Discount Brokers Provide A Huge Safety Net
We live in quite a transparent world now. We don’t have to worry about crooked brokers selling us a stock that is dollars away from the actual price. We also have a choice on whether to execute the trade based on the current bid/ask spread.
Competition for customer accounts has led to a boom in discount brokers. However, as my role of trade coach and trading consultant,I’m surprised that many traders don’t take advantage of this.
I currently trade through Interactive Brokers which allows me to trade for .005/share. With a 1,000 share lot that is only $5.00 per side. Higher priced stocks that I might trade 500 shares of would cost me only $2.50 a side or five bucks per round trip. Interactive Brokers is just one of the many discount brokers available. Check out my critique for IB under the SharePlanner review section.
There are plenty of other reasons to choose or not to choose a broker. However, cost of commissions and execution efficiency should be the top of your list.
The best suggestion I can give other traders who think they may be paying too much is to negotiate.
Just like at your cable company or the local car dealer, there is always wiggle room. Let them know that XYZ broker offers A, B, and C along with a huge bonus for setting up an account with them. After hearing this, your rep is likely to offer you a better rate than what you are getting. Remember that the worst they can say is no!
Let’s use a basic example of two day traders who trade 6 times a day, or 12 total transactions with a trade size of 500 shares. One trader uses a discount broker at the rate mentioned above, half a penny per share. The other uses a fixed rate broker who wants to emphasize customer service and web presence. I have seen traditional brokers charge anywhere from $9.99 to $12.99. For this example, we will give them the benefit of the doubt and use $8 per transaction.
Discount Broker: $30/day $150/week $7,650/year (51 weeks)
Old school Broker: $96/day $480/week $24,480/year (51 weeks)
These numbers don’t lie about the potential savings you could experience. If you are in a situation where you think you could get a better rate, don’t delay and stop being lazy! I once talked to a client that was paying $7 dollars a trade and wanted to switch to IB. When they found out that had to wait for a security card in the mail, he immediately dismissed the idea. This is just stupidity, we are talking about thousands of dollars! Who cares if you have to wait a few days for a security card! Be smart traders; pad your pockets and treat your trading like a business, cutting costs where you can.