Monday, August 09, 2010

Trade Wiser

The difference between profit and loss during a typical trading year sometimes comes down to trading costs. Costs come in two forms: commissions and the bid-ask spread. When I first started trading in 1970 commissions for all but the biggest accounts were at killing levels. But as competition hit Wall Street in the 1970's and in the 1980's commission levels began dropping to the levels seen today - only a few percent of the standard commission in 1960.

One great boon to the small trader and investor has been the growth of the electronic brokerage industry. I only started trading electronically about 6 years ago and I love it. Commissions are low since you are paying only for execution, not for advice. Bid-ask spreads have narrowed a lot because of the great volume of trading that electronic trade matching permits. Best of all, if you do a little shopping and price comparison online you can figure out which e-broker offers the best deal for your own type of trading - options, stocks, forex, etc.

Recently I was doing some comparison shopping and came across a new site, TradeWiser. TradeWiser lets you compare the deals offered by about 20 electronic brokers (including E*Trade, TD-Ameritrade, Trade Station Securities, Interactive Brokers, Fidelity). The comparisons are for stock, option, and forex trading. (Sadly, TradeWiser does not evaluate futures brokers, but they assure me that this capability is in the works.)

What kind of comparisons can you make on TradeWiser?

The most straightforward ones are the head-to-head comparisons. Pick any two of the 2o electronic brokers on their list. As I am writing this I clicked on the Scottrade vs E*Trade comparison and this is what come up:

You can also look at the electronic broker rankings for selected criteria: commission levels, trading platforms, customer service, options trading, reviews, to name some.

A third feature is the capability for estimating the yearly commission costs you would pay at any of these 20 firms base on the types and sizes of the trades you make. This is a much more detailed commission comparison than the superficial information appearing in the head-to-head comparison shown above.

Finally, Tradewiser offers discount deals negotiated with some of the 20 brokers which may be better than you could do on your own. (Caveat- I haven't investigated these deals on my own so I don't know just how much they might save you. Still, they seem worth a look.)

Due diligence is very important in selecting a broker, so I always seek as many opinions and facts as I can find. For this reason TradeWiser is a valuable addition to the trader's toolkit. The site will give him information that will help keep trading costs low. Many of you have asked me about my own brokerage arrangements. I prefer to keep these confidential. But I will say this. I choose my brokers by doing online comparison shopping of the sort that TradeWiser has just made a lot easier.


catherine said...

Outside of the US, everyone can use spreadbet accounts which are far better than anything on offer in the US. (essentially cash for difference but with no tax liability)
No commissions.
No stamp tax or transaction taxes.
£1000 starting capital only required.
2 pip spreads in eur usd. 4-5 on dow.
24 hour trading.
Tax free gains on spreadbetting in the UK and a number of other countries.
I know spreadbetting is available accross most of Europe, UK, Aus.

Nav said...

As far stocks trading in cfd account is ,I was paying very high commission and taxes to Barclays & e-trades from Uk and Europe. Since I started trading in futures,I got account w/American brokerage and found so cheap.. seems to me all free against trading through Barclays and other locals.
Thanks all for sharing.

Win said...

Thanks, Carl.

I have used Scottrade, Interactive Brokers and Thinkorswim.

Scottrade was unweildy and didn't allow futures trading or selling uncovered calls or puts, so now I only use them for an IRA.

IB was cheap, but I didn't like the customer service.

Thinkorswim is not as cheap as IB, but I like their platform and customer service, and Prophet charts. I have a main trading account with them, and will probably be moving a second account there as well.

MA said...

Thanks Carl for taking the time and trouble on ths. Really appreciate your help and all you do on the blog.