Before we go much further let’s take a moment to go over two
critical definitions:
-
Web form based on-line trading system – Typically, this is where
the on-line Broker sends you a web page, via the Internet, that contains the screen format and data that you
request such as a Portfolio, a Buy, or a Sell order form. This process can take an excruciating amount of time
to accomplish especially if your stock position is in jeopardy and you want to get out of the trade fast. This
is definitely not the trading system for the serious Day Trader.
-
Direct Access based trading system –This is where you are
running a separate program, on your PC, that contains all of the screen formats and instructions to operate
the program. When you fill out a Buy or Sell order form you are filling in the relevant information for the
order. Then, when you press the appropriate button to execute your order the program only sends the data and
the command, not the form, to the broker’s in-house computers for transmission to the market for execution.
This type of trading system is extremely fast and can execute orders within a few seconds. It is definitely a
Day Traders most desirable tool. Although, it can also be expensive.
We are also seeing Java based trading systems that have improved Web
form based trading systems however, due to compatibility issues between web browsers these Java systems still need
a bit of work.
I know what you’re asking by now…all of this info and still you
have no idea who to believe nor which broker to choose. Right? Yep, I thought so.
Well.. personally, I believe that before you can become a good Day
Trader you first must master the skills of a Position Trader. Remember, day trading is not a Get-Rich-Quick
scheme. It could very well be a Go-Broke-Fast disaster if you’re not careful. Go slow and learn.
You must first learn to go slow and learn the theory and
mechanics of trading. That’s why I always advise that you first must, after reading all of the books and web
pages, Paper Trade (practice). The various trading simulation programs will help you understand the process
greatly.
The Simulations web page at The Rookie DayTrader, http://www.rookiedaytrader.com/simulations.htm , list many more for you to try.
One aspect of these systems that you’ll notice right away is that
they are, for the most part, Web form based systems. You’ll get a real feel for how slow they are, especially in
a fast moving market.
Breaking Down the Information
Now that you have a firm background of miss-information from all of
those evaluation sources, let’s get down to the bare facts.
If you’re going to be a Position Trader, most Web-form based systems
will do. Talk to other traders that you know to get their input of the pros and cons of the various Brokers. By
the way, don’t give up your day job.
If you’re really serious about being a Day Trader, plan on spending
at least 6 months studying and practicing then another 6 months as a Position Trader learning the true mechanics
of trading in the various markets.
Now we’ll get to what you’ve been patiently waiting for; a list of
criteria for selecting a Broker. I hope you won't be too disappointed. Putting it all down to a few
key points is really tough.
Criteria for a Web-form based Broker:
-
What is your cash budget? How much money do you have? Each Broker
has a list of fees and the minimum amount you need to open an account. I’ve seen account requirements as low
as $1,000 to open a new account.
-
What is the commission rate? Commissions range anywhere from very
low( $5 or less) to ridiculously high ($30 or more).
-
Buyer beware. Cheap is not always better. If you are making good
practice trades and making a gross profit of several hundred dollars per trade then a $20 commission may not
be all that bad if the Broker has other services such as Real-time quotes, research tools, real-time account
balances, etc.
-
What other services does the Broker offer? Real-Time information
such as Quotes, News, Portfolio tracking, account balances, etc.
-
What is the rated uptime of their system? The evaluation sites are
good for this.
-
What are others on the Web saying about them? Watch out for the
hype, both negative and positive. Read between the lines.
Criteria for a Day Trading Broker
-
What is your cash budget? How much money do you have? Each Broker
has a list of fees and the minimum amount you need to open an account. I’ve seen account requirements as low
as $5,000 to open a new account, many require $10,000 and some go as high as $50,000.
-
What is the commission rate? Commissions range anywhere from very
low ($0 if you make as few as 25 trades per month) to ridiculously high ($18 or more).
-
Again, I must stress: Buyer beware. Cheap is not always better. If
you are making good practice trades and making a gross profit of several hundred dollars per trade then a $20
commission may not be all that bad if the Broker has other services such as Real-time quotes, research tools,
real-time account balances, etc.
-
Do they have Real Time: Level II quotes, Time and Sales, Intraday
Charting, Historical Charting, Market Statistics, News feeds, etc.
-
How much do the data feeds cost?
-
What are the various Exchange access fees?
-
List all of the monthly cost plus estimate how many trades you
might initially do so that you can get an estimated budget.
-
Are their monthly accounting reports easy to understand? Do they
bury hidden charges?
-
Talk to others that use them and ask these same questions.
-
Call the Broker and ask for a sample of what you can expect for a
monthly account summary. I’ve heard many stories from traders in the chat rooms that complain of
non-itemized cost being slipped into the monthly statement. Never accept a non-itemized charge.
-
Try out their demos. Do they feel right to you?
Ok, I know, enough is enough. What about a firm recommendation as to
the Broker you should sign-up for? Sorry, that’s too easy for you for Position Trading. In fact, you’re
not ready for that level of information right now.
As in trading and choosing a stock to trade, you must do your own
research and now is the best time to start. Spend the time during your simulation trading months to also
read and study through all of the Web information available to you.
I’ve given you a lot of places to start. After a little while, you’ll
be amazed at how easy it is to pick out the good Brokers from the Not-so-Good ones.
You need to become very knowledgeable about many of the information
sources available to you on the Web and you need to learn what is hype and what is real. You can only do this by
studying.
Sometimes, choosing the right Broker is more often
based on the type of trading system that you desire. Here is Stocks
& Commodities Magazine's software selection chart:
http://technical.traders.com/Products/catsearch.asp?cat=120
If you’re too lazy to do your own research, you don’t need to be
in Day Trading. You’ll lose all of your money on your first few trades.
Good luck. Oh, by the way, "Who’s" on First.
The Rookie DayTrader
Links:
