Trading Services You Should Consider When Choosing a Broker
As a trader, you can’t choose your broker purely on the basis of price. You need to know what types of services are offered to enable you to make the types of trades you want to make. When researching brokers, check out the types of orders supported, whether they can offer you a data feed, what types of charts they provide, and whether they can give you ECN access.
Types of orders supported
Not all brokers provide stop orders for OTC and Nasdaq trades. The Nasdaq has no facility for handling stop orders, so the broker must monitor your stop prices and enter either market or limit orders if your price is triggered. Although monitoring stop prices usually is done automatically, not all brokers offer the service.
If you know you’ll be using stops with many of your trades, you need to find a broker who provides those services. Some discount brokers provide those services if you’re willing to pay for them.
As such, you also need to compare not only prices for those services but also the respective brokers’ reputations for effectively and efficiently providing those services. If you want to place contingent orders, you may discover that few discount brokers offer that service even for a price.
You definitely need to steer clear of brokers who accept payment for order flow, a practice in which some exchanges or market makers pay brokerage firms for routing orders to them. Firms can make a penny or more per share, but the SEC requires the firm to inform you whether it receives payment for order flow when you first open an account and thereafter on an annual basis.
Each time a firm receives a payment for order flow, it must disclose that information on the trade confirmation. If you see an indication on one of your trades that your broker received this type of payment, you have the right to request notification in writing about the transaction source and type of payment. These payments may encourage unethical brokers to steer orders toward the market maker offering such payments.
The type of data to which you want to have access is crucial. Most brokers provide basic stock quotes, usually in real time, and some may even offer market data providing a much deeper look at the market that includes not only current sales information but also previous sales information.
If you want access to a higher level of data, you need to be certain that you open your brokerage account with a firm that provides the level of data that you need, or you may buy it from a third party. Again, pricing for differing data feeds can vary among brokerage firms.
Firms that offer you ways of getting this data feed through your home computer (as opposed to accessing it from their servers) charge more, but you’ll receive the information quicker. The faster your Internet connection, the more quickly and reliably you receive this information. Data feeds may also include critical tools such as stock screeners, option analytics, rating service information, and news feeds.
Data fed into your home computer is raw stock-market data. How this information is formatted on your computer and the charts you’re able to build from it are dependent on the software that’s provided by your broker. Charting software can be critical to your ability to make trading decisions.
Your broker may charge you to use the software but usually discounts or waives the fee based on the size of your portfolio or your volume of trading activity. And many free charting alternatives are available online, including StockCharts.com.
If direct access to stock exchanges and market makers is important to you, then you need to find a broker that provides ECN access. You don’t have to open an account through a direct-access broker; some discount brokers do provide ECN access.