Stock Brokers

There are so many stock brokers it can be hard to decide. Here is a snapshot comparison of some of the top online discount brokers to simplify the process. Below the table is a link to the various brokers (and their respective platforms) for further details. 

  1. Commission paid on either a buy or sell order. Therefore in order to close a position and realize your gain/loss total commission is the listed amount x2. 
  2. This is the minimum amount you must fund in order to open an account
  3. Direct Market Access - Allows one to execute trades faster and with lower costs. The trade goes directly to the exchange and there is less chance of errors.
  4. Each broker offers the use of specific online trading platforms.
  5. This refers to research reports and industry analysis provided by the broker.
  6. Level 2 provides a  more indepth view of the market showing all bids and ask offers for a stock. 
  7. Paper trading refers to an account in which you perform trades with fake money. Also known as a practice account.

Online Broker

Trading Platform

Interactive Brokers

Tradestation

Questrade

MB Trading

Think or Swim

OptionsXpress

TWS

TradeStation Platform

IQ Edge

MBT, MetaTrader4

thinkDesktop

OptionsXpress Platform

Commissions

Over the years stock broker commissions have reduced significantly once smaller players started coming in adding competition to the big institutional market makers. 

The table above provides an overview of the prices charged. However, depending on the stock broker, commissions will either be a flat price or can vary based on the volume of common shares you trade.

Therefore if you would like further details, please click on the stock broker name for specific information as to their pricing. 

Online Trading Platform

Each broker offers a certain trading platform. Usually it will be their proprietary system such as "Think or Swim" by TD Ameritrade. However, many offer the ability of using third party online trading systems.

See the trading platform details to verify if the broker you choose also supports the platform you want.

Account Minimum

Typical account minimums for stock brokers is $1,000. Certain brokers want to attract more savvy investors and thus set their minimums higher. They do not want beginner or amateur traders with very little capital to trade. Interactive Brokers and Tradestation are such brokers for example. 

If you plan on day trading (executing trades on a single stock multiple times a day), you must be aware of and know the "Pattern Day Trading" rule. This rule is imposed by FINRA - an independent US regulator for brokers doing business in the United States.

According to the rule, you need at least $25,000 USD in capital in your account in order to day trade, otherwise your account will be blocked. 

Once your account is labelled as a pattern day trading account, it stays in that category permanently. Also, some brokers will require you to have account minimums higher than $25,000 USD (my assumption is that they want you to have a buffer so if account dips its still above $25k and they will have no regulatory issues).

Stock Broker Research Reports

Pretty much all stock brokers offer research reports nowadays in order to compete on the market with the others. 

These research reports are written by sell side analysts at financial institutions that want institutional/retail clients to purchase the stocks. These same financial institutions all have financial interests tied in selling you the stock and these reports are all biased to advise the public the stock is a "buy" (very few will ever state "sell" even if the stock isn't a good buy - usually they will just say "Hold" in these cases).

Let me provide a quick example for context...

ABC Bank has an equity research department which follows company "Mediocre Inc." and writes research reports on it. ABC Bank also has another department engaged in a potential deal with Mediocre Inc. in which it will help it raise capital through an equity or debt offering. ABC Bank stands to make a good amount of money from this offering. Therefore, it will be very hesitant to also release a report that tells clients to "sell" the stock as it could lose business for this offering and any potential future deals - that is to say Mediocre Inc. will not be pleased with the research report released to the public and will take its business to another bank that write favorably about them.  

Legally, the investment banking division that deals with the offering and the equity research division are not allowed to communicate nor be influenced by any such deals. Research reports will always have a disclaimer stating whether they are in a deal with the company so that the public is aware. Nevertheless, just from empirical observation you can see a vast majority of reports with a "buy" bias. 

My advice to you:
If you would like, read the research reports as they provide a lot of information about the company. You might discover new things which can help with the investment decision making process. HOWEVER, deduce your own conclusion based on the facts presented and do not rely on the research report recommendation of buy, hold or sell. Research has shown these recommendations are right half the time at best. 

Level 2 Quotes

Level II provides detailed information of all the orders on a particular stock. It can help you in determining the price action of the stock in the near term - it is typically used by day traders. You can find out how to use this to your advantage by clicking here...

Typically every broker by default provides you Level I quotes. Essentially it will look something like this:

INSERT IMAGE. 

Level II quotes provide the same information but with greater depth of the market. You not only see the current best bid and offer, you also see the list of ranked orders underneath for the next best bids/offers. 

Paper Trading

Paper Trading Advice

Paper Trade Do's:

  • Use it to learn your platform features
  • Experiment with new asset classes 
  • Experiment with new trade strategies

Paper Trade Dont's:

  • Think you can seamlessly translate your awesome paper trading skills into live market trading 

Most brokers nowadays also provide the service of paper trading. After you set up an account with them, you can also create a paper trading account which uses fake money.

You start off for example with $100,000 and can do exactly what is available on the live platform. This is a great tool to use for getting to know the trading platform. There are so many features, tools, functions that it may be overwhelming to just start trading without knowing the full capabilities of your trading system. 

You should try out buying different securities/asset types to develop a sense of price movement/speed. For example, buy a futures contract to see how price action affects your profits on a tick basis

Another tip is to practice trade set ups or learn trade strategies. For instance, try executing a multi-leg option trade strategy and watch how stock prices affect your profit and loss (perhaps reading about an iron condor won't teach you as much as actually doing the trade and seeing how it's affected by daily price swings). 

Caution

Although may online brokers advertise the use of paper trading to increase your skills in stock selection, I find that this does not work particularly well. Even if you are consistently making money paper trading - don't expect this when going live.  Once real money is on the line, people's emotions cause them to trade differently and most of the time to their detriment. 

Another big factor with paper trading is getting fills. Paper trade accounts don't simulate the real world accurately and often automatically fill your limit orders with immense ease. Let me tell you though, in the real world, many times you won't get filled at the price you want (now altering your reward/risk on the trade) and sometimes you might not get filled at all! Meaning you miss out on profits (that you would have had if you were paper trading). 


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