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.

Here is a little secret here: the ability to find a decent broker centers onn finding one that suits you and your individual trading style.

Prior to selecting a broker, here are a few questions you should consider whether you are making a decision about trading online or full-service.

1. What are the real commission rates?

The commonly advertised rates for traditional brokers may range anywhere from a non-existent fee of $0 to upwards of $40 per trade for online services and up to $100 (or 1-2% of the size of the trade) if you have decided to access a full service system. That is why is it of paramount importance to clearly look at the company’s advertised rate and what it specifically applies to. In the great majority of instances there will be a significantly greater fee for brokerage services due to different trading instruments vs. those using a “real live” broker available and accessible through the phone. Sadly, one of the more common facts people discover is that the commonly advertised commission rate may not be directly applicable to the trades you make.

It is helpful to look towards a full-service firm and remember the commission rate is negotiable based upon how much business you may be running via the account. That is why it is critical to negotiate with the firm and seek the best rate possible for your situation. This will aid in lowering expenses.

2. Are there any other extra fees?

A variety of companies, both in online and in the full-service arena will affix extra fees that are hidden and may add a lot of costs to the individual trades. There are a number of common charges that one must raise his/her awareness towards including the transfer of funds (this includes those funds dually in and out of your account), insurance, administration fees, penalties and fines for late payment penalties etc. The bottom line here is you really need to stay on top of the fine print!

3. Is it possible to trade multiple markets and, if so, what do the commissions run?

When your trading progresses significantly, you might decide to trade in different markets. It will be much better to stick with a broker you have a trusting relationship. This means you need to plan ahead and select a broker that can service your needs as you grow.

4. What about the interest on the balance of uninvested funds in the account? Will it be paid?

Some online and full-service brokers definitely do pay interest roughly in the 3-4% range.

5. Is a large deposit required to open an account?

It is greatly necessary to be clearly aware of high minimum balances that might be needed to open an account. While some companies have competitive and fair rates, you might need upwards of $50,000 to begin. That can be a great deal of money to invest with a company you have not traded with previously. Generally, full-service firms will need additional capital to launch an account with a discount online service.

6. What is the reliability of the service?

The speed and reliability of online trading must be examined with extreme seriousness. There are tales of clients that have lost thousands of thousands of dollars due to systems faults that led to clients being unable to sign in. Such a scenario would be an unacceptable disaster. As such, it is wise to stick with those trading services which have backup systems in place such as phone trading options.

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.

As such, they are not actioned until after being placed.

7. Are any automatic features offered?

Always seek to examine the extras the company may put forth. Consider your options with these extras as they may end up complementing your trading style quite nicely. Conversely, if there are features that you will never use dismiss them since, well, you will never use them.

One excellent feature is that of automated stop losses. Such a feature will enable a trader to set a specified exit point with an automatically triggered function. Another aspect worth checking out is a contingent order which raises questions regarding whether or not one is allowed to place conditions that need to be met prior to an order being automatically placed? For example, if the share price breaks out from your specified buy point of $12, an automated buy trigger may be enacted.

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.

Posted in Finance ~