Whats the difference...

[megamuel]

...Between a broker like IB (Interactive Brokers) and a brokerage service provided by a bank like halifax for example? I know people would generally use their banks brokerage for long term investing but it (Halifax) costs £12.95 to buy shares and £12.95 to sell, no matter what the value. Surely its cheaper using IB, and you can also short and use leverage. So why would anyone use a broker like Halifax? Is there a name for these two types of broker and why would someone favor one over the other? Thanks,

Sam.

 

[timsk]

IB are what is known as a 'direct access' broker which means that traders trade directly with one another via the relevant exchange. There are no middle men/women and IB have no vested interest in the outcome of the trade. They make their money purely on commission, charging a flat fee based on the size of the transaction. I don't know anything about Halifax, but I suspect they're not going to enable you to have 'direct access' into the market. (I may be wrong about this.) So, in effect, you're one step removed from it, just as you are when trading via a spread bet broker, for example. You'll place an order with them and then they'll place it in the market on your behalf. Consequently, it's probably slower, inclined to greater degrees of slippage and is much more expensive. Doubtless there are loads of other differences, but that's a few to be getting on with!
Tim.

 

[megamuel]

With that in mind why would anyone use a broker like halifax or barclays?

 

[timsk]

With that in mind why would anyone use a broker like halifax or barclays?

1. Easier to set up.
2. No minimums required, either in terms of $$$'s or number of trades. (This is a generalization but, for example, under SEC rules you'll need $25k to day trade US stocks.)
3. Brits prefer to be with British companies to trade British stocks. Again, this is a generalization, but my guess would be that most of the clients with Halifax trade UK stocks and, of them, most will swing or position trade them.
4. because of the stamp duty payable on UK stock transactions - there maybe tax issues if you have a foreign based broker like IB and trade UK stocks. I 'm just guessing here!
Can't really help beyond that as I've never traded UK stocks. The best person to ask would be a day trader of UK stocks who's researched all the options.
Tim.