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Have you completed lesson 10’s action steps?
If not, complete those steps before reading on.
Selecting Your Broker
At this point you should have a fully tested system ready to
trade. The last piece in the puzzle is to select your broker.
Most markets require that all traders must place their trades
through a broker. Fortunately this choice is easy… there really
are only 2 types of brokers: the full service broker and the
discount broker.
A full service broker offers advice to their clients for which
a premium is charged. Given previous discussions on the importance
of decision-making, you should recognize this service as being
unnecessary. If you are following your trading system, such
advice will only serve to confuse your decision-making processes.
Then there is discount brokers… these firms allow you to make
all the decisions about how to trade your account. You only
need to call, place an order and the firm will execute it. Discount
brokers’ do not offer advice to their clients; hence there is
no need for them to employ research staff. This reduces their
overheads and makes it possible to offer discounted rates.
How do you spot a “good” broker?
First off, the key word is “good.” In this case, it means good
for you, your trading style, your personality, and your needs.
I recommend that my clients open an account with an online discount
broker. That said, the brokers you will ultimate choose will
vary depending on where you live and what market you decide
to trade in.
Here are some questions you should consider when choosing your
broker:
1. What are the real commission rates?
Advertised rates for companies vary between $0 to $40 per trade;
the average rate is around $20. However, look closely at what
the company's advertised rate really applies to. In the majority
of cases there will be higher brokerage for limit orders, options
and those using a 'live' broker on the phone. You may find that
the advertised commission rate may hardly ever apply to the
types of trade you do.
2. Are there any extra fees?
Many companies charge extra 'hidden' fees which can add significant
costs to each trade. Charges to be aware of include those for
transferring funds (both in and out of your account), insurance,
administration charges, late payment penalties and more. You
really need to look at the company's fine print or e-mail them
for more details.
3. Can you trade multiple markets, and are the commissions the
same?
As your trading progresses, and you decide to experiment with
new markets, it’s easier to stick with the broker you have come
to know and trust. Therefore, you really should plan ahead and
choose a broker than can service your needs as you grow.
4. Does it cost extra to make a trade by phone?
In addition to other charges most firms have higher rates if
you want to place a trade over the phone, using a 'live' broker.
You may be forced to use this if their connection is unreliable,
so be sure to chose wisely.
5. Will they pay you interest on the balance of uninvested cash
in your account?
Some pay in the range of 3-4%. A nice little bonus!
6. Do you need to start with a large deposit?
Beware high minimum balances required to open an account. While
some companies have good rates, you may need $10,000 to start.
It’s a lot of money to 'punt' on a company you haven't tried
before.
7. How reliable is service?
Speed and reliability of online trading is a major problem.
I know of one client with a major online discount broker who
watched as his account dropped by $50,000 because a system fault
at their end meant he couldn't log on for a whole morning! You
must know about the quality of service of the broker before
you start - speed and reliability of access, their software,
and so on or it will cost you money at some point.
If you’re still not sure where to start when choosing a broker,
I have setup a search engine designed specifically to help you
find one.
Click Here to go to Broker Search - The Worlds 1st Broker Search
Engine.
Here’s how it works, simply enter "discount broker" followed
by your market and then click search. For example, for a commodities
broker enter "discount broker commodities" and then click search.
Once the results come up, select from the best brokers worldwide.
It’s that easy!
You may have to do some research here, but once you have found
an appropriate broker, open an account and then you can start
trading. In the space below write down which broker you will
use:
Let’s get your broker right.
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