Choose a Direct Access Brokerage Firm for Day Trading

Almost all day trading strategies need direct access to stock and bond pricing in order to maximize profitability. Direct access brokers allow you to see the price quotes in real time so that you can act on them immediately, and they allow you to work through different electronic communications networks rather than going through the firm’s own traders.

If you’re buying a bond with plans to hold it for ten years, the difference in price between now and 15 minutes ago probably isn’t material. But if you’re looking to day trade in the bond market, using short-term changes in treasury futures, a delay of even 30 seconds may be the difference between your strategy succeeding or failing.

To help you with the pricing, some brokers offer access to liquidity pools, also known as dark pools, dark liquidity, or dark books. These pools are private execution networks that can sometimes wreak havoc with the market, but when used properly, they can improve the pricing on a stock trade.

Brokers that participate in these pools may place your order in the liquidity pool, and then your order will be executed only if a matching trade exists. In this situation, the trade happens faster and often with better pricing than it would if it had been executed in the open market.

Unlike those brokerage services aimed at day traders, a traditional retail brokerage offers customers more research and advice and may even offer to improve order execution by waiting until market conditions are more favorable. That’s fine for investors, but not so good for day traders.

In addition to different levels of market access, brokerage firms offer different types of price quotes with different amounts of detail. Read on for descriptions and pictures to see what you need for your strategy.

Faster, detailed price quotes are valuable to traders, so brokerage firms usually charge more for them. Don’t skimp on price services at the expense of your trading profitability.

Level I quotes

Level I quotes give you the current bid and ask, or bid and offer, prices for a given security. The bid, of course, is the price at which the broker buys the security from you, and the ask (also called offer in some markets) is the price at which the broker offers to sell the security to you. A Level I quote also shows the size of the most recent buy and sell orders.

Most brokerage firms offer real-time Level I quotes for free, but these numbers do not have enough detail for day trading.

Level II quotes

Level II quotes not only tell you what the current bid and offer prices are, but they also tell you who the market makers are — the brokerage firm traders who are buying and selling the security — and what size orders they have at different prices. This information can help you gauge the volatility and direction of trading in the market, which can help you make more profitable trades. Most brokerage firms that specialize in day trading offer Level II quotes in most markets.

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TotalView quotes

TotalView quotes show all orders in the market for a given security, both attributed to market makers and anonymous. This information gives traders the most detailed information about what’s happening in the market. While all this detail may be overkill for some trading strategies, it’s vital to the success of most. You’ll have a better idea of how much information your trading strategies need after you test them.

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