How To Choose A Broker
Not
much to complain about if you’re long this market.
It would have been nice to see volume a little heavier on the rebound today, but
it wasn’t too bad. The good news is the market continues to go up. It will
eventually pull back enough to shake some people out, but if you’re a trend
trader — ride the trend until it ends. A few big tech reports after the
bell are being received poorly (
(
INTC |
Quote |
Chart |
News |
PowerRating),
(
AAPL |
Quote |
Chart |
News |
PowerRating),
(
QLGC |
Quote |
Chart |
News |
PowerRating), and
(
YHOO |
Quote |
Chart |
News |
PowerRating)).
It may be a good idea tonight to think about your game plan for handling gaps.
We may get one tomorrow morning.
I’ve been talking to a few
traders recently who were working on choosing a broker. This is an important
decision and one that should be reviewed periodically. Over time your trading
style, frequency, and needs will change. You may require additional functionality
or no longer need everything your current broker provides. Also, the competitive
brokerage arena is constantly changing.
I’ve listed a few important
things to think about when considering a broker below.
- How
often do you trade? Some
brokers require a minimum number of trades or shares traded or they will assess
additional fees. Frequent traders don’t need to worry about this. Others
may need to take this fee into consideration. - Are
commissions structured favorably based on your average trade size and style?
Some brokers offer a flat fee per trade. Others charge on a per-share basis.
Run a few reports over 1-month periods to see what commission schemes would
have benefited you the most. - Do
you prefer a local branch nearby to go see someone? This
sounds silly to some traders and others would have it as a requirement. - How
responsive is their customer service?
You should not be put on hold when you call regardless of the time of day.
You need to know there is going to be someone on the other end of the phone
line if something goes wrong during a hectic time of day. This is especially
important for traders who hold big positions (relative to their account size)
and utilize margin. - Do
they have frequent system outages?
Nothing is more frustrating than being stuck in a position that you want to
get out of and not being able to see what is going on. - Does
their system run slow at certain times of day?
If you are a full-time trader, your system should be just as responsive when
the 9:30 bell goes off as it is during the noon lunch hour. If it isn’t,
work with your broker to see if the issue is on your end or theirs. - What
charting and execution functionality does you broker provide?
Ask as many questions as you can about system functionality. Once you’ve
been using a broker for a while, if they have a certain piece of functionality
that you’ve come to rely on, it can be very frustrating trying to work
without it if you switch. Some traders use charting software separate from
their brokers. This is an option but should be factored in to your costs. - How
good is their trade/tax reporting?
This is a big issue for full-time traders. It is much easier to keep up your
accounting system on a daily or weekly basis than it is to go through a mountain
of papers after receiving the brokerage statement at the end of the month
or year.
There are several places
on the Internet where you can find people’s opinions of different brokers
with regards to the costs, execution, functionality, customer service, etc.
Of course you need to take everything you read on Iinternet bulletin boards
with a grain of salt. You don’t always know the author’s motives.
Still, some good information can be found there.
If a broker has a local
office, I would suggest visiting it to get a hands-on demo of their platform
as well as your other questions answered.
The best place to get information
on brokers is of course from other traders that you know and trust. People that
use the stuff every day will know the positives and negatives about it.
As traders, your main concern
is finding setups that meet your criteria and executing trades so you can profit.
But don’t forget that you are running a business, and just as any business
must review their suppliers once in a while to make sure they are getting the
best combination of service and price, so must you review your supplier (broker)
occasionally.
Since Monday will be a holiday,
I intend to make the most of it and go skiing for the day (assuming it warms
up above 0 deg. Fahrenheit by then). Therefore, my next column will be on Wednesday
of next week.
Good trading,
robhanna@rcn.com