Once you have done what is needed to properly test out a trading system you will be ready to make an actual trade. The final piece in the puzzle here centers on selecting the right broker. Many markets will require that all traders put their trades through a broker. The two most common brokers to choose from are full-service brokers and discount brokers.
At the key to the heart of finding a reliable broker means seeking 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 actual 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.
Also, if you're dealing with a full-service firm, remember their commission rate is negotiable depending on how much business you are running through your account. Negotiate hard and get the best rate you can. Brokerage is a cost of doing business and as such you should always look to lower your expenses.
2. Are there any other extra fees that must be covered?
Many companies, both online and full-service, charge extra 'hidden' fees, that can add significant costs to each trade. Charges to be aware of include those for transferring funds (both in and out of your account), insurance, administration charges, late payment penalties and more. You really need to look at the company's fine print or e-mail for more details.
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. Will they pay you interest on the balance of uninvested cash in your account?
It is possible to find both online and full-service brokers will pay interest within the amount of 3-4%. Such numbers can be quite appealing.
5. Is a large deposit required to open an account?
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. What is the reliability of the service?
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.
As such, they are not actioned until after being placed.
7. Do the trading services offer any features that are automatic?
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.
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