Stake review – Is there a catch to their $0 brokerage fee?

Stake is an investment platform that launched in New Zealand in 2020, after having served Australian investors since 2017. They offer easy access to trade on the US sharemarkets, and are most famous for their $0 brokerage fees. So is there a catch to Stake’s brokerage fee service? And how do they compare to other platforms like Sharesies and Hatch?

This article covers:
1. What’s on offer
2. Fees
3. Other considerations
4. Stake vs competing services

1. What’s on offer

US shares

Stake‘s primary offering is investment into the US sharemarkets. This includes:

  • Shares in individual companies – E.g. Apple, Disney, and Nike.
  • Exchange Traded Funds (ETFs) – These are funds that contain a wide range of assets e.g. the Vanguard S&P 500 ETF (VOO) which invests the 500 largest companies listed in the US.
  • American Depositary Receipts (ADRs) – Some foreign companies listed outside of the US (e.g. Alibaba and Nio) are available though Stake as ADRs. These are receipts/certificates that represent the shares of those companies.

There’s no minimum investment required. Stake offers fractional shares so you can buy partial shares in a company or ETF. For example, if you wanted to invest in Amazon, you don’t have to invest $2,750 USD to buy a full Amazon share – it’s possible to invest a smaller amount, say $1,000 to buy a fraction of an Amazon share.

Stake partners with DriveWealth as their US broker who execute orders to buy and sell shares on behalf of Stake’s customers.

OTC Shares

This investment option is available to Stake Black subscribers only. More on Stake Black later in the article.

Stake offers about 100 OTC (Over The Counter) shares, which are assets that aren’t listed on a US exchange. These are largely foreign non-US companies, and include:

  • Tencent
  • Nissan
  • Adidas
  • Grayscale Bitcoin Trust

A full list of OTC shares on offer can be found on Stake’s website. Stake Black subscribers can make 10 buy or sell trades in OTC shares per month.

ASX shares

This investment option is available to Australian investors only.

In Australia, Stake offers the ability to buy and sell ASX listed shares. There’s no indication as to whether they’ll open this up to New Zealand investors.


Who are these investments best suited for?

Stake’s offering (which is largely made up of shares) would make them best suited to long-term investors. However, Stake is limited to US and OTC markets so investors seeking access to other markets like NZ will have to use other platforms.

Shorter-term investors will find investments like bonds and cash more suitable, as they’re less volatile than shares. While these assets are available on Stake (through bonds and cash ETFs), they’re not hedged to the New Zealand Dollar, meaning their value will move up and down along with the fluctuations of the NZD-USD exchange rate. This adds a layer of volatility to these investments, defeating the purpose of the stability these assets are supposed to provide. Therefore we don’t consider Stake to be a suitable platform for short-term investors.

Further Reading:
What’s the best short-term investment?

2. Fees

Foreign Exchange fees

When you deposit money into Stake your New Zealand Dollars are converted to US Dollars. For this Stake charges a foreign exchange fee of 1%, with a minimum charge of $2 USD. This fee also applies when you withdraw money from Stake, at which time your USD is converted back to NZD.

For Aussie customers the foreign exchange for swapping AUD to USD is 0.70%.

Brokerage fees

Stake doesn’t charge any brokerage fees or buying or selling investments on their platform, making them suitable for trading in and out of investments on a regular basis. For example, you could buy Apple shares, sell those shares, then reinvest that money into Microsoft shares without incurring any brokerage costs. This could also come in handy for:

  • Reinvesting dividends without incurring fees (given dividends are paid to your account as cash and must be reinvested manually)
  • Rebalancing your portfolio without incurring fees (selling off overweight assets and buying underweight assets)

For Aussie customers, this free brokerage doesn’t apply to ASX trades which cost $3 AUD per transaction.

Regulatory fees

A couple of small regulatory fees are payable whenever you sell US shares through Stake:

  • SEC Fee – $0.051 USD per US$10,000 of sale proceeds
  • TAF Fee – $0.000119 per share with a per-transaction cap of $5.95

Withdrawal fees

Stake charges $2 USD each time you withdraw money from the platform.

W-8BEN submission fee

Non-US residents need to complete and submit a W-8BEN tax form prior to investing in US shares. Stake charges a one-off fee of $5 USD to complete and submit this form on your behalf.

3. Other considerations

Stake Black

Stake Black is a premium subscription service offered by Stake. It costs $9 USD per month, or $90 USD per year if you subscribe to it on an annual basis. Subscribing to Stake Black gives you:

  • The ability to trade on unsettled funds. Without Stake Black your sale proceeds from a sell order can’t be used to reinvest in another asset until the transaction is settled (which takes 2 business days). Stake Black removes this restriction so that you can reinvest proceeds from sell orders straight away.
  • Access to analyst ratings and price targets.
  • The ability to access OTC stocks, with 10 trades per month.

They’re definitely not essential features, so most people should be able to live without paying for this fairly expensive add-on.

Depositing money

The minimum deposit into Stake is $50 NZD. While this is low, it isn’t economical to deposit such a small amount of money thanks to the minimum $2 USD fee you pay when Stake converts your NZD to USD. On a minimum $50 NZD deposit that $2 USD fee equates to about 6%! We’d suggest that making deposits of at least $300 NZD is needed for it to be cost effective.

Stake provides a few different options for funding your account:

  • POLi – There are two speeds at which you can deposit money using POLi. Regular Funding where deposits you make before 4pm NZ time will arrive in your account after 1pm New York time. And Express Funding where deposits you make before 10pm NZ time will arrive in your account before 9am New York time. The express option attracts a surcharge of 0.5%, with a minimum fee of $2 USD.
  • Regular bank transfers
  • Direct USD deposits – Stake also allows you to directly deposit USD into your account. This option saves you from paying the 1% foreign exchange fee for converting NZD to USD, but costs $5 USD each time you use it. Therefore this option is only worthwhile (in terms of fees) if you’re transferring at least $500 USD.

Withdrawing money

Any withdrawals from the Stake platform are transferred to your bank account. This incurs the 1% foreign exchange and $2 USD withdrawal fees. The minimum withdrawal amount is $10 USD.

Order types

Stake offers the following order types:

  • Market – These orders result in you buying or selling shares at whatever price is on offer for those shares.
  • Limit – These orders allow you to specify a maximum price you want to buy your shares at, or a minimum price to sell your shares at. Limit orders can only be used when buying or selling whole shares, not when trading fractional shares.
  • Stop Sell – Also known as stop-loss orders, these orders trigger automatically to sell your shares if they drop to or below a certain price
  • Stop Buy – These orders trigger automatically to buy shares if they increase to or above a certain price.

Trading restrictions

For accounts with less than $25,000 USD, Stake has restrictions on day trading. You’ll be marked as a Pattern Day Trader if you make more than three day trades (buying then selling the same asset on the same day) within five trading days. Accounts marked as Pattern Day Traders aren’t able to make another day trade for 90 days. This rule doesn’t apply if you’ve invested over $25,000 USD.

Account types

Stake allows individual accounts only. There is no option for joint accounts, nor are under 18s allowed to sign up for the platform.

Custody of investments

Any investments purchased through Stake aren’t held under your own name, but rather are held under DriveWealth’s name with Citi, a custodian. However, you’re still the beneficial owner of those shares and get any dividends and voting rights associated with them.

If either DriveWealth or Citi go bust, you’re protected by the Securities Investor Protection Corporation who insure up to $500,000 USD per customer in the case your funds go missing.

Transfers

Stake allows transferring shares in or out of DriveWealth’s custody. Transfers between Hatch and Stake are free (given they use the same executing broker). Transfers from other brokers are also free apart from any fees your old broker might charge to initiate the transfer. However, transferring shares out of Stake to another broker will cost you, with fees starting from $200 USD.

Tax

The investments you buy through Stake are considered to be Foreign Investment Funds and are taxable under the FIF tax regime. Stake doesn’t handle these tax obligations for you, nor does their reporting calculate your tax liabilities – so you’ll have to calculate this on your own or with the help of an accountant.

Further Reading:
Tax on foreign investments – How do FIF and Estate Taxes work?

4. Stake vs competing services

Here’s a brief overview of how Stake stacks up to competing services:

Sharesies, Hatch, Interactive Brokers

These three platforms also offer easy investment into US shares, providing close competition to Stake.

Sharesies

Sharesies also offers US shares through broking partner DriveWealth, as well as investment into the NZ and Aussie markets.

Sharesies charges a percentage based fee of 0.5% for transactions up to $3,000, and 0.1% for amounts over $3,000. For foreign exchange fees, Sharesies is significantly cheaper at 0.4% vs 1% with Stake. Overall this makes Sharesies cheaper than Stake regardless of the amount you’re investing (unless you’re trading in and out of assets regularly in which Stake could work out cheaper). In addition Sharesies’ lower upfront fees means more of your money is invested, giving you the potential to earn more capital gains and dividends (as opposed to Stake), helping offset the brokerage fee required to reinvest your dividends.

In terms of features, Sharesies is missing a few such as having no ability to transfer your US shares to/from other brokers, and no stop-loss orders. However, Sharesies beats Stake in some aspects, having no restrictions on day trading or trading on unsettled funds.

Further Reading:
Sharesies review – Still a good investment platform in late 2021?

Keen to start building your investment portfolio with Sharesies? Sign up with this link, and you’ll get a bonus $5 in your account to invest!

Hatch

Hatch is another platform offering investment into US shares via DriveWealth. They charge a $3 USD brokerage fee each time you buy or sell shares, plus foreign exchange fees of 0.5%. This fee structure makes Hatch best suited for those investing larger amounts (to be specific Hatch works out cheaper than Stake when investing over ~$920 at a time). Though this $3 USD fee could be problematic for reinvesting dividends, as it could make up a large proportion of your dividend payment.

But similar to Sharesies’ case, Stake is likely to work out cheaper than Hatch if you’re making regular trades (as opposed to buying and holding).

Further Reading:
Hatch review – Hard to recommend
Buying shares in the USA – Sharesies vs Hatch vs Stake

Keen to start investing in US shares with Hatch? Sign up with this link, and you’ll get a $10 NZD bonus when you deposit at least $100 NZD!

Interactive Brokers

Interactive Brokers (IBKR) is a large American brokerage firm. Not only do they offer investment into the US markets, they have dozens of other markets including Australia, Japan, the UK, and Canada (but not the NZ market). They also offer other financial instruments like options.

IBKR’s fees are very reasonable, being ~$3 USD (inclusive of brokerage and FX) for most US share transactions. This implications of this are:

  • Sharesies is still the cheapest platform for buying US shares for smaller transactions up until ~$480 NZD in size.
  • When investing above $480 NZD per transaction, IBKR becomes the cheapest platform for buying US shares, beating out Sharesies, Hatch, and Stake.
  • Stake is still the cheapest platform for regular trading, thanks to their $0 brokerage.

Interactive Brokers is a powerful platform in terms of features, but they come with a few drawbacks. The platform is less user friendly, and they lack a local Kiwi support team.

Further Reading:
Interactive Brokers & Tiger Brokers review – Better than Sharesies & Hatch?

Want to do your own fee comparisons? Check out our US Brokerage calculator here.

Other platforms

Buying US shares isn’t the only way to invest your money. InvestNow, Kernel, and Simplicity are all good services offering funds that invest into NZ and international sharemarkets and more.

While their fund offerings don’t give you the flexibility to pick individual companies, their funds are still a preferred way of investing for many investors. They require less research to choose what to invest in, and are simpler investments, taking care of any foreign currency and tax obligations for you. InvestNow, Kernel, and Simplicity are suited to a wide range of investors thanks to their low fees and hands-off nature.

Further Reading:
InvestNow review – The most efficient way to invest?
Kernel review – High quality index funds

Conclusion

Stake’s key selling point is their $0 brokerage, making them best suited towards traders. However, the platform has a few limitations holding you back from taking advantage of this fee-free trading:

  • Day trading restrictions – You can make a maximum of 3 day trades in a 5 day period (unless you’ve invested over $25,000 USD in which this restriction is removed).
  • Trading on unsettled funds – This isn’t possible (unless you’ve subscribed to Stake Black), so you’ll have to wait 2 business days to reinvest any sale proceeds of the shares you sell.
  • Costly add ons – While their base fees are fairly reasonable, add on fees for optional features like Stake Black and Express Funding can make Stake an expensive platform.

Despite the limitations, Stake is still the most cost effective platform for those trading in/out of their shareholdings on a regular basis (as long as you don’t withdraw your money and incur the 1% FX fee). Though trading isn’t an easy way to make money, definitely isn’t a get rich quick scheme, and isn’t an investment strategy we (and most of Money King NZ’s readers) subscribe to.

Instead we prefer buying and holding our investments for the long-term, and long-term investors should not be fooled by the temptation of Stake’s $0 brokerage. While it does give long-term investors more flexibility in being able to reinvest dividends or adjust their portfolios once in a while without incurring transaction costs, it’s unlikely to offset their hefty upfront FX fee. Stake’s 1% FX fee wipes out the benefit of fee-free trading and makes them expensive compared to buying and holding shares through the likes of Sharesies and Interactive Brokers.


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Disclaimer

The content of this article is based on Money King NZ’s opinion and should not be considered financial advice. The information should never be used without first assessing your own personal and financial situation, and conducting your own research. You may wish to consult with an authorised financial adviser before making any investment decisions.

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