Choosing the Broker That’s Best for You
The tools a trader is using are almost as important as their trading plan. To be set up for success you need to have the right toolset.
This is why choosing a broker is so important. There are dozens of retail brokerage firms out there, all of them with competing offerings. Choosing the one that is right for you can be a difficult task.
Below I will break down the main things you should be looking for in a broker and how to determine what will be the best fit for you.
Everyone has a different trading style so make sure you ask yourself these questions before choosing where you hold your account.
What is The Best Commission Structure for You?
This is the most important question you can ask yourself when you are evaluating potential brokerage platforms.
There are two main types of commission structures and the one that works best for you will depend on your trading style.
Ticket Charges + Volume Fee – This is a structure where you pay a fee for each order ticket you submit and a small fee for each share or contract you are trading. A common example of this for options trading would be a $7 ticket charge and $0.10 per contract charge.
Some brokers only charge the ticket fee and no additional fee per contract, but even then a structure like this wouldn’t make sense for everyone.
Volume based commissions – This is a structure where you pay a fee per contract. Since there is no ticket charge, the fee is generally higher. It’s not uncommon to see rates at $1/contract for options. So if you buy 100 contracts at this rate, your commission will be $100.
To figure out which of these structures is best you need to figure out what your average trade looks like.
If you are trading small and often, the ticket charge probably doesn’t make a lot of sense for you. If you are trading less often but in large size you should consider the ticket charge structure.
Are You Getting Added Value?
Your broker should be doing more than just filling your orders.
When determining if a broker would be a fit, make sure you are getting something extra for your money.
It could be access to research or resources that normally cost money, cool tool sets and analysis packages, or access to educational resources.
For the commission dollars you spend you should get some kind of added value from your broker. There is way too much competition in the space for them to not offer you something extra for your money.
Putting it all Together
These aren’t the only things you should evaluate when you are looking for a broker but these 2 points should definitely be your first considerations.
Broker selection is essential to success in trading. Make sure you are getting the right commission structure for your trading style. Commissions are sunk costs and cannot be recovered once they are gone.
Get the most for your money and you’ll have an easier time finding success.
AKA, “The Alpha Shark”