Stock trading has become a hot topic at Friday night dinners, especially after U.S. investing app Robinhood made major global headlines as small-time investors using the platform teamed up to take on major market players. J., 30, was curious and decided to try it. Because she is a student, she doesn’t intend to risk a large sum.
Robinhood and its competitors, which do not charge commissions, aren’t yet available for the Israeli market – but for J. and others who want to start trading, there are quite a few options for small-time players. We checked options and their minimum investment requirements, and what to consider when deciding where to begin. All the companies let you open a portfolio online and trade using an app; we didn’t check the interfaces of the apps, which naturally differ in terms of convenience and options.
These platforms can be divided into three categories: banks, investment houses and foreign brokers. Another option is Pepper Invest, which belongs to Bank Leumi, and is open only to users who have a Pepper account. It offers unique possibilities, the main one being trading fractions of shares – which allows you to make a small investment in companies that have high individual share prices.
To decide where to open your portfolio, you have to consider how much you’ll be investing and what you intend to trade – foreign assets or also Israeli ones? Not all platforms offer both options. You should also consider the likely costs of your planned investments: Do you intend to buy stocks or market-tracking funds, and do you intend to hold them long term or buy and sell frequently? These factors should determine which fees matter most to you — account fees or transaction fees, on foreign or Israeli assets.
1. Banks. As opposed to investment advisers at a bank – who typically work with customers with hundreds of thousands of shekels to invest, if not more – you can trade independently through the banks' platforms with any sum.
Costs: Banks have different fees for buying and selling stocks – which they charge for every stock transaction – and portfolio holding fees, calculated as a percentage of the portfolio’s value and paid every quarter. The rate varies based on the portfolio’s value and is generally significantly higher for foreign stocks. For small sums, note the minimum commissions the banks charge for each transaction. For foreign stocks banks charge a certain percentage of the value of the transaction – between 0.2 to 0.7 percent, with a minimum fee of $20-40.
2. Investment houses. Stock portfolios at one of Israel’s investment houses that offer brokerage services to the public – Meitav Dash, Psagot, IDB and Excellence – all require a minimum fund transfer to open an account. Psagot and Excellence require a minimum of 20,000 shekels; Meitav, 30,000 shekels; and IDB requires 50,000 shekels.
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Costs: In addition to fees for buying and selling, investment houses charge a fixed account fee – usually a few dozen shekels a month. The larger the portfolio, the lower the fee. The investment houses also have minimum transaction commissions, although they are lower than at the banks. For foreign stocks, the price per transaction is $0.01 per share, with a minimum of $8-12.
3. Foreign brokers. The biggest foreign brokerages operating in Israel are the American firms Interactive Israel and TradeStation – which are subject to American regulatory laws. Interactive Israel is an independent brokerage agency of Interactive Brokers, which is traded on the New York Stock Exchange. According to the firm’s website, its platform enables investing in more than 135 stock exchanges worldwide, not including the Tel Aviv Stock Exchange. The minimum investment to open a trading account is $3,000 (10,000 shekels). TradeStation is an American broker that offers trading only in ETNs on American stock exchanges. The minimum for opening a portfolio is $500 (about 1,700 shekels). If you want to short sell, you have to have at least $2,000 in your account.
Costs: The foreign brokers do not charge fixed management fees, only commissions on buying or selling of $0.01 per share, with a minimum of $2.50 per transaction at Interactive and $1 at TradeStation.
4. Pepper Invest. This app allows you to trade 100 major U.S. stocks and American ETFs. You can invest small amounts, anywhere from 50 shekels and up, because the app allows you to trade fractions of shares.
Cost: Pepper Invest doesn’t charge commissions on buying and selling fractions of shares – only annual management fees, which are relatively expensive – 0.8 percent of the portfolio’s value. This makes this particular app worthwhile mainly for very active traders. It also charges commissions on other forms of transactions.
Which is cheapest?
If you want to trade only in foreign stocks and aren’t bothered by the bureaucracy, the cheapest option is a foreign broker. They charge $0.01 per share and the minimum investment is significantly lower than what Israeli investment houses require. The bureaucracy involves paying taxes in Israel, while Israeli investment houses withhold taxes automatically.
If you want to trade in Israel, you have to compare the costs between banks and investment houses. Banks are usually much more expensive. You can also try to bargain over fees.
What’s worth buying?
Investments abroad, especially in the United States, have been popular over the past year with beginning investors.Another option that suits a small investment is mutual funds, which reduce your risk by offering a more diversified investment. No minimum amount is required to purchase mutual funds.
It doesn’t matter much where you buy your mutual fund; management fees are charged as an investment percentage set by the fund’s manager. Management fees are generally higher than that of trading stocks.