What To Consider When Looking For A Broker

After a few hopeful weeks of solid trading, momentum in September has slowed to a crawl. In fact, the market was so unattractive last Friday that I ended up taking the day off and enjoying a nice three-day weekend.

While I’m not thrilled that the stocks have cooled, I’m at least happy I was able to keep my losses small and step back before I traded myself into a hole. 

Although my trading account has been pretty sleepy over the past week, traders with a SureTrader account have seen their accounts suspended completely due to a five-day investigation by the Securities Commission of The Bahamas. 

I spoke briefly about this abrupt announcement during Thursday’s market recap, but I’ve gotten a lot of questions from Warrior Trading students asking me to shed light on what’s going on and why. I, unfortunately, don’t have any more insight on the situation than anyone else.

However, while I don’t have any information about the SureTrader situation specifically, I can go over some basic information every trader should consider when opening an account with a brokerage. Of course, you can always refer to some of the resources at Warrior Trading, like our 2019 best online broker list, if you’re looking to open a new trading account.

Look Beyond Commission Fees

One of the first things most traders look at when scoping out a broker is how much commission they charge per-trade since commission fees are usually the biggest expense among active day traders.

However, while finding a place with a reasonable commission can be a huge benefit to your bottom line, you may also be better off paying a slightly higher commission depending on what kind of trader you are. For example, a broker might have a higher commission because it’s able to deliver better speed and execution on your trades. On the other hand, a broker with a low commission might charge an inactivity fee, which can cause its own problems if you don’t plan on trading frequently.

Know Your Margin 

Of course if you do plan on actively trading, being aware of a broker’s margin requirement (the minimum dollar amount you need in order to borrow from the broker) and margin rate (the interest on any amount you do borrow) are essential aspects to understand if you plan on using leverage in your trades to increase buying power.

One of the reasons why offshore brokers like SureTrader are so popular is that they are able to circumvent some of the regulations that govern U.S. brokers margin requirements, specifically the 50% capital requirement outlined in the SEC Regulation T. Although this means that offshore brokers can substantially increase a trader’s leverage, that leverage can also substantially increases the risk of loss and open up the potential for a margin call.

Understand Your Own Trading

Most of all, traders should weigh the pros and cons of any broker against what kind of accounts they plan on opening and what kind of trades they plan on making. While advanced traders might know exactly what they’re looking for, newer traders might want to test their abilities on simulated trading. After getting a feel for how to approach the market, traders should check out the specific features I appreciate in some of my favorite online brokers.

Warrior Trading is a content partner of Benzinga.