No two investors are exactly alike. Some prefer to trade actively.
Others simply want to buy stocks and hold them for many years. Still
others rely heavily on options. Trading and investing attracts
sorts of people and each person has a unique approach to the market.
What type of investor are you?
Answering that question is an important first step when looking for a broker, or the one that meets your specific trading needs. After all, there are roughly 200 different brokers to choose from. Each is unique in terms of commissions, choices of investments, research, etc. So, given the myriad of brokers to choose from, finding the right one for you is in many ways a reflection of the type of investor you are:
1. The Active Options Trader: Are you a student of Optionetics? Do you know the difference between a straddle and a spread? Ever plant a leg? If you answered in the affirmative, chances are, you are an active options trader.
For the active options trader, low commissions and good fills are paramount to success. If you are looking for a broker that also offers options-related quotes, data, and research, you may become disgruntled in your search. Not many brokers due an adequate job of providing options information. Instead, most active option traders use brokers simply as a means of executing transactions and find options-related information on other sites.
The active options trader also wants a broker that is knowledgeable about option strategies and margin requirements. Specifically, the trader wants to be able to enter complex orders and have the broker work to get the best fills possible. In addition, given that some strategies include both the sale and purchase of options, the broker also needs to understand how to compute the appropriate margin levels.
In sum, the Active Option Traders ideal broker has:
Knowledge of options strategies
Ability to enter complex option orders online
Overall speed and execution
Reasonable commissions
Assess appropriate margin requirements
2. The Long-Term Investor: Are you a value investor? Do you still use book value to decide whether or not to buy a stock? Have you studied famed investors such as Ben Graham, Warren Buffet, and Peter Lynch? If so, you are probably a long-term investor.
The long-term investor is not interested in short-term fluctuations in the market, but is in pursuit of the world's greatest companies. This type of investor is research-focused. The idea is to find a premier company with a stock price at an attractive valuation and to profit from its success in years to come. After identifying a potential winner, this type of investor will buy the stock and hold it for several years. Or, in lieu of holding the stock, the long-term investor can buy long-term call options or LEAPS calls.
In fact, the Long-Term Equity Anticipation Securities (LEAPS) trader is one of the savvier types today. Rather than attempting to time the market and make short-term profits, the LEAPS investor generally looks for supreme companies and opportunities to profit from the long-term appreciation in their stock prices. In addition, by using LEAPS instead of stocks, it is possible to participate in the long-term appreciation in the stock price, and, at the same time, use more sophisticated strategies and leverage.
The long-term investor likes access to research, screening, and company profiles. Furthermore, since the time horizon is long-term, this type of investor often places trades within Individual Retirement Accounts (IRAs). Since some brokers do not allow options trading in an IRA, however, this poses a dilemma for the LEAPS trader. If this is your trading niche, you need to determine which brokers allow trading in an IRA.
Overall then, the long-term investor wants a broker who offers:
On-site information
High overall speed and execution
Low Fee IRAs that allow options trading
Assesses appropriate margin requirements
Reasonable commissions
3. Gunslinger: The Gunslinger takes risks, trades frequently, and will do anything to generate trading profits. Long or short, stocks or options, puts and calls, the gunslinger trades them all. The gunslinger is particularly interested in short-term movements in the stock market. Particularly, this type of investor likes momentum, or the tendency for stocks to climb and fall in clear trends.
The gunslinger lives by eighths and quarters. Therefore, this type of investor looks for a broker with the best execution and the lowest commissions. Many have turned to direct access firms. In contrast to traditional brokers, direct access firms take the trades directly to the market maker, ECN, or the exchange where the best price exists. Others use no frills, low cost brokers that focus on speedy execution.
Whether using direct access or brokers, the gunslinger is generally looking for:
High overall speed and execution
Low commissions
Real-time and level II quotes
Charting, news, and information
Knowledgeable margin department
4. Student (Beginner): People often hear friends and colleagues talk about spectacular profits generated in the stock market and want to join the fun. Some find their way to message boards where stock ideas and suggestions are abundant. Others rely on tips and hunches. And when many fail, it is not due to a lack of effort, but instead, a lack of reliable information.
On the web today, financial information is plentiful. Some brokers do an adequate job of providing educational resources for the new investor. In addition, there are a number of non-broker sites that offer information regarding the investing and financial markets. Unfortunately, while some financial sites provide objective and reliable educational material, many do not.
At Optionetics, the ultimate goal is to educate investors by empowering them through knowledge. And while other sites may call the beginning investor a "novice" or "beginner", we use "student." Why? Because Optionetics offers objective and reliable educational resources that can help you become a sophisticated investor. In other words, we want to help you learn the right way and avoid the pitfalls many beginning investors face. Our educational material is objective and not a source of advice, but of instruction. It is similar to that old saying, "if you give someone a fish, you feed them for a day, but if you teach the person to fish, you feed them for a lifetime".
The student investor wants a broker with:
Educational resources
Customer service (to answer questions)
User friendly site
Onsite information
High speed and reliable execution
The Tech Savvy: Wireless technology is changing the way people communicate. This includes accessing the web via cell phones and other handheld devices. Now, some brokers are offering wireless trading to customers.
While there are still bugs to be worked out, wireless trading does offer investors an alternative to PC and wired telephone broker access. For the tech savvy investor, it means more gadgets and gizmos to play with. However, only a few web-based brokers are offering wireless trading. In addition, due to the possibility of technical glitches, the tech investor needs a responsive customer service department and the ability to easily access a live broker by phone.
The tech savvy investor is looking for a broker that:
Offers wireless trading
Has responsive customer service (in case of problems)
Provides alerts, news, and quotes
Speed and execution
Low overall commissions
Just as there are a large number of brokers in existence today, there are different types of investors. What type of investor are you? Answering that question is an important first step in finding the broker that will meet your different needs. As we continue to develop and update the Online Broker section of the Optionetics.com site, brokers will be ranked and evaluated. This will include an overall ranking and a second rating by Type of Investor. By doing so, our goal is to help you, regardless of your investment approach, find the broker that best meets your needs. |
