical indicators and trading signals, as well as more complex software such as a Forex VPS or copy trading programs. If you are a trader who intends to use any of these features, you should make sure your broker offers them or your platform is compatible with third-party plugins.
Risk management tools
All forms of trading carry risk. Ensure that the broker provides you with the risk management tools you will need to help you manage your risk when you trade. This may include stop-loss orders, hedging abilities, and combining options. Make sure you are permitted to use these tools on your trading platform and that you have options amongst them.
Finally, you should consider how much leverage you will be allowed to trade with. This is especially important if you are planning to trade financial derivatives and you count on using high leverage with the aim of making substantial profits. Sometimes, different trading account tiers will also permit you to use different levels of leverage, which you should double-check with your broker beforehand.
The bottom line
Choosing the appropriate broker when trading is essential because it can greatly affect your overall trading experience. A good broker can provide you with access to quality market research, educational resources, and reliable trading platforms. You will also be able to trade efficiently and with peace of mind with a licensed broker. When selecting the best account for you, it is vital that you understand what your risk appetite is and what your trading goals are. You should also understand that financial markets constantly fluctuate, and you should never expect guaranteed profits even when you are trading with a great broker.