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What is an online broker? How to save money with it!

Updated: 06.06.2022

Content

  1. What is an online broker?
  2. What are the advantages of an online broker?
  3. How much does an online broker cost?
  4. Is an online broker safe?
  5. Which types of online brokers are existing?
  6. What distinguishes a good online broker?

1. What is an online broker?

An online broker is an independent company that executes securities transactions for third parties . These transactions affect a variety of asset classes such as ETFs , stocks or bonds. The online broker receives a fixed or percentage fee for his activity, which relates to the execution of a buy or sell order.

What is a securities account?

A securities account is comparable to a bank account . While a bank account gives its users the opportunity to participate in payment transactions, a securities account is a prerequisite for trading in securities . The depot is also the place where all securities are managed centrally . Most depots today are mainly managed digitally, which is why one also speaks of online depots in this context.

2. What are the advantages of an online broker?

Easy setup

Opening a securities account with an online broker can be done from the comfort of your own home . All the saver has to do is register via the provider’s website or app and then identify themselves via video chat. As a rule, the access data will then be sent by post within a few working days . In addition to simple operation, most providers also offer numerous instructions and videos to make it easier for investors to get started.

Cheap trade

In contrast to classic branch banks, using an online broker is very cheap. As a rule, most providers offer a free deposit and low transaction costs . In return, however, the investor has to make his purchases and sales independently and does not have a bank advisor at his side. This freedom allows independent savers to evade the commission-based advice of branch banks.

Versatile investment opportunities

Online brokers offer the opportunity to trade not only ETFs, but also many other securities such as shares, bonds or certificates. Most providers offer a large selection of stock exchanges and trading venues in Germany and abroad . This ensures that savers can react to current market events at any time , for example when the stock exchange in Austria is closed due to public holidays.

3. How much does an online broker cost?

For investors, using an online broker with an online custody account is a cheap alternative to a robo-advisor who charges an additional commission for their support. The total costs of the providers are usually based on the frequency and volume of the transactions made, as well as the trading venues that are used for them.

Account fees

As a rule, online brokers do not charge any fees for setting up an account . Many providers even "reward" their new customers with a bonus if they bring their value deposit from another provider. Account management is also usually free of charge , although some providers make this fee exemption subject to certain conditions, such as a minimum number of transactions per quarter.

Transaction fees

Service fees

With many online brokers, the standard processes related to the depot are free of charge . This includes regular services such as the payment of dividends , the creation of transaction records or the preparation of tax certificates . For special cases, such as sending documents by post, on the other hand, providers often charge additional service fees in order to make the offer permanently affordable for all investors.

4. Is an online broker safe?

In the event that a mutual fund company, custodian bank, robo-advisor or online broker files for bankruptcy, ETF owners can rely on clear rules and procedures .

According to the law, fund companies must keep their customers' money, ie the fund shares, separately from the company's assets . For this purpose, customer funds are usually deposited with an independent custodian bank. This is intended to prevent the assets of the investors from falling into the bankruptcy estate in the event of the fund company's insolvency and claims from creditors being served from this.

After the insolvency of a fund company, the custodian bank is obliged to take over the management of the ETFs and to ensure the transfer of the fund assets if a new fund company has been found. In the event that the custodian bank and not the fund company files for insolvency, the fund shares will be transferred to another trustee, who will then also serve as the new custodian.

There is also no need to worry if the custodian bank or the online broker that manages the securities fails . In this case, the administration is taken over by a trustee who also serves as the new contact person .

5. Which types of online brokers are existing?

Online broker

The traditional online brokers are referred to as 1st generation challengers . These providers have set themselves apart from the classic branch banks with cheap custody accounts, low fees and simple operation . With their positioning, they offer price-conscious investors a good alternative for standardized trading in securities and offer a wide range of products, providers and trading venues.

Neo broker

Neo-brokers are a new generation of online brokers . With their new business model , these providers differ greatly from traditional online brokers. Neo-Brokers focus their offer on specific products, providers and trading venues . In return, they offer even lower fees than their traditional competition, which traditionally has as broad a range as possible.

6. What distinguishes a good online broker?

Some online brokers offer several hundred ETFs that can be regularly saved with an ETF savings plan . The execution of many of these ETF savings plans is even possible free of charge or for a low fixed price . With our ETF savings plan calculator , investors can see why an ETF savings plan makes sense, especially for young investors . You benefit particularly strongly from the compound interest effect because the savings plan can run for many years until the money is needed.

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