How To Evaluate Your Broker
Most large discount brokers your order is routed to one of the largest market makers in the country to be executed along with 100,000's of orders from other firms.
NASDAQ Order handling rules protect you under normal conditions, but if it is at the open, after a halt or is an IPO the market maker has TOTAL discretion as to when he executes the order. Typically the market maker will not execute limit orders until he has completed all executing all market orders. Then end result being that you either get:
1) A terrible fill in a volatile market if you have placed a MARKET ORDER.
or,
2) No fill until many minutes or even hours after you have entered your order with your broker if you entered a LIMIT ORDER. Sometimes brokers will not confirm if you have a fill or not for days in peak volume periods!
Read the 98-78 bulletin "NASD Clarifies Operation Of The Limit Order Protection Rule During Unusual Market Conditions" to understand how your broker is protected from taking reponsibilty for bad execution at the open,IPO's and after halts:
nasdr.com
How do I evaluate my broker?
Make sure know what you want from your broker. Good/fast executions, immediate confirmations, reliable data and software, great client service, competitive fees, good website, excellent reporting, good short list, and access to all execution systems. Make sure the broker is reputable and has a good capital base behind it.
There are two basic kinds of brokers:
Brokers who receive orders by direct order entry software and/or those which receive orders via phone.
Brokers Offering Direct Order Entry Software
Make sure you know your needs before looking at these brokers. They are meant specifically for active traders who are knowledgeable about the ins and outs of trading.Currently Real Tick III dominates the landscape and is very flexible and is offered by many firms including MB Trading,JPR Capital, etc. Also CyberTrader which is offered by CyberBroker and some other firms is widely used.
A step below this are the browser based systems such as those offered by Datek,Etrade,Web Street,Waterhouse,Discover, etc. Unfortunately these systems have failed to be reliable during peak market hours and combined with current NASDAQ Order Handling Rules make them useless for short term trading or any other trading for that matter.
Phone Based Brokers
Using the phone eliminates the worry of reliability of direct order entry and allows you to concentrate on the market and is probably most suitable for the majority of people. The key issue here is the quality of execution you receive and how efficient the firm is at answering the phone and transmitting orders. Phone based brokers should answer your calls within 2 rings and NEVER put you on hold for longer than 1 minute. Phone based brokers should have multiple execution systems available to them and should not be routing all of their NASDAQ orders to ther market makers for execution(sometimes refered to as payment for order flow)
There are very few quality phone based firms around so look hard. Yamner Inc. is one.
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Where do I find a list of brokers who meet the criteria you suggest to evaluate my broker?:
The Final Frontier Links
Subject 20613
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