It seems to me that for some reason brokers tend not to offer access to full list of traded securities listed on certain stock exchanges.
I would really appreciate to be exposed to the reasons of thereof.
Can it be that stock exchanges charge brokers for every possible equity that they are then able to offer to their clients?Thus making it more advantageous to offer most popular with retail investors equity?
Whats stopping an ambitious broker to offer access to full list of listed equities otherwise?
4 Likes
Somebody needs to take the other side. Despite being listed, doesn’t mean it is liquid or trades often. The are many share classes that despite listed only trade a few times a month if not year. For example various PIBS and Preferential shares can trade very infrequently. It means they also have a high spread - meaning difference between purchase and sale price can be as high as 5-10%! If it even executes. Thus the costs & benefits evaporate. They will spend more money on onboarding, support and rejected orders than making any money at all. And they would have to constantly explain why buying & selling straight away results in such high losses, or why it is “impossible” to buy something given than all orders get rejected.
Next regulation prevents from offering everything. Many foreign ETFs do not provide KIID meaning retail clients cannot trade those. Also many ETN are for suffisticated investors only. Becoming a professional trader with FCA authorisation opens a bigger investing universe.
And finally lack of implementable compliance. For example, some brokers do not handle foreign tax forms, reporting, nationality declaration etc. I.e. things like W8BEN forms, Italian financial transaction tax, Canadian tax forms, nationality declaration for airline stocks so on and so forth… As trading every new thing usually has some onboarding & reporting requirements. Some of these things are done and available on freetrade, some things not yet.
Further restrictions apply on certain account types too.
This is just the tip of the iceberg. Regulated financial markets are not trivial to participate in and open up to anyone.
6 Likes
Would love to get some details regarding those.I thought commissions is something brokers charge their clients because they could get away with it.I wasnt aware they are getting charged in turn to trade by… stock exchange where securities are listed?
Arent stock exchange interested in attracting as many trades as possible? Why would they erect barriers by charging brokers if thats the case.
Because it costs any business (including exchanges) money! Admin and infrastructure doesn’t happen for free.
1 Like
They do have fees to be stock exchange member and they do have regulatory costs. I think you have misunderstood what liquidity cost is for illiquid stocks. And most stock charges are flat / capped. Thus higher trading volumes do increase revenues for the exchanges but not significantly as they are there to facilitate the trade. If they charge too much people will move to a different one.
Imagine a boring small company stock that trades for 90p bid and 1 pound ask. It means if you want to buy it right away you have to pay 1gbp. If you want to sell it right away you will only get back 90p. That is bid ask spread. For highly liquid stocks it can be fractions of pence. But for illiquid ones there might not be as many market makers. Now to a user that looks like a charge, but simply it means that the demand & supply is not there. It’s not something that the exchange or broker charges, it is simply one cannot find a better price. Effectively like a pawn shop - they gave you £50 for an old phone, and will resell it to the next customer for £90. However, with illiquid stocks one might not even find anybody willing to buy at any price, or sell at any price. Thus impossible to execute the trade or get rid of the stock. Obviously that’s not a good experience for broker’s customers if the app is full of thousand of stocks for which no price is quoted, and no buy or sell orders get ever executed.
2 Likes
This topic was automatically closed 91 days after the last reply. New replies are no longer allowed.