As soon as you have done what is needed to test a trading system, you will find yourself ready to trade. This means you need to select a decent broker. Many markets make it a requirement that all traders perform trades through a broker. This means you have to select from two different types of brokers: the full-service broker and the discount broker.
At the key to the heart of finding a reliable broker means seeking one that suits you and your individual trading style.
The following are a number of questions you should take into consideration when choosing an online or full service broker.
1. What are the real commission rates?
Advertised rates for brokers vary between $0 to $40 per trade for an online broker and up to $100 (or 1-2% of your trade size) if you’re accessing a full-service. Look closely at what the company’s advertised rate really applies to. In many cases there will be higher brokerage for different trading instruments and those using a ‘live’ broker on the phone. The truth is, you may find that the advertised commission rate may hardly ever apply to the types of trades you place.
For those that are dealing with a full service firm, it is necessary to never lose site over the commission rate which is negotiable depending upon how much business you may be bringing to the company through your account. It is never a bad idea to seek to procure the absolute best rate you can achieve. Why not lower your costs when the possibility exists?
2. Are there any other extra fees?
A great many number of companies (this includes online and full-service) charge a number of additional hidden fees which can seriously dump additional significant costs to each and every trade. Some charges one needs to be quite aware of include those dealing with the transfer of funds to and from your account, insurance costs, administration fees, late payment penalties, and various other fees. When you need to see the fees, seek to double check the fine print or email for additional details.
3. Can a member trade in multiple markets and, if this is the case, what will the commissions be?
As your trading venture progresses you will probably opt to trade in a variety of markets. That is why it is best to stick with a broker that you have developed a decent trading relationship with. That is why it is best to plan for the future and select a broker that can provide you with your needs as your investing grows.
4. Will the brokers pay their clients interest on the remaining balance of non-invested cash in the account?
Some online and full-service brokers definitely do pay interest roughly in the 3-4% range.
5. Do you need to start with a large deposit?
Beware of high minimum balances required to open an account. While some companies have good rates, you may need $50,000 to start. It’s a lot of money to invest with a company you haven’t traded with before. Typically full-service firms will require more capital to start an account than a discount online service.
6. How reliable can the service be when it delivers services?
The expedience and the reliability of online trading are factors that deliver the utmost important attributes. Imagine being a client that suffered a $10,000 loss due to being unable to log into an account due to a server issue. Such issues happen and, thankfully, some services offer backup plans to deal with such issues.
With an online broker, always check to see that they offer Straight Through Processing which refers to trades placed in the market immediately after the are made. There are a select number of discount broker trades which have the ability to be placed manually.
On the flip side, the common full-service broker will commonly opt to enter a trade when the request is delivered via the phone.
7. Do they offer any automatic features?
Examine the common extras the company has to offer and then weigh it against the extras that will complement your trading styles. You should not be interested in automated features that will never be used. Such services will be worthless to you.
Automated stop losses remain a feature that some will find quite helpful. This is the feature that allows a trader to set a specific exit point and it will be automatically triggered when the condition arises. This way, when a buy point is reached, the trading system will react appropriately. Hence, you may never miss a trade.
Such common automated extras will often be more applicable to online brokers although they do possess value with full service brokers under certain conditions as well.
