Three high-energy friends combined their skill and ambition to make trading in international stocks a whole lot easier for Australian investors. The result: online trading platform Stake.
By Ben Power
When Matthew Leibowitz returned to Australia in 2014 after a long stint as a share trader in Chicago, he saw how hard and costly it was for local investors to buy international shares. “I was mortified at the whole process, from beginning to end,” he says.
Leibowitz says that while US traders pay almost nothing to trade, Australians using the major bank brokers pay on average A$88 to buy A$10,000 worth of US shares.
Stake, the online trading platform Leibowitz subsequently developed with partners Jon Abitz and Dan Silver, replicates the low-cost US model and allows users to trade 3000-plus US-listed stocks and exchange-traded funds.
Leibowitz, a former senior partner at Optiver, had been running large teams of traders and developers who had built very complex trading platforms. Silver came from an operations and strategy background, while Abitz was in software development for more than 15 years. Using their combined expertise, they worked with technology partners to build the trading platform from the ground up.
“In the US, execution costs are pretty much nothing.”
The first line of code for https://stake.com.au was written in April 2016. In November of that year, the group teamed with DriveWealth, Macquarie Bank and Sanlam, which holds an Australian Financial Services Licence (AFSL).
The Stake site launched in March 2017 and has since traded more than US$35 million worth of shares, with Tesla, Apple, Alibaba, Amazon and Berkshire Hathaway the most popular stocks. In August 2017, Stake became the first online trading platform in Australia to offer $0 brokerage for trading US shares. Investment website Motley Fool said it was “a game changer for Aussie investors”.
Instead of charging for trades, Stake generates revenue from the margin it charges on foreign exchange when traders buy US dollars with Australian currency. It also earns interest on any cash held in the US trading accounts. Accounting for the forex fees it charges traders, Stake has cut the cost of a A$10,000 trade to just A$4.
As Leibowitz explains, “In the US, execution costs are pretty much nothing.” Brokers pass on their low trading costs to customers and make money from interest on investor funds, hedging and fees.
In his view, the Australian Securities Exchange's virtual monopoly on trading, and the dominance of the big banks which own major online brokers such as CommSec, have kept brokerage costs high in Australia and contributed to Australians’ huge bias towards local stocks.
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If you look at a typical Australian share portfolio, 73 per cent is in Australian stocks, according to Vanguard Investments. However, as measured by the MSCI World Index, the Australian market represents just 3.5 per cent of the world’s stock market. Leibowitz says that means Australians are overexposed to the dominant stocks of a few big banks and mining companies. It also means they’re not profiting from investments in innovative companies like Amazon and Netflix.
Stake is already generating “considerable revenue”, Leibowitz says, which means it can remain self-funded and not tap outside investors. The Stake service is also low-cost and simple: it doesn’t provide research, offer advice or sell costly add-on features. It simply offers a platform for trading US shares.
In addition, by operating as a corporate authorised representative of Sanlam Private Wealth, which holds an AFSL, Stake doesn’t need its own licence from the Australian Securities and Investment Commission.
“We’ve got a great partner in Sanlam here in Oz, which took us under its wing and worked through things together,” says Leibowitz.
Australia’s share owners have reacted positively to Stake’s no-frills approach. Despite relying initially on only word-of-mouth marketing, the site is adding hundreds of users each week and executing 7000 to 8000 trades per month. (The business has, however, recently brought on a head of marketing.)
The company is now looking to launch in other markets where trading US shares is hard, such as the UK, New Zealand and South Africa.
A year after launch, what does Leibowitz think of his venture? “I’ve never worked this hard before,” he says.
ONE PIECE OF ADVICE
“An idea is only one thing; execution is everything.”