Questions to Ask Prospective Daytrading Brokers Before Opening an Account
1) How long have they been in business? (Should be 2 year minimum)
2) How many customer service reps do they have and on average, how long have they been with the company? (Preferably, their employees should average 1+ years with the firm. Frequent employee turnover is not a good sign.)
3) Do they have direct access to SNET, SOES and ECN's? (They should have access to all three, however, for longer term swing trading, a payment-for-order-flow broker, i.e. E-Trade, Ameritrade, might be OK)
4) Which ECN's can you place orders on? (All of them should have access to ISLD, direct access to INCA is a plus, ARCA and REDI are also be nice... Note: all direct access brokers will be able to SNET preference any ECN, this is not the same as having a direct connect to the ECN, which can be determined by whether you can post limit orders on the ECN book.) Also, what are their ECN fees for each ECN? (This can be especially important if you plan to do significant after hours trading)
5) Do they offer any intelligent order routing capabilities? (Such as the ARCA order routing system with MB Trading, or the one offered by Cybertrader. Having this sort of feature is not a requirement, but can help you be more effective at times)
6) What are their minimum account size? (Most will open accounts will $10k minimum, this might not be a bad size for learning, but insufficient to make a living. Initially, however, the goal is only to survive and maybe break even or minimize losses)
7) What are their commission rates? Do they offer reduced commission rates for the first few months, i.e. during the learning curve? (Most daytrading firms charge between $20 - 25 per ticket, with volume discounts down to as little as $14/ticket for active traders making ~600+ tickets/month. Commission rates should not, however, be the primary criteria for choosing a broker.)
8) Do they have a traders interface or website where traders can see their account balance, open positions and executed transactions posted as they occur? (Most firms have this, although this is a frustration I have with a small AllTech account. Maybe they have this feature and I just haven't found it. It is very reassuring to have a place to double check that you are 'flat' at the end of the day)
9) How is the reliability of their trading software? (This is key, and you can bet that everyone will tell you their system is very reliable. But don't take their word for it. Find out if they have an SI thread and do some research there. Otherwise, post a question about them on this thread to get feedback. Or, ask for references to contact several of their current traders and get the real scoop from them. This is a key area and must be carefully understood.)
10) What are their hours for trading? Almost all daytrading firms will be open for premarket trading when SNET opens at 9:00 NY time. In addition, most will be open until 4:15 or 4:30 PM for a little post market trading. Some firms will have even further extended after hours trading. At Castle Securities, for example, I can place ISLD orders as early as 8:40 AM or as late as ~4:45 PM.)
11) How capable/available are their trading desk folks during the day? I.e. Do they answer the phone and immediately put you on hold? Are they new to the business and basically don't have a clue? Call their trading desk after the close and ask them several questions to assess whether they know their stuff.
12) How many stocks are on their short list? (Get a copy of their current list. If you are planning on doing any shorting, this can be a very important element in making your decision)
13) And finally, ask them why you should open an account with them? What makes them the best place to trade? (If they can't give you a good answer to this question, then they probably are not the firm you want to use. Also, hopefully they will know what their strengths and weaknesses are. Make sure you understand them. Essentially, you are interviewing them to be your trading partner. Make sure they are the best ones for the job)
This is an important topic and should be covered in more detail. Perhaps people could add some of the important questions that I overlooked and I will update this post to include them for the thread summary. Obviously, finding the right broker is a very important decision for every trader and must not be taken lightly.
-Eric |
