Written by admin on January 8th, 2008
Finding Great Day Trading Brokers
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Brokers are easy. Sign your name on the dotted line, give them some money, and you’re in bed together. Now finding a good broker on the other hand takes a little more searching. Day traders should never be monogamous in their relationships, with brokerage firms that is. The other areas of your life are up to you. But, with so many things that could go wrong in the markets, why risk your money on factors that you can control. If the main brokerage firm you use goes down inexplicably, would you trust them to reimburse you? The romantics in us would like to believe so, but going by the shear amount of disgruntled posts online, my guess is probably not.
Every Day trader needs a stable of brokerage firms they work with in case of emergencies. But, what makes a brokerage the right fit for you? That depends, do you like blond hair or dark hair, do you like customer service or no frills rock bottom commissions? We understand that picking a broker is a highly individualized subject. So to help you weed through the ugly and go straight for the hotties, we came up with a list of things to look for that we think every daytrader should consider before polygamy.
- Commissions
As a day trader your stock just went up in the eyes of the broker. Day traders tend to generate more in commissions than the average trader. So, of course every brokerage would love to have you as a client, just remember, commissions take away from your bottom line. Do you like your brokerage enough to lower your profits? The important things to consider here are: In the case of stock trading, would you be better off with per share pricing, or per ticket pricing? If you’re trading forex, what is the spread? If you’re trading futures, what’s the round turn price and margin?
- Customer service
Are you new to trading? Do you need a lot of hand holding? Some of the largest firms out there rank high in every other category, but when it comes to customer service, their ranking is lower than a penny stock. Watch out for this, this can make or break your experience with a broker. Even if you know what you are doing, customer service is always nice.
- Execution
If you day trade, direct access is a must. You cannot have a firm that gets paid on order flow, or trades against you. Also, are you comfortable with their execution platform? Some software out there can be extremely clunky and user unfriendly. Because of this, there have been quite a few third-party software companies that have taken advantage of this and created their own execution platforms which link into the broker’s software making the experience much more user friendly, but at a cost. Does the broker even allow third party add-ons?
- Redundancy
What does the broker have in place for emergencies? How many ways can you place a trade (Online, over the phone, fax, pda, etc…)? Do these other ways cost more? How many rings does it take for them to answer the phone? Hopefully we won’t have too many of these situations. But by having access to multiple brokers this will be less of an issue.
Emergencies happen. And if you are not prepared for one, or think your broker is a solid one-stop-shop. Talk to any of the clients at the now defunct Refco. Refco went bankrupt two months after going public! Keep in mind companies like Goldman Sachs supposedly did their due diligence and gave their stamp of approval saying that Refco was rock solid just a few months earlier. Having multiple brokers as a daytrader today is not a luxury, it’s a must.
In order to attract you as a customer some brokers may throw everything but the kitchen sink at you. These extras may be nice but don’t rely on them as the primary decisions to go with a brokerage firm. Some of these extra frills could be free quotes, newsletters, charting, etc… If you’re serious about this business use these extras as just extras. Some of these may even help in a crisis, but always have your own independent backups. Always remember when it comes to brokers, play the field!
Tags: commissions, customer service, Day trading broker, Day Trading Brokers, execution
6 Comments at "Finding Great Day Trading Brokers"
Another factor: Some orders that are “contingency orders” sometimes sit on the user’s computer, and sometimes they sit on the exchange. The trader should ask the trade desk which one it is.
Sorry…meant to say on the “server’s exchange”.
hi thanks for the article.
What a great resource!
Thank you RN.
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