Online trading platform Mexem is leading a quiet revolution in the South African investment industry. It is the first trading platform to offer South African investors globally competitive fees and could force other players in the local market to adapt to the global trend of low-fee – or even no-fee – trading.
It will be a source of pain for South African banks and brokerages, which currently charge among the highest fees and commissions in the world.
“South African fees are about 10 times more expensive than those in most of Europe and the United States,” says Itai Liptz, founder and CEO of Mexem. “Even when compared to other emerging markets, our fees remain extremely high. It is ridiculous that those who can afford it the least, are forced to pay the most.”
According to Mexem, other South African trading platforms charge commissions of around 0.35% of the trade amount or between $2c and $6c per share on each trade they execute in the US market. Most also take a minimum commission of between $15 and $20, regardless of the size of the trade. By comparison, Mexem charges clients with more than $5 000 in their trading accounts only $1c per share and takes a minimum commission of only $1.
“What this means is that if you buy an Apple share as a South African, you are paying $19 more for that share than someone trading from Europe,” says Liptz.
“Even when you first make the trade, that person is already $19 better off than you are as a South African.”
Mexem can offer South Africans the ability to trade on international markets at a much lower cost thanks to an agreement with Interactive Brokers, the largest trading platform in the US. Interactive’s global scale and reach – including agreements with stock exchanges around the world – means it can execute international trades at a much lower cost than any of the comparatively smaller South African platforms. “We go directly to the source,” says Liptz.
This global reach means that Mexem’s customers can instantaneously trade in 120 markets and 26 currencies.
In addition, Mexem does not charge any monthly fees – customers only pay when they trade. As a result, the platform is well-suited to individual investors who would like to buy specific offshore shares to hold, instead of trading regularly.
The combination of easily accessible online trading platforms and lower fees has already driven the global democratisation of investment and trading by giving retail investors greater access to trading than ever before. Suddenly, you don’t need to know or pay a broker or have large amounts of money on hand to start trading. Low or zero fees removes yet another obstacle.
But Liptz admits that access to the equity market is not a golden ticket to making money.
Mexem offers advanced analysis tools to assist retail investors, and works with asset managers to put retail investors in touch with professionals who can help them. “I do think it is very hard to trade. The skills professional traders possess is an important strength as this is what they do constantly.”
Mexem is also attracting South African asset managers who use the platform to manage their offshore portfolios, creating the opportunity for them to pass some of these savings on to their own clients. Liptz says global trends show that the investment industry is moving towards a zero brokerage or trading fee environment. “In the past, it was very expensive to call overseas. Now technology has made it much, much cheaper – by using WhatsApp, for example. The world has adapted to this.”
In the US, where brokerages have been trying to undercut each other on price since the 1970s, Interactive Brokers is leading the charge in offering investors zero-fee trading. It introduced a zero-fee platform aimed at retail investors in September last year and other large brokerages such as Charles Schwab and TD Ameritrade followed suit within days, reports Bloomberg.
Mexem hopes to develop a similar offering in SA later this year. Liptz says in this environment, brokers have no choice but to reconsider their business models.
“You don’t need to take money from the client. Brokers need to look at other ways to make money, such as through agreements with suppliers. In the end, it can be a win-win situation for both clients and brokers.”
Brought to you by Mexem Africa.