Before Beginning?
When selecting a broker the first thing you should consider is your needs. For example, if you never traded before you will need someone to answer questions concerning order placement, tick value, and margin requirements.
If you have some experience, you will?
After considering what it is that you want from your broker, you can begin the search for the one who suits you best. A good place to start when searching is in discount brokerage firms. Each firm is different when it comes to assistance from a self-directed order desk, broker assisted, or a full service broker, which is typical for a discount brokerage firm.
Whether you are a beginner or a little more advanced, it is in your best interest to look for a firm where help is provided on the self-directed desk.
What Makes A Good Broker
1) A broker with trading experience
First of all, the best brokers are the ones who have the experience in trading necessary to gain the knowledge that makes them excellent. Questioning your potential broker's experience is a point worth noting, for, some brokers have experience in the business as a clerk or another position, but not necessarily as a trader. However, since trading is an art that requires much skill and patience to master the best brokers are the ones who have a background in trading. Traders have the best chance to convey the art of trading to you, to be the overseer, the person who knows the best strategy based on your thoughts, your ideas, and your time frame.
2) One you can trust.
When you find a broker you can trust, and that should take a few months to feel, you can listen to their trade ideas and tell them what trades YOU want to do if any at all. Also, you can "paper trade" with their recommendations to see if their style is comfortable, and looks profitable. The point of opening an individual account is, so you can trade YOUR thoughts and if you want, have a broker ASSIST you, getting help in doing so.
If you find that your broker persists in trying to talk you into something else or more contracts than what you want, this is a strong indication that he is after the commissions. I hope you also know about people who will play on your greed. "Do more, you can make more $$", but in reality, the ethical broker knows about money management and risk. The other kind knows about commissions.
3) One who wants to help you learn
If you know how to trade and what option strategy to use, you can limit losses when wrong, and with the right strategy, you can even make money being partially wrong. On the flip side, you can be right the market and lose money with the wrong strategy using options. This process requires market knowledge and skill that only an experienced broker can provide. Yet, in order to put this knowledge into action that can work for you, it is imperative that your broker concerns himself with your thoughts, ideas, and time frame.
Remember, not all brokers are equal in skill or ethics. Unfortunately, many are script readers.
A Note on Commission Rates
Most firms will tell you to start with a broker who will assist you for a higher commission. This is well worth the money if you find a reputable and experienced broker. When it comes to options, it is hard to find a broker that KNOWS what the best strategy to use for the idea being traded. Most brokers know the strategies used, but in my opinion are limited on how to use them wisely. Also, you should be weary of paying too high a commission.
Common commissions charged for a broker who assists you, average $30 to $70 per contract round turn (in and out) and the same for an option, but charged on the way in. Much depends on the size of the account, and how many contracts are traded every month. Commissions above $70 should be questioned why they deserve to collect such a high rate.
Do not fall into the shark tank, because if your broker is a shark, he will chew you up, and spit out the bones.
One Last Thing?
I believe it only makes sense to take things slowly, considering the markets will be here after we are dead. (Hopefully not for a long time unless this technological society kills us first).
Howard Tyllas copyrighted 6/2/07
Futures trading involves the substantial risk of loss and may not be suitable for all investors. Past performance does not mean future results. |
