Broker Issues
Your choice of a broker will depend to some extent on what you have decided to trade. There are many brokers out there who will allow you trading on the stock market, and you can also find brokers for currencies, spread betting, CFDs and anything else that I’ve taught you about.
You should select your broker on several issues. Your dad probably used a full service broker, who is just that – someone who gives a variety of services, including advice on what stocks to buy. With your education, you don’t need his advice. When you put trading in the hands of your broker, there is always the question of whether he will overtrade for you, just so that he can get more commissions – I’m not saying that they all do that, but some may succumb to temptaion.
You don’t need to pay the inevitably higher fees that the full service bro-ker must ask for. Generally, such a broker offers far more than you need – he may have some information in his field of expertise that you weren’t aware of, however I think you should avoid this extra expense.
The main alternative would be called a discount broker. He is just that – a broker that offers a discount on the traditional commissions, and costs you less. He will offer exactly the same as the full service broker when it comes to dealing shares, but he won’t be available for any advice. That should suit you fine, as you will be making the se-lections. You can do a search online for brokers, and you’ll turn up quite a few. Generally, you can trade through their website online, or you can phone them and give your or-ders.
The only thing to watch is how quickly they place your orders – some-times they may be a little understaffed, for economy. If you are only trading end of day, this is probably not an issue for you.
By the way, don’t confuse using a discount broker with not being able to get any information. Many of these online services can give you every sort of chart that you would need on all the stocks that they deal in, including all the common indicators. Certainly, you can find brokers that give you all the information that I am telling you to use to select your trades, including candlestick charts for different timeframes, RSI and other indicators, etc.
There is another type of broker that you may run across –this is the di-rect-access broker. It depends what sort of trading you want to do. If you have a life, then the discount broker should provide you with all you need. If you want to get into the hectic world of real time trades, then consider direct-access. This involves downloading the bro-ker’s software to your PC, and of course a high speed connection to the Internet is manda-tory. You can even see everyone who is on the exchange at any time, and what their bid and ask prices are.
You can get an abundance of raw data from this connection. You can see actual trades as they happen, get the bid and ask from all the different market makers, see the trading volume, and get virtually every other statistic you can think of, depending on the brokers software. As you develop your style, this information can work for you, but I certainly wouldn’t advise you doing this at the start.
Incidentally, this is one of the reasons why you will hear some people saying that you should never put your stops on the market. Because traders with this facil-ity can tell at what level you would sell your shares, they can snap them up even if the general trend is upwards. Certainly, there is scope for an unscrupulous broker to play with your orders and scalp some extra profit for himself. However, if you stick with the big bro-kers, the number of staff and the volume of transactions probably mean that they haven’t the time to do more than follow your orders.
Another reason given by some advisers, particularly for the fluctuating U.S. markets, is that there is so much variation during the day, you may get stopped out just by fluctuations, even though each day the trend is upwards. These people advise that you only go by end-of-day figures, and place your orders overnight on the basis of those prices, including placing sell orders if your stops are reached. You should consider how close your stops need to be to keep your potential losses down, and if a daily fluctuation would work, then you could use this method to be sure.
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