If you decide to invest in assets, then do it through a reliable broker. At once I will make a reservation that it is rather difficult to draw parallels: there are different banks, as well as different brokers, and any generalizations, one way or another, will be wrong. Nevertheless, we can distinguish the main differences between a quality broker (for example, Exante) and an average bank offering brokerage services to its clients.
1. Trading platform For a broker, investor service is the main task, unlike a classic bank, for which it is a by-business. Accordingly, banks are not ready to spend significant resources on creating high-quality online trading platforms. Brokers, on the other hand, understand the importance of high-quality and convenient trading software and are ready to invest in development, since their core business depends on this – therefore, if you want to conveniently trade a lot of various assets, you need a good broker.
2. Direct Market Access (DMA) One of the main advantages of a good broker is direct access to the exchange, in which the application is sent directly there. Many banks accept applications only by phone – accordingly, you have an extra link in the chain, resulting in increased transaction costs and the speed of execution of transactions, which is very important in the stock market, as quotations change very quickly.
3. Trading hours From the two previous paragraphs it follows that through a broker you can trade around the clock on various sites – there would only be open markets. With banks it is more difficult: they do not work at night, on weekends, holidays, etc. If, for example, you try to actively invest in US assets through a bank, then you will quickly be disappointed in this venture, once you realize that it is closed, when American markets are open.
4. Commissions As a rule, banks set higher commissions than brokers – since this is an additional business, in most credit institutions it is built on the principle of “high margin at low revs”. At the same time, most brokers use the opposite model (“high turnover with low margin”): the broker earns on the number of customers, rather than on a high commission. Thus, the average broker will offer you more favorable trading conditions than the bank. In addition, do not forget that the bank has a whole army of product / lawyers / PR people – in other words, more opportunities to hide high commissions somewhere in the bowels of the contract than the broker.
5. Tools and markets Brokers provide a wider set of tools and exchanges – this, again, is a direct consequence of what is their main business for them. You can trade in stocks, bonds, currency, futures, options, funds, and even bitcoins – all through a single broker – and you will hardly find a bank that can offer you a comparable set of tools.
Moreover, many brokers willingly meet customers and add exchanges / tools to their customers – try to turn this in your bank!
6. Reporting Banks provide only minimal reporting – if you intend to seriously engage in trade, you will not be enough. At the same time, not only do brokers offer their clients detailed reporting on transactions, it is also a competitive advantage for them – in other words, every broker is interested in making its reporting system better and more convenient than its competitors.
7. Prop-trading (proprietary trading, prop-trading) Prop-trading is trading in financial markets with the help of the company’s own funds. For example, when a bank invests in its own funds in shares for profit, it’s prop-trading.
This approach carries quite serious risks for a private investor from two perspectives. First, investments in the stock market are always a risk, and no one will give you any guarantees that tomorrow the bank will not announce the multibillion losses incurred by it in the stock market and will not close – there have been precedents, and quite a lot.
Secondly, it creates the risk that in case of lack of proper control your money can be used by the bank for its own purposes: for example, a dilapidated trader can try to close his hole with your funds in the hope that he will have time to win back the losses and return the funds before someone discovered